Budget 2018 will help improve India’s foreign engagements

The Union Budget includes provisions for India’s growing external engagements, including allocations for economic diplomacy and capital receipts from various multilateral and bilateral agencies

February 2, 2018

Indian Government’s provisions for grants and loans to foreign governments and entities under Budget 2018-19 totals US$1.1 billion—a 16.7 per cent jump from 2017-18

This financing, which supports technical and economic cooperation with other countries, is done primarily through three ministries—External Affairs, Finance and Home.

A total of US$308 million has been earmarked for India’s contribution to various international developmental bodies, under the purview of all ministries’ operations

Budget 2018-19 also estimates that India will receive a total of US$5.3 billion (compared with receipt of US$4.6 billion grant during 2017-18) for externally aided projects

India’s Union Budget for the financial year 2018-19 is not only a statement of revenues and expenditure, but is also regarded as the Central Government’s annual economic policy document. The financial budget for the year starting April 1st 2018 was presented by India’s Finance Minister, Shri Arun Jaitley, in the Parliament on February 1st. The detailed budget document include provisions for the Government’s external engagements, including allocations for economic diplomacy and capital receipts from various multilateral and bilateral agencies. The Budget helps in explaining how India discharges its roles and responsibilities as a global stakeholder and as a leading member among developing nations.

Rising allocation for foreign interactions

India is a member of multiple plurilateral and multilateral international institutions and the country’s membership fees (or contribution towards shareholding) are budgeted every year. In some years, fluctuations in the allocations also reveal a recalibration of the arrangement. The expenditure budget for 2018-19 reveals India’s stress on external priorities. The nation’s grants and loans to foreign governments totals US$1.1 billion —a 16.7 per cent jump from 2017-18. This financing, which supports technical and economic cooperation with other countries, is done primarily through three ministries—External Affairs, Finance and Home.

The budget allocation for India’s multilateral and bilateral aid, as well as assistance programmes, through the Ministry of External Affairs, has increased by 18% year over year to around US$930 million for 2018-19. These funds are provided primarily to neighbouring and other developing countries in Africa, Central Asia, South Asia and South America. Apart from general assistance, the funds are also earmarked as aid for disaster relief and humanitarian purposes.

Improved budget for stronger diplomacy

There is a special emphasis on the immediate neighbourhood. Bhutan has been allocated US$412 million, against US$401 million spent during 2017-18. This includes US$130.6 million for capital expenditure (mostly budgeted for infrastructure projects, such as roads or bridges) against US$124.4 million in the previous year. Nepal gets US$101 million, a 73 per cent jump compared from the previous year. Additionally, an amount of US$23.3 million has been budgeted for Chabahar Port which is being constructed jointly by India and Iran to allow road access to Afghanistan and Central Asian countries without having to traverse through Pakistan. The Foreign Ministry has also kept aside US$68.5 million (against US$63.8 million) as assistance towards international training programmes.

The budget allocation for India’s multilateral and bilateral aid, as well as assistance programmes, through the Ministry of External Affairs, has increased by 18% year over year to around US$930 million for 2018-19

As part of its wider economic and social diplomacy, India’s Ministry of External Affairs also operates a partnership programme called the Indian Technical and Economic Cooperation Programme (ITEC). Under this, civilian and defence professionals from more than 160 ITEC partner countries are provided training and capacity-building opportunities with various institutions across India. In addition, India provides expertise for project and project-related activities (such as, conducting feasibility studies) or deputes Indian experts to other developing nations that are willing to tap into India’s development experience. An allocation of US$43.6 million has been made for ITEC during 2018-19, compared with US$34.2 million during 2017-18.

Increased support for Lines of Credit

India’s economic diplomacy and development partnership is also conducted through Lines of Credit (LoCs), a form of concessional credit provided by the Indian government to help developing nations implement large and complex projects. Under the programme, the host country selects the projects for funding—Indian LoCs distinguish themselves from other bilateral aid projects by allowing the host country to decide the project—and the final disbursement is done through Exim Bank of India Ltd. The Indian Government reimburses the Exim Bank the difference between the commercial and concessional rate every year through a Budget entry called “interest equalisation support”. Budget 2018 has allocated US$104.3 million towards this account, compared with US$91.8 million during 2017-18. This indicates that a larger number of LoCs will become operational this year, thereby expanding India’s developmental footprint.

Rising aid to foreign organisations

A total of US$308 million has been earmarked for India’s contribution to various international bodies, across all ministries. The contribution during 2017-18 had amounted to US$328.5 million. From this, the largest contribution—US$63.8 million—is from the Ministry of Finance towards the International Development Association, a part of the World Bank that helps the world’s poorest countries by providing concessional loans. The second largest contribution is from the Ministry of External Affairs providing US$59.2 million towards the South Asian University. The University has been established by the eight member nations of the South Asian Association for Regional Cooperation (SAARC) viz. Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.

Budget 2018 estimates India will receive a total of US$5.3 billion (US$4.6 billion during 2017-18) as externally aided projects. Of this, US$2.4 billion will come for Central Government projects and the rest US$2.8 billion for state level projects. The funding is being provided by multilateral institutions such as the Asian Development Bank, World Bank, New Development Bank (colloquially referred to as the BRICS Bank), European Investment Bank and International Fund for Agricultural Development. Funds also come from bilateral agencies in partner nations such as Japan, France, Germany and Russia. In addition to its Budgetary resources, India uses soft skills such as, culture, skills, technology and people-to-people contacts to bolster its global credentials.

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