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Holding back on soft power

While India’s development assistance has increased markedly since 2000,it remains moderate in relation to the country’s size and growing stature

While India’s development assistance has increased markedly since 2000,it remains moderate in relation to the country’s size and growing stature

The newly released budget has not only protected but has actually increased India’s foreign assistance,or development partnerships as the government prefers to call it. It has done so despite fiscal pressures to decrease spending,as well as pre-election year pressures to increase funding only for programmes that will gain votes.

Given India’s growing global stature and its international strategic interests,India needs to ensure that its development assistance is harnessed to its full potential. Protecting the ministry of external affairs’ budget,and that of development assistance in particular,will help to further cement several changes India has undertaken over the past decade to strengthen its relationships with other developing countries.

India is not an “emerging donor”,having started development assistance to neighbouring Bhutan only a couple of years after Independence,at a time when India was itself struggling to deal with its massive poverty and other social issues,as well as the horrors of Partition. With the addition of the Indian Technical and Economic Cooperation (ITEC) programme in the 1960s,India’s development assistance focused on training and capacity building in partner countries and was able to leverage an entire generation of Indian-trained civil servants from numerous countries into friendly bilateral relations,as well as support for India’s views in multilateral fora. For example,nearly 700 Ethiopians,largely civil servants (but including the current prime minister),have received training to date under the ITEC programme. The Ethiopian government has repeatedly stated that India is among its preferred partners and it supports India’s bid for a seat on the UN Security Council.

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While India’s development assistance has increased markedly since 2000,it remains moderate in relation to the country’s size and growing stature. Between 2003-04 and the new 2013-14 budget,India’s development assistance increased fourfold,from Rs 1,749 crore to Rs 7,019 crore annually. Much of this increase in development funding went to Afghanistan where India,with a total commitment of around Rs 11,000 crore,is the fifth-largest bilateral donor. India has also provided increased assistance to other neighbouring countries,such as Bhutan and Myanmar,and has given some grants to several African countries. Over the past two years,development assistance as a percentage of total government expenditures has grown from 0.27 per cent to 0.42 per cent. Yet,this soft power tool of foreign policy is still below half a per cent of the budget,and is dwarfed when compared to spending on hard power,as defence accounts for over 12 per cent of the estimated government spending in this year.

Faced with such budget limits,in 2004 India came up with an innovative development assistance tool: government-subsidised and Exim Bank-managed Lines of Credit. These credit lines have grown tremendously. While India’s 2013-14 budget allocation for development assistance is about Rs 7,000 crore,the current open Lines of Credit total around Rs 50,000 crore. Building on the Indian idea of a two-way partnership for development,Lines of Credit are structured in a mutually beneficial way. They enable partner countries to avail of the large funds the bank is able to raise in the international debt market. Because the Indian government subsidises the interest rates,partner countries get access to credit at below market rates. India benefits by having a new development assistance tool and larger foreign policy leverage that is not limited by its government budget. Also,since these credits are largely tied to goods and service provision by Indian firms,they help open markets for Indian business. For example,the 2010 US$1 billion credit line to Bangladesh has been offered way below market interest rates,while 75 per cent of the credit is tied to Indian imports.

In January 2012,India also took a large step towards coordinating and streamlining its development assistance with the formation of the development partnership administration (DPA) within the MEA. The DPA is tasked with coordinating and administering all development assistance,particularly grants and technical assistance,though development policy decisions remain with the MEA’s respective country divisions.


India today undoubtedly has more resources and tools to strengthen its development partnerships. Yet,given India’s rising regional and global role as a development partner,these resources are still moderate. The MEA remains notoriously understaffed,with the size of its diplomatic corps comparable to that of Singapore — a country with a population size one-third that of Delhi. And the diplomatic staff hiring and training processes remain woefully inadequate. Fully harnessing this potential will require,to paraphrase the External Affairs Minister Salman Khurshid,more investments in human capital,capacity-building and financial resources.

The writer,director of Indian Development Cooperation Research and visiting fellow,Centre for Policy Research,is associate professor of government at the College of William & Mary,US

First published on: 04-03-2013 at 02:19:02 am
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