India asked for and received a well-deserved financial kick in the pants
India, one of the bank's most favoured borrowers, had been cut off at the pass in its quest for $250 million (Rs 200 crore) to finance the construction of a giant fertiliser project.
ISSUE DATE: Feb 15, 1981 | UPDATED: Sep 23, 2014 14:00 IST
The bank's decision to cancel the previously approved loan was described as "very unusual" and "extraordinary" by bank insiders. Even more noteworthy, this was the first time such a step was taken against India, a nation that has borrowed $ 11 billion (Rs 8,800 crore) from the bank, repaid its loans faithfully and on time, and constantly earned brownie points in the bank's internal evaluation report.
The rumour mills began churning out explanations. India was no longer creditworthy. The bank doesn't like the Gandhi Government. The US exerted heavy political pressure on the bank. The bank's technical experts goofed in their evaluation. And so on. But the bottom line, plain and simple, is that India asked for and received a well-deserved financial kick in the pants.
A reiteration of the bare facts: The Rs 200 crore loan represented a portion of the mammoth $1.5 billion fertiliser (Rs 1,210 crore) project. Part of the loan was to be used to award consultancy contracts for the design and management of two ammonia plants near Bombay.
Two technical committees appointed by the Janata government chose the California firm of C. F. Braun to do the design work. Not only did the two committees find Braun technically competent but also about $3 million (Rs 2.4 crore) cheaper than other international bidders. Braun agreed to do the job for about $ 30 million (Rs 24 crore).
| The bank's main motivation in denying the loan, one source said, 'is that the bank cannot be taken for granted ...if a borrower like India could get away with this kind of thing then others would take note and do the same kind of thing.' |