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What is line of credit?

Topics Covered: Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

What is line of credit?


Context:

India announced a slew of new connectivity measures for the Maldives, including air, sea, intra-island and telecommunications in an effort to help the Indian Ocean Islands deal with the economic impact of the COVID-19 pandemic.

Initiatives announced:

  1. Air connectivity “bubble” for travel.
  2. A direct ferry service.
  3. A submarine cable for telecom connectivity.
  4. Assistance for the Greater Male Connectivity project (GMCP) to connect Male to three neighbouring islands- Villingili, Thilafushi and Gulhifahu islands.

Background:

India will support the implementation of the GMCP in Maldives, through a financial package consisting of a grant of USD 100 million and a new Line of Credit (LoC) of USD 400 million.

  • The GMCP would be the “largest civilian infrastructure project in Maldives”.

What is Line of Credit (LOC)?

The Line of Credit is not a grant but a ‘soft loan’ provided on concessional interest rates to developing countries, which has to be repaid by the borrowing government.

The LOCs also helps to promote exports of Indian goods and services, as 75% of the value of the contract must be sourced from India.

Sources: the Hindu.