India parleys with new Bangladesh regime to protect projects worth up to $8 billion

Hectic parleys are on between India and Bangladesh to protect the former's projects in the neighbouring country worth up to $8 billion in credit lines. India is increasingly concerned about the fate of its loans and grants allocated for various development initiatives in Bangladesh. The uncertainty stems from the change in government following the removal of Prime Minister Sheikh Hasina, raising doubts about whether the new administration will honor the existing sovereign guarantees.

New Delhi is making efforts to ensure that both the current interim government in Bangladesh and the administration that will take over after the forthcoming elections uphold the commitments to the development projects funded by India. The grants provided through credit lines and grants could face significant risks if these commitments are not maintained. As reported earlier, a source familiar with the matter, the Lines of Credit (LOC) extended by India are secured by sovereign guarantees, and if they are rejected, India could be forced to write them off, resulting in a substantial economic loss.

Over the past eight years, India has extended three LOCs to Bangladesh, amounting to $8 billion, along with additional grant assistance for infrastructure projects in sectors such as roads, railways, irrigation, shipping, and ports, according to a note from the Ministry of External Affairs. However, many of these projects and LOCs have faced criticism from opposition parties and others in Bangladesh, who have raised concerns about alleged corruption, the source noted.

The situation has been further complicated by India's ongoing protection of Hasina, who sought refuge in India on August 5 after anti-government protesters targeted her residence. Reports indicate that Hasina has not received positive responses from any European countries where she sought asylum. If the new government in Bangladesh decides to pursue legal action against her for murder charges and requests her extradition from India, the situation could become even more challenging, according to the source.

In the past month, Bangladesh has experienced significant student protests against Hasina, leading to her ouster. This was followed by further political and communal unrest, although the situation has begun to stabilize under the interim government led by Nobel laureate Muhammad Yunus. However, uncertainty continues to loom over India-Bangladesh relations.

The shadow of doubt not only hangs over the development projects funded by Indian credit and grants but also extends to payments owed to Indian oil companies that have supplied oil to Bangladesh. According to the source, Bangladesh has struggled to pay its foreign oil suppliers, including those from India, due to its foreign exchange crisis. Indian suppliers now find themselves in a precarious position, uncertain of when they will receive their due payments.

Earlier this year, Bangladesh requested a $2 billion loan from India to help settle its oil dues, but the deal never materialized, the source added. "Had India agreed to the $2 billion loan, the financial risk would have been even greater," the source said.