Modi budget hikes Indian aid, mum on regional bank

On Tuesday, the BRICS economies — Brazil, Russia, India, China and South Africa — signed off on the launch of their widely anticipated multilateral development bank, the New Development Bank, at their summit meeting in Fortaleza, Brazil. Seen as a competitor to the World Bank, the New Development Bank claims a startup capital of $50 billion, drawn equally from the BRICS economies. In his first budget since taking office in May, Indian Prime Minister Narendra Modi makes clear that he’s not about to put India’s own emerging donor ambitions on the backburner now that the New Development Bank is in place — at least on paper. Modi is believed to have coined the name of the new bank. Devex analysis of the first Modi budget, which was released last week, finds that New Delhi plans to scale up Indian aid spending even further to 94.8 billion Indian rupees ($1.6 billion) in 2014-15 — a 34 percent increase over last year’s levels. The previous government’s interim, pre-election budget had proposed a more modest 18 percent jump in Indian aid spending. Buoyed by strong and steady growth at home, India’s foreign aid budget has grown more than fourfold over the past decade. Despite the backdrop of India’s recent economic slowdown, the Modi government’s aid hike was widely expected among Indian aid watchers and analysts. Across the Indian political spectrum, the country’s fledgling aid program is seen as a key instrument of Indian foreign policy. “India’s spending on aid and related expenses has never been related to or adjusted for domestic fiscal pressures,” Dweep Chanana, an economist who has written extensively on Indian foreign aid, asserted. “Indeed, that has been the most common complaint of critics of these programs.” Eager to bolster its regional and international positioning, India is hardly the only emerging donor to press on amid slowing growth. South Africa, Turkey, as well as the rest of the BRIC economies — Brazil, Russia and China — have all stayed the course in their donor ambitions. Modi’s first budget also anticipates that India will give far more foreign aid than it receives in 2014-15. This is a trend that will likely be sustained as the United Kingdom, the country’s fourth-largest bilateral donor, pulls out of India next year. According to the budget, India will record $673 million in net aid receipts in 2014-15. Sharp focus on South Asia Devex analysis of Modi’s first budget also finds that he seems intent on keeping the Indian aid program’s sharp focus on South Asia — which isn’t all too surprising given his recent diplomatic offensive in the region. In an unprecedented move, Modi invited leaders from all the South Asian countries to his swearing-in. In 2014-15, the Modi government will direct $1.4 billion in Indian aid spending to six of India’s South Asian neighbors — Bhutan, Afghanistan, Sri Lanka, Nepal, Bangladesh and Maldives. That accounts for 87 percent of Indian aid spending, which is flat compared with its share last year. “India is keen on solidifying its status as a regional powerhouse of South Asia and many of [its] aid projects are aimed at building up infrastructure, fostering energy security and promoting greater regional trade,” explained Rani Mullen, director of Indian Development Cooperation Research in New Delhi. The largest recipient of Indian aid historically, Bhutan will receive more than a billion dollars in Indian aid spending in 2014-15. India’s northern neighbor commands 64 percent of Indian aid spending in 2014-15, up from 58 percent in 2013-14. Last month, on his first foreign visit as prime minister, Modi kicked off the 600-megawatt Kholongchu Hydroelectric Project, the latest in a string of Indian-funded hydropower projects across Bhutan. The Indian government intends to buy back much of the electricity generated through its hydropower investments in the water-abundant country. The Modi government, meanwhile, has set aside $112 million in aid spending for Afghanistan, India’s second-largest aid recipient. At the BRICS summit in Fortaleza, Modi pledged New Delhi’s continued capacity-building support for Afghanistan in the areas of governance, security and economic development. India is the 10th-largest donor to the war-torn country. Elsewhere in South Asia, the Modi government also allocated tens of millions in aid spending to Sri Lanka ($83 million), Nepal ($75 million), Bangladesh ($58 million) and the Maldives ($30 million). Bangladesh is the only South Asian country to see its aid spending slashed under Modi’s first budget. Even as his aid budget keeps the Indian aid program’s heavy focus on South Asia, Modi has also hinted that his government remains keen on continuing New Delhi’s modest technical cooperation activities in Africa and Latin America — arguably in a bid to maintain the global posture of India’s emerging donor program. “The region stretching from Afghanistan to Africa is experiencing turbulence and conflict. This is causing grave instability that is fast seeping across borders. This impacts us all. Remaining mute spectators to countries being torn up in this manner can have grave consequence,” Modi emphasized in Fortaleza. The Modi government has set aside $63 million and $5 million, respectively, for Indian aid spending in Africa and Latin America in 2014-15. Together, both regions account for less than 5 percent of India’s aid budget, which is slightly higher than last year’s levels. SADB, Indian aid agency on backburner Despite the recent buzz surrounding the Indian commerce ministry’s proposed South Asian Development Bank, Indian aid analysts are skeptical that the idea — which is not entirely new — will gain any more traction within the Modi government. The Modi budget makes no mention of the proposed SADB. “I would be surprised if India has the ability to capitalize SADB on its own, and its neighbors don’t have the capacity nor the desire to participate in an institution where India would clearly be the leader,” Chanana contended. At the same time, few expect long-delayed plans for a full-fledged Indian aid agency — first unveiled by the previous government in 2007 — to pick up momentum under the Modi government anytime soon. Since 2012, a coordinating and monitoring body within the Indian foreign ministry called the Development Partnership Administration has been administering the bulk of Indian aid spending. “There is too much resistance from the Indian bureaucracy and certainly during the next few years, the Modi administration has other priorities,” Mullen said of the proposed Indian aid agency. One of those priorities will be the New Development Bank, which will be based in Shanghai, China, but overseen by India for an initial period of several years. In Fortaleza, Modi had lobbied for India to host the New Development Bank’s headquarters, but eventually settled for the bank’s presidency as a compromise. The Modi government’s understaffed diplomatic and development corps will now likely be focused on getting the New Development Bank up and running by 2016, the year when the bank expects to make its first loan. Do you think the Indian aid program should keep its heavy focus on South Asia or instead focus more of its resources outside the region? Leave a comment below. Stay tuned to our feature story on the BRICS economies’ New Development Bank on Monday’s Development Insider and the Newswire.