[pib] Concessional Financing Scheme (CFS) to support Indian Entities bidding for strategically important infrastructure projects abroad

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Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level:  Particulars of CFS

Mains level: Facilitating Indian defence manufacturers abroad


News

Context

The Union Cabinet has approved the first extension of Concessional Financing Scheme (CFS) to support Indian Entities bidding for strategically important infrastructure projects abroad.

Concessional Financing Scheme (CFS)

  1. The scheme envisages GoI to provide counter guarantee and interest equalization of 2 % to EXIM Bank to offer concessional finance to any foreign Govt. or foreign Govt. owned or controlled entity if any Indian entity, succeeds in getting contract for the execution of a project.
  2. Under the Scheme, EXIM Bank extends credit at a rate not exceeding LIBOR (avg. of six months) + 100 bps. The repayment of the loan is guaranteed by the foreign govt.
  3. Under the CFS, the GoI supports Indian Entities bidding for strategically important infrastructure projects abroad since 2015-16.
  4. Since the objectives of the Scheme continue to be relevant, it is proposed to extend the Scheme for another five years from 2018 to 2023.

Major Impact

  1. Earlier, Indian entities were not able to bid for large projects abroad since the cost of financing was very high for them.
  2. Bidders from other countries such as China, Japan, Europe and US were able to provide credit at superior terms, i.e., lower interest rate and longer tenures which works to the advantage of bidders from those countries.
  3. Also, by having projects of strategic interest to India executed by Indian entities, the CFS enables India to generate substantial backward linkage induced jobs, demand for material and machinery in India and also a lot of goodwill for India.

Implementation Strategy and Targets

  1. Under the Scheme, MEA selects the specific projects keeping in view strategic interest of India and sends the same to Department of Economic Affairs (DEA).
  2. The strategic importance of a project to deserve financing under this Scheme, is decided, on a case to case basis, by a Committee chaired by Secretary, DEA.
  3. The Deputy National Security Adviser is also a member of this Committee.
  4. Once approved by the Committee, DEA issues a formal letter to EXIM Bank conveying approval for financing of the project under CFS.
Defence Sector – DPP, Missions, Schemes, Security Forces, etc.
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