One Hundred Million Dollar Credit to India

• INTERNATIONAL DEVELOPMENT ASSOCIATION 1818 H STREF.:T. N W, WASHINGTON 25, D. C TELEPHONE: EXECUTIVE 3-6360 IDA Press Release No. 65/9 Subject: $100 million credit to India For Release AM Newspapers Thursday, August 12, 1965 The International Development Association (IDA), an affiliate of the World Bankt has approved a credit equivalent to $100 million to India. The credit will be made available for imports by firms producing commercial vehicles and automo- tive components, machine tools and cutting tools, electrical equipment including cable and wire, and heavy construction equipment. The effect of the credit will be to increase the quantities of capital goods available to the Indian market, and to improve the operation of commercial vehicles or construction equipment already • in India. Indirectly it will benefit the whole Indian economy by increasing the availability of foreign exchange. This will be the second IDA credit extended to India for the automotive, electrical, industrial machinery and construction industries. Increased produc- tion in these industries has been given high priority because of the rapid develop- ment of road transport, the need for more electric power throughout the country generating capacity is now being doubled every five years -- and the increasing requirements for construction equipment for many kinds of development projects. The earlier IDA credit was one of $90 million made in June 1964. Mainly as a result of that credit, the total amount of foreign exchange allocated by the Government for commercial imports in 1964/65 was increased for the first ti~e in four years. The availability of foreign exchange in larger amounts, together with • certain procedural improvements in import licensing, made possible better produc- tion planning and inventory control, and higher utilization of capacity. Produc- tion increased in all sectors; for example, th~ production of switchgear, motors,  - 2 - transformers and cutting tools increased by a third or more1 and machine tools, construction equipment and commercial vehicles, by approximately one quarter~ • A significant factor in the rise in production in each case was the increased confidence of·manufacturers in the future availability of critical raw materials ·and components. The change instituted a year ago, which put authorized repre~ sentatives of foreign construction equipment manufacturers in a position to main- tain more adequate parts stock in India, has worked satisfactorily and is ex- pected to continue. In addition to the IDA credit announced today, the Government of India will allocate, a substantial amoui1t of foreign exchange obtained from other sources in support of these key industries. Together, these resources are expected to make possible an average increase of about 25% over the 1964/65 level in the output of the specified capital goods during 1965/66. • The bulk of the new credit will be used for imported materials and components for manufacturers of capital goods. The remainder will finance miscellaneous items of imported equipment required to balance and rationalize existing manufacturing plants, and spare parts to service construction equipment, Indian.manufactured industrial machinery,. and the existing fleet of road transport vehicles. The number of categories of'components and raw materials which will be im- ported under the credit is very extensive, and items vary from sector to sector and from company to company. Among some of the more important items are such basic materials as steel, copper and brass in bars, rods and sheets, semi-finished products such as heavy steel castings and forgings, and some miscellaneous stores such as chemicals and small tools. ?he automobile industry also imports bearings, • brake systems, steering mechanisms, rear axles, and engines or engine components; the construction equipment industry -- transmissions for road rollers, various • - 3 - components for shovels and cranes, and heavy earthmoving devices and gears; the machine tool industry -- major machine components, such as lathe heads, electric clutches, electronic controls; and the electric equipment industry -- bearings, bushings and control components. The IDA credit to India will be for a term of 50 years. Repayment of prin- cipal will begin January l, 1976, after a 10-year period of grace. Therea=ter, · 1% of the principal will be repayable annually for 10 years and 3% will be re- payable annually for the final 30 years. The credit wili be free of interest but a service charge of 3/4 of 1% per annum on the amount withdrawn and outstand- ing will be made to meet IDA's administrative costs. Including today's credit, IDA will have e~rtended 17 credits to India total- ing $585 million. In addition to the earlier credit for industrial imports, the ~ other credits have been made for the development of roads, railways, telecornmuni- cations, irrigation, electric power and improvement of the Port of Bombay • •