Purpose of Government-Supported LOCs

The Government of India promotes LOCs as part of its development partnership strategy, known as the Indian Development and Economic Assistance Scheme (IDEAS). These concessional credits are designed to finance economic and infrastructure projects in partner countries, create socio-economic benefits abroad, strengthen trade in goods and services, and support capacity building.

The Ministry of External Affairs (MEA), through its Development Partnership Administration (DPA), manages India’s development assistance, including LOCs. These credits help Indian companies undertake large and complex projects overseas. The typical project cycle includes identification, proposal review, approval, execution of the credit agreement, implementation, and post-completion impact assessment.

Benefits and Features of LOCs

LOCs are intended to:

• Promote development cooperation with partner countries.
• Support Indian export growth and generate employment.
• Create a multiplier effect on economic growth.
• Broaden bilateral and multilateral partnerships.

Under these credits, a large portion of contract value for financed projects (generally at least 75%) must be sourced from India. These loans can cover a major part of contract costs on standard international terms, and concessional LOCs are often exempt from taxes and duties in the recipient country.

Process Flow

LOCs follow a set of standard procedures which involve Identification/Selection of Projects, Bidding & Procurement Process, Tendering, Award/ Approval of Contracts, Disbursement Implementation & Monitoring, Project Completion and Repayment.

The project activities commence with the preparation of the Detailed Project Report, and includes prequalification of Indian entities, selection of the Indian Contractors, coverageof individual contracts under the LOC, implementation of the project and socio-economic impact assessment after the project completion. The whole process forms the project cycle and serves as a feedback mechanism for future projects under the LOCs.

LOCs sanctioned by State Bank of India

• Mauritius- Pipeline Replacement Project