Infographic: Foreign aid going out of India

Over the last decade, India has changed from a recipient to a donor of foreign aid. Often referred to as an ‘emerging’ donor by OECD convention, views on India’s aid programme are split two ways. Many start by expressing incredulity at a low-income state like India sending aid to other countries, and others are alarmist about countries like China and India changing the global aid landscape forever.

1a Foreign aidThe first table above provides an overview of the Indian agencies involved in aid and development assistance activities. Calculating how much India spends on foreign assistance is difficult and numbers remain inexact since there are many government agencies who play a role in delivering that assistance.

While described as an emerging donor, India’s first bilateral assistance programme was with Nepal back in the 1950s, funding infrastructure development. In 1964, then prime minister Jawaharlal Nehru launched the Indian Technical and Economic Cooperation (ITEC) programme to do a range of activities from civil and military training to expert assistance to disaster relief and more. Nevertheless, the Government of India remained a recipient of large sums of international aid till the early 2000s. A major step in reduction of India’s dependence on foreign development assistance came with the budget speech of 2003-04, where the then-finance minister Jaswant Singh announced a series of changes, including the acceptance of bilateral aid from only five major countries and no others, rejection of all tied aid and the pre-payment of outstanding debt to many bilateral donors.

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Numbers belie the notion that India has rapidly increased its aid budget in the last decade. The figure below shows that in real terms, the Indian external affairs ministry’s aid budget has only increased slowly in real terms since the late 90s, even declining a little in 2006-07. It is only in the last two years that there has been significant increase in the aid budget, with the number crossing the billion dollar mark in 2013. While this does not include lines of credit extended by the Export-Import Bank of India, the entire foreign aid expenditure by India remains small in comparison with OECD aid. For example, American aid to Pakistan alone was about 2.4 billion US dollars in 2013.

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What little increase can be seen in India’s aid budget over the past decade can be attributed an increase in MEA’s overall budget, with the aid share hovering below 40 percent. Again, it is only in 2012 that aid became over half of the MEA’s budget.

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Much of the aid disbursed as grants by the MEA goes to countries in the immediate neighbourhood of India, promoting regional integration, harmony and a shared focus on security in the subcontinent. Over half of India’s foreign aid goes to Bhutan, which maintains a close relationship with India and where the aid is being used to jointly develop 10,000 megawatts of hydroelectric power in the landlocked nation.

India’s assistance to Afghanistan has been in the news most often in the past few years, with pledges of numbers like 1.5 billion US dollars making headlines in 2011. It pays to know that these are commitments over decades and not in a single year.

India’s development assistance efforts remain in tune with the nation’s dominant foreign policy objective of keeping the nation united and sustaining economic growth. To achieve the same, India has tried to promote stability and security in the region with grants-in-aid. The second broad aim is to develop stronger trade and economic ties with countries around the world. This it seeks to achieve through the Import-Export Bank of India, by providing soft loans or lines of credit to various countries.

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With a strong focus on African countries as well as others across the world, India extends lines of credit to buy Indian goods and services in various sectors which include power transmission, healthcare, agriculture and infrastructure. The figure below summarises all aid and credit flows going out of India.

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While an impetus to use foreign aid more came in the early 2000s, overhauls of the aid programme has been victim to bureaucratic tussles between the ministry of external affairs, ministry of finance and the prime minister’s office. The figure below shows at least four different ideas that have been on the table since 2003. It is only in January 2012 that a Development Partnership Administration (DPA) was created within the MEA with in-house competence and specialised divisions to administer the foreign aid programme.

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What makes aid from India different from western aid is that India prefers not to include conditionality clauses such as democracy and good governance, respecting the partner country’s sovereignty. Staying consistent with the Gujral doctrine, the government of India likes to avoid terms like foreign aid or development assistance, both of which are common in the Organisation of Economic Co-operation and Development’s parlance. India prefers to refer to aid as development cooperation or development partnership, and this flows down to the ethos with which grants are given.

Few are asking questions of the effectiveness of Indian aid – both in achieving development goals in partner countries and in generating benefits for India. It remains largely unknown, beyond anecdotal evidence. As the Indian taxpayer starts paying more, the DPA like USAID in the United States and DfID in the United Kingdom will be expected to provide greater accountability. The creation of DPA also provides an opportunity for the MEA to work with India’s private for-profit and not-for-profit sectors that have amassed expertise in a range of developmental issues.

The Indian government’s increased commitment to foreign aid over the past two years is a welcome change, but one that may be hostage to fiscal crises and change of leadership. How well foreign aid can be used to extend Indian interests abroad will depend entirely on how well we choose to administer and deploy it out of India.