India’s foreign aid program catches up with its global ambitions

Indian Prime Minister Manmohan Singh meets with South African President Jacob Zuma. Photo by: GovernmentZA / CC BY-NC-SA

Citing its newfound economic strength, India revealed plans to reorient its positioning in the aid community just over a decade ago.

“A stage has come in our development where we should now, firstly, review our dependence on external donors. Second, extend support to the national efforts of other developing countries,” said then-Indian Finance Minister Jaswant Singh in February 2003.

Since then, India’s ambition of transitioning from aid recipient to donor hasn’t panned out completely. Despite its increasingly dismissive posture toward Western aid donors, the Indian government still receives billions of dollars in foreign aid money each year. In 2011, India’s official development assistance to gross national income ratio stood at 0.2 percent, on a par with Egypt and Angola and up from 0.1 percent in 2003.

Yet even as India remains among the largest recipients of foreign aid, the country has come a long way toward bolstering its standing as an emerging donor. In its latest budget unveiled in February, the Indian government set aside nearly $1.3 billion for foreign assistance in 2013-14, a fourfold jump from 2003-04. Over the past four years, Indian foreign aid spending has grown annually by an average 32 percent. 

Much like its BRICS peers, New Delhi is keen on enhancing its global reputation through its foreign aid program. Experts on Indian foreign assistance have told Devex that India is likely to continue ramping up aid spending despite fiscal pressures brought about by its recent economic slowdown.

“The intensity, volume and scope of [Indian] aid giving has remained immune from the government’s austerity drives which have reduced the spending power of various ministries,” Shanthie Mariet D’Souza, a research fellow with the Institute of South Asian Studies at the National University of Singapore, pointed out.

Some members of the parliament in New Delhi have been less confident of the Indian foreign aid program’s budgetary position. Just last month, a standing committee of India’s lower house of parliament warned that the Ministry of External Affairs’ budget was no longer commensurate with its foreign aid and diplomatic activities.

Technical cooperation continues to account for the bulk of Indian foreign assistance. In 2012-13, Indian spending on technical cooperation activities reached $589 million, representing 58 percent of the country’s foreign aid budget. The Indian government also makes sizeable contributions to multilateral organizations, including the U.N. Development Program and the World Health Organization.

USAID-style aid agency delayed yet again

In 2007, Indian Finance Minister P. Chidambaram announced the government’s intention to establish a full-fledged Indian aid agency. But despite repeated pronouncements from New Delhi in the years since, the agency that would have been modeled after the U.S. Agency for International Development has yet to materialize.

New Delhi’s aid program is mostly under the purview of the Ministry of External Affairs, which taps specialists from within its ranks and across the Indian government to carry out its programming. India has also channeled its aid money through other ministries, however, including the Ministry of Finance and the Ministry of Defense. The proposed USAID-style aid agency would have consolidated the administration of Indian foreign aid activities under one roof.

In January 2012, the Indian government launched a coordinating and monitoring body for Indian foreign assistance within the Ministry of External Affairs called the Development Partnership Administration. Dweep Chanana, an expert on Indian foreign aid who is currently a director with UBS’ philanthropic division, told Devex the DPA could eventually evolve into a full-fledged aid agency.

Yet while the creation of the DPA is widely acknowledged as a positive step for the decentralized and fragmented Indian aid program, many observers caution the Indian foreign aid and diplomacy apparatus remains woefully understaffed.

Thus far, the Ministry of External Affairs has assigned only 20 staff members to the DPA. Moreover, the ministry’s overstretched diplomatic corps of 900 foreign service officers — roughly equal to that of Singapore — is raising valid questions over India’s ability to engage effectively with its development partners overseas. New Delhi is increasingly looking to its diplomatic missions to appraise funding requests from other governments.

“This is a general problem for India’s foreign service. There are not enough diplomats,” Chanana asserted.

Focus close to home

In line with its status as a regional power, India has been a leading aid donor to its smaller neighbors Bhutan and Nepal since the 1950s. The two countries have historically received the lion’s share of Indian foreign assistance.

India’s economic considerations for its aid program are on display in Bhutan, where its assistance focuses on developing the hydropower sector. The Indian government openly acknowledges that it intends to buy back much of the electricity generated through its hydropower assistance to the country. In 2012-13, Bhutan claimed 36 percent ($213 million) of India’s technical cooperation spending.

Meanwhile, small-scale development projects in Nepal’s health and education sectors have emerged as priority investments for Indian foreign aid. Nepal received 8 percent ($49 million) of India’s technical cooperation budget in 2012-13.

And in a development that has been strongly encouraged by the United States, Afghanistan has rapidly moved up the Indian aid agenda since the fall of the Taliban regime in 2001. Now the second-largest recipient of Indian foreign aid after Bhutan, Afghanistan garnered 15 percent ($89 million) of Indian technical cooperation spending in 2012-13. A new parliament building in Kabul, a hydroelectric dam in Herat province as well as community-level development initiatives are among the projects backed by the Indian government.

Polls suggest India’s aid program in Afghanistan has been generally well-received by Afghans — perhaps no surprise given the two countries’ long-standing cultural ties. As Afghanistan braces for reduced aid levels in light of the NATO drawdown, there are some signs demand for Indian development engagement is growing in the country.

“When I visited Jalalabad, the TV station manager wanted more of India’s assistance in training of local journalists … In Kandahar, women at an Indian medical facility wanted more medical help,” D’Souza said to Devex as she recounted her recent field visits to Afghanistan.

The Indian government emphasizes that its aid activities in Afghanistan and elsewhere are demand-driven, a claim which has been supported to some extent by Indian aid experts, including D’Souza.

Expanding to Africa

Yet even as much of India’s aid money remains close to home, India has also extended the reach of its assistance well beyond South Asia. In large part through its deputation of technical experts abroad, the Indian aid program now spans more than 60 countries in Asia, Africa and Latin America.

India has been particularly keen on expanding its aid engagement with Africa. In 2012-13, African countries received 7 percent ($43 million) of India’s technical cooperation budget, up from 4 percent in 2011-12. The emerging donor stresses its willingness to share lessons from its own development with Africa.

“India will work with Africa to realize its vast potential … We do not have all the answers but we have some experience in nation building which we are happy to share with our African brothers and sisters,” Indian Prime Minister Manmohan Singh told African heads of state attending the second India-Africa Forum Summit in Addis Ababa in 2011.

In Addis Ababa, Singh committed $700 million in assistance to establish educational institutions and training programs across Africa, including in Uganda, Ghana, Botswana and Burundi. The Indian prime minister also announced $5 billion in lines of credit — largely tied to the purchase of Indian goods and services — to African countries. The Indian government is expected to make further aid commitments for the continent at the third India-Africa Forum Summit in the summer of 2014.

The Indian aid program has already drawn upon its strengths in the ICT sector to create Africa’s largest tele-education and telemedicine initiative, the $125 million Pan-African e-Network. Kicked off in 2006, India’s flagship aid initiative in the continent now connects 47 African countries with leading schools and hospitals in India through satellite and fiber-optic links.

No welcome mat for foreign implementers

Poised for further expansion, the Indian aid program has been increasingly turning to the country’s vibrant development community to bolster its technical and delivery capacity. For instance, the Indian government has partnered with nongovernmental organization SEWA on livelihood initiatives for women in rural Afghanistan.

“A particular area of focus is to engage more with NGOs, small enterprises and academia involved in the conceptualization and delivery of socioeconomic programs in India, so that we can replicate the success of such programs in other developing countries,” P.S. Raghavan, head of the Development Partnership Administration at the Ministry of External Affairs, said earlier this year.

Eager to project its emerging donor status as a symbol of Indian self-sufficiency, New Delhi is unlikely to aggressively tap foreign consultancies and NGOs for its aid program anytime soon. Many recently published tenders from the Ministry of External Affairs for its aid activities have not been open to international bidders.

“Indian interest in working with foreign consultancies and NGOs would be very limited. I doubt there would be much interest at all for now at least,” Gareth Price, senior research fellow for Chatham House’s Asia program, told Devex.

Some Indian aid experts suggest there could be an opening for international partners that offer distinct expertise beyond India’s knowledge base.

“India is not completely closed [to foreign NGOs] but funding them is not easy to justify at Delhi’s end, unless they bring some special expertise partly because they are more expensive,” D’Souza said.

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About the author

  • Piccio

    Lorenzo Piccio

    Lorenzo is a former contributing analyst for Devex. Previously Devex's senior analyst for development finance in Manila.