Introduction
As an emerging global power, India has been actively engaging in development partnerships with various countries, especially in Asia and Africa. These partnerships often involve providing grants and loans to foster economic development, infrastructure improvement, and capacity building. India’s development partnership is rooted in the principle of South-South cooperation, which emphasizes mutual benefit and solidarity among developing countries. Through grants and loans, India seeks to support socio-economic development, enhance regional stability, and build long-lasting diplomatic relations.
Grants are non-repayable funds India provides to recipient countries for specific development projects. These projects often focus on areas such as education, healthcare, infrastructure, and capacity building. Loans provided by India, often through its Export-Import Bank (Exim Bank), are typically concessional, meaning they are offered at lower interest rates and with longer repayment periods compared to commercial loans. These loans are aimed at large-scale infrastructure projects, such as roads, railways, and power plants, which are crucial for economic growth and development.
India’s foreign policy significantly emphasizes strengthening bilateral relations, promoting regional stability, enhancing soft power, and advancing economic interests through development assistance. By supporting development projects in partner countries, India fosters goodwill and fortifies bilateral ties to create the foundation for long-term cooperation. Additionally, contributing to the economic development of neighbouring and partner countries promotes regional stability, which aligns with India’s strategic interests. This approach also bolsters India’s soft power, portraying it as a responsible and benevolent global player on the international stage. Furthermore, offering loans and grants provides opportunities for Indian companies to engage in overseas projects, thereby promoting India’s economic interests abroad. This multifaceted strategy not only benefits the recipient nations but also enhances India’s diplomatic and economic influence globally.
Funds allocated vs. Funds disbursed
Funds allocated refers to the amount of money that has been earmarked or set aside for a specific project or purpose. Allocation is an initial step where the financial resources are identified and reserved but not necessarily transferred or utilized. For example, India may allocate $100 million for a healthcare project in Africa.
Funds disbursed is the actual amount of money that has been released and spent on the project. Disbursement occurs after the allocation and is contingent upon the progress of the project, compliance with conditions, and completion of necessary administrative procedures. In the same example, out of the $100 million allocated, only $60 million may have been disbursed if that is the amount required for the project’s current phase.
The distinction between funds allocated and funds disbursed is significant because it highlights the gap between commitment and execution. Allocated funds indicate the level of commitment from the donor, while disbursed funds reflect the actual implementation and impact of the assistance.
This exploratory analysis covers the fiscal years from 2008-09 to 2022-23. India’s immediate neighbours include Afghanistan, Bangladesh, Bhutan, China, Maldives, Myanmar, Nepal, Pakistan, and Sri Lanka. However, since India never provided any funds to China and Pakistan during this period, these countries are excluded from the analysis. The dataset is web-scraped from the Ministry of External Affairs.
Key insights on India’s allocation and disbursement of funds
Fig: 1
Over the last 15 financial years (2008-09 to 2022-23), India allocated approximately 85.3K crores for its development partnership initiatives. Out of this, around 74.1K crores were disbursed, indicating that 13.1% of the total allocated funds were not disbursed.
Fig: 2
During this period, India allocated nearly 73.2K crores to IIN countries and disbursed 63.5K crores, which means 85.8% of the total allocated funds were dedicated to IIN countries, and 85.7% of the total disbursed funds were released for IIN countries. Additionally, in this period, India successfully disbursed 87% of the allocated funds granted to these IIN countries.
Fig: 3
During this period, among all the IIN countries, India allocated and disbursed the highest amount of funds to Bhutan (46.2K crores allocated and 40.6K crores disbursed), followed by Nepal (7.1K crores allocated and 6.4K crores disbursed) and Afghanistan (6.7K crores allocated and 6.2K crores disbursed) (fig: 1-3).
Fig: 4
In comparison, India committed the least amount of funds to the Maldives(2.3K crores), while the minimum amount of funds was executed for Bangladesh (2.2K crores). The most important observation is that over 63% of the IIN country funds and 54% of the total funds allocation and disbursement were dedicated to Bhutan alone (fig: 4).
Fig: 5
From the financial year 2008-09 to 2014-15, there was a rapid and consistent increase in the total fund allocation. This trend, however, reversed post-2014-15, as the allocation saw a decline. Despite this decline, the total amount of disbursed funds continued to rise steadily until 2016-17, after which it too began to decrease. This divergence between allocated and disbursed funds is a significant issue that needs urgent attention. Post-2013-14, this gap between the overall fund allocation and disbursement not only persisted but also widened over the years. This pattern was also observed across IIN countries, indicating a broader regional trend in financial management and fund utilization (fig: 5).
Fig: 6
Between 2008-09 and 2018-19, the percentage of funds allocated and disbursed to IIN countries consistently remained above 80% but thereafter fell below 80%, hovering around 75%, except in 2022-23, when it once again exceeded 80%. From 2008-09 to 2012-13, the percentage of disbursed funds out of total allocation remained higher than 100%, indicating that the government disbursed more funds than allocated. However, post-2012-13, except for 2018-19, this percentage consistently stayed below 100%; a similar trend was also observed for IIN countries (fig: 6).
Fig: 7
Notable, Bhutan consistently received the highest allocation and disbursement of funds compared to other countries. Until 2015-16, the fund’s allocation and disbursement to Bhutan increased consistently, but after that, it declined consistently. In recent years, allocations and disbursements for Afghanistan have plummeted. After peaking in 2014, Bangladesh’s fund allocation and disbursement have remained relatively low. The Maldives saw a fluctuating pattern of fund allocations and disbursements over the years. From 2008-09 to 2022-23, Myanmar experienced an increase in both allocations and disbursements, while Nepal saw a recent decrease. Sri Lanka’s funds allocation and disbursement have consistently decreased since 2014 (fig: 7).
Fig: 8
Over the last 15 years, approximately more than 50% of the total fund disbursement and allocation to IIN countries was directed to Bhutan. In recent years, fund disbursements to Nepal and Myanmar have also increased relative to other IIN countries, while Afghanistan has seen a significant decline in its share of fund disbursement and allocation. When considering IIN and non-IIN countries as together, the distribution reveals that over the past 15 years, more than 40% of the total fund disbursement was directed to Bhutan. The distribution pattern for other countries mirrored that observed among the IIN countries (fig: 8).
Fig: 9
There are two major instances, in the financial years 2008-09 and 2010-11, when the Indian government disbursed significantly more funds to the Maldives than the originally allocated fund. Similarly, in 2012-13, the Indian government disbursed more funds to Bangladesh than were allocated. Another instance occurred in 2018-19 when the Indian government once again disbursed significantly more funds to the Maldives than the allocated amount (fig: 9).
Potential challenges
The significant amount of allocated funds that remained undisbursed could be due to various factors, such as project delays, changing priorities, or inefficient disbursement mechanisms. This highlights the need for better project management and monitoring to ensure timely and efficient utilization of allocated resources.
The disproportionately high allocation and disbursement of funds to Bhutan compared to other IIN countries may raise questions about the equity and fairness of India’s development partnership initiatives. It is essential to ensure that funds are distributed based on each country’s specific needs and priorities rather than favouring one country over others.
While Bhutan’s high share of funds may be justified by its unique relationship with India, it is crucial to ensure that the allocation of funds aligns with the national priorities and development plans of both India and the recipient countries. Engaging in meaningful consultations with partner countries can help identify areas of mutual interest and ensure the effective utilization of resources.
Robust monitoring and evaluation mechanisms are necessary to assess the impact and effectiveness of development partnership initiatives. This includes setting clear objectives, defining measurable indicators, and conducting regular assessments to ensure the allocated funds are used efficiently and achieve the desired outcomes.
Strategic solutions
India should consider diversifying its development partnerships beyond the IIN countries to ensure a more balanced and equitable distribution of funds. This could involve exploring partnerships with other countries and regions that align with India’s strategic interests and development priorities.
Improving project management capabilities, including better planning, monitoring, and risk mitigation strategies, can help reduce the percentage of undisbursed funds and ensure the timely and effective utilization of allocated resources.
Promoting transparency and accountability in allocating and disbursing funds can help build trust with partner countries and ensure that the funds are being used for their intended purposes. This includes regular reporting, independent audits, and public disclosure of information related to development partnership initiatives.
India’s development partnership initiatives can serve as a platform for fostering regional cooperation and integration. By aligning its development cooperation efforts with regional development frameworks and initiatives, India can leverage its resources to promote shared prosperity and address common challenges.
India should focus on strengthening its domestic resource mobilization efforts to sustain and expand its development partnership initiatives. This includes improving tax collection, reducing tax evasion, and exploring innovative financing mechanisms to generate additional resources for development cooperation.
References
- MEA Performance Dashboard. (n.d.). https://meadashboard.gov.in/
- Neighbourhood first in MEA’s aid allocation. (n.d.). Drishti IAS. https://www.drishtiias.com/daily-updates/daily-news-analysis/neighbourhood-first-in-meas-aid-allocation
- How India Funds the World: Financial assistance in the immediate neighbourhood. (2019, May 29). Economic and Political Weekly. https://www.epw.in/engage/article/how-india-funds-world-financial-assistance
- In numbers: 16 years of data, 8 charts to decode India’s foreign policy and aid rhetoric. (n.d.). The Wire. https://thewire.in/politics/in-numbers-eight-charts-on-indias-foreign-policy-and-aid
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Benu, B. P. (2024, May 16). India’s foreign grant and loan disbursements, flat, since the pandemic. BusinessLine. https://www.thehindubusinessline.com/data-stories/data-focus/indias-foreign-grant-and-loan-disbursements-flat-since-the-pandemic/article68182136.ece
About Author: Pankaj Chowdhury is a former Research Assistant at the International Economic Association. He holds a Master’s degree in Demography & Biostatistics from the International Institute for Population Sciences and a Bachelor’s degree in Statistics from Visva-Bharati University. His primary research interests focus on exploring new dimensions of in computational social science and digital demography.
Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of 360 Analytika.
Acknowledgement: The author extends his gratitude to the Ministry of External Affairs for providing data support.
This article is posted by Sahil Shekh, Editor at 360 Analytika.
