India pays penalty for not utilising loans from lending agencies
22 Jun 2009, 0415 hrs IST, Pradeep Thakur, TNN
NEW DELHI: While India is negotiating more loans from the World Bank to fund infrastructure development and to upgrade urban transport, an internal assessment of the finance ministry has revealed that many of its past projects are running far behind schedule to the extent that the government has been paying commitment charges of several hundred crores every year.
In 2007-08 and 2008-09 alone, India paid Rs 240 crore as commitment charges for the non-disbursed portion of sanctioned loans to World Bank and other multilateral agencies such as Asian Development Bank (ADB) and some bilateral donors.
In the five years between 2004-05 and 2008-09, the government paid close to Rs 700 crore as commitment charges. An estimate of such expenditure since 1991 puts the figure upwards of Rs 1,400 crore.
Finance ministry sources said that till last year, there were 231 externally aided projects of which more than 40% were paying commitment charges. This indicates lack of coordination among different organs of the government with no check on timely implementation of development schemes.
Review of the ADB portfolio showed undisbursed loan amount having increased from $850 million in 1999 to $3.5 billion at the end of 2006. Fresh loans were negotiated even when the existing basket reflected huge under utilisation.
A finance ministry official said in the six years between 2001 and 2007, the government borrowed Rs 12,800 crore from ADB but on account of slow disbursal, it paid Rs 230 crore to the agency as commitment charges. An estimated 60% of World Bank and ADB loan portfolio are currently paying commitment charges.
It has been observed that many highway and power projects were pushed prematurely for additional World Bank funding even before they were ready, or even before the previous loans had become effective.
Commitment charges are a penalty on the recipient for its failure to utilise the committed aid. It is partly an indicator to assess the recipient government’s bureaucratic capacity of (loan) aid absorption and to measure the pipeline effect of the rate of utilisation of credit.
Questions have also been raised on the way the loans have been negotiated. In many cases, the government had bargained loans with commitment charges as high as 0.75% when the rate of interest in the international market hovered around 1%.