Line of Credit: A Strategic Tool Boosting India’s Exports to Neighbouring Nations

A Line of Credit (LoC) is a financial arrangement provided by a lender (often a government or financial institution) that allows a borrower (usually a foreign government or entity) to access a specified amount of funds over a defined period, often for importing goods and services. The borrower can draw from the line as needed, within the agreed limit, and usually repays the amount with interest under agreed terms.

India’s economic diplomacy has witnessed a significant evolution over the past two decades, with Lines of Credit (LoCs) emerging as a cornerstone of its engagement with neighbouring and developing countries. A Line of Credit, in essence, is a financial facility extended by one entity to another, enabling the latter to access funds up to a specified limit for specific purposes. In the realm of international trade and relations, the Government of India has adeptly used LoCs to not only support developmental projects in friendly nations but also to bolster India’s exports, particularly to its neighbouring countries.

Administered primarily through the Export-Import Bank of India (EXIM Bank), these concessional LoCs are extended to partner countries, enabling them to import goods and services from India at favourable terms. The underlying condition is that a major share—typically 75%—of the goods and services under the LoC must be sourced from India. This model has proven instrumental in promoting Indian exports, especially in sectors like engineering, construction, transport, and renewable energy. For instance, Bangladesh, Nepal, Bhutan, Sri Lanka, and the Maldives have all benefited from Indian LoCs in the implementation of key infrastructure and connectivity projects. In Bangladesh alone, over USD 7 billion has been committed under various LoCs, facilitating the export of Indian expertise and material for projects ranging from power transmission to railways.

By extending these financial instruments, India not only supports its domestic industries but also strengthens regional integration and goodwill. The strategy of using LoCs creates a mutually beneficial framework—recipient countries gain access to necessary infrastructure development while India secures long-term economic and strategic ties. This approach is an example of how foreign policy and trade promotion can converge to serve national interests in a rapidly changing global order.

In the context of India’s foreign trade and diplomacy, the Government of India extends concessional Lines of Credit to friendly countries through the Export-Import Bank of India (EXIM Bank). These LoCs are a strategic tool under India’s development partnership programs. They are primarily aimed at:

1. Promoting Indian exports – Recipient countries are required to import a significant portion (typically 75% or more) of the goods and services under the LoC from India, thereby boosting Indian industries, particularly in sectors like infrastructure, engineering, agriculture, and renewable energy.
2. Enhancing diplomatic ties – By supporting development projects such as roads, railways, power plants, and water supply systems in partner nations (especially in Africa, South Asia, and Latin America), India strengthens its bilateral relations and fosters goodwill.

These LoCs are offered on concessional terms – i.e., at low interest rates and with long repayment periods – making them attractive to low- and middle-income countries while simultaneously creating export opportunities for Indian businesses.

Here is a comprehensive table detailing the countries that have benefited from India's Lines of Credit (LoCs), along with the specific purposes for which these credits were utilized:

These Lines of Credit have not only facilitated infrastructure development in recipient countries but have also promoted Indian exports and strengthened bilateral ties. By providing financial assistance for various projects, India has played a pivotal role in the development of these nations, fostering goodwill and enhancing its influence in the global arena.