India to extend $1-billion credit to Sri Lanka

India has agreed to extend a credit of $1 billion for funding Sri Lanka's infrastructure projects, mainly in the former civil war zones in the north and east of the country, according to the island nation's treasury secretary.

Prime Minister, Dr Manmohan Singh with the President of Sri Lanka, Mr. Mahinda Rajapaksa

PB Jayasundera, the secretary to the treasury and the ministry of finance told Reuters that India had assured Sri Lanka $800 million for the reconstruction of railways and a further $200 million for a power plant, according to a report in The Economic Times.

"It is a 20-year credit at an absolutely low interest rate. About $250 million in a grant will also be available in support of housing development in the north and east,'' Jayasundera said in a mobile phone text message from India to Reuters, according to the report.

The railway reconstruction would mainly involve the island nation's northern regions, now being slowly rebuilt after the end of a 25-year Tamil revolt in May last year while the power plant is being planned in its eastern province.

India has also agreed to build 50,000 residential houses for the war displaced in both the northern and eastern provinces, according to a statement issued by both countries yesterday.

India and China had both provided Sri Lanka with military assistance including ammunition during the final phase of the war. The two countries are now increasingly competing for strategic and lucrative investments there since the end of the war.