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Money muscle to Modi’s neighbourhood swagger

New Delhi, July 10: India has hiked its budget for foreign aid to its neighbours by over 20 per cent, adding critical financial muscle to the Prime Minister’s drive to reassert the country’s primacy in South Asia at a time New Delhi fears Beijing’s growing investments in the region.

Finance minister Arun Jaitley today allocated Rs 8,336 crore to India’s foreign aid kitty for the current financial year, including Rs 7,525 crore just to the country’s immediate neighbours — Bhutan, Afghanistan, Bangladesh, Myanmar, Nepal, Sri Lanka and the Maldives.

The amount allocated to the neighbours, who along with India and Pakistan constitute the South Asian Association of Regional Cooperation, exceeds the total foreign aid budget slotted last year for all developing nations — Rs 6,967 crore. The aid budget for India’s neighbours last year was Rs 6,217 crore.

“This is a clear signal of intent, reconfirming the Prime Minister’s decisive objective to not just mend bridges with our neighbours, but to ensure that India remains at the heart of South Asia’s economic aspirations,” a retired diplomat who has served in multiple Saarc nations told The Telegraph, requesting anonymity because he remains closely involved with back-channel diplomacy efforts.

Over the past few years, India’s foreign policy establishment has increasingly fretted about China’s growing clout among its neighbours at a time its own relations with Saarc nations have frequently slipped at the altar of domestic politics.

As Myanmar opened up its economy and invited foreign investors, China stole a lead over India. The pressure of Tamil Nadu politics forced India to vote against Sri Lanka twice at the United Nations Human Rights Council against advice from the foreign office, pushing Colombo closer to Beijing.

Opposition from Mamata Banerjee and the absence of a clear mandate in Parliament stopped the UPA government from fulfilling key promises made to Bangladesh on a land swap agreement and a pact to share the Teesta river waters. After Bhutan indicated it was willing to deepen diplomatic ties with China, India cut fuel subsidies to the nation, pushing its New Delhi-dependent economy to the brink of collapse.

And the Maldives terminated a 25-year contract it had struck with Indian infrastructure firm GMR for building and running the Male International Airport, triggering tension unprecedented between New Delhi and its tiniest neighbour.

Modi, in his election campaigns, on several occasions referred to India’s frayed relations with its neighbours, and broke with tradition by inviting the heads of government of all Saarc nations and Mauritius to his swearing-in ceremony on May 26.

He next picked Bhutan as his first foreign destination, and has instructed the foreign ministry to re-prioritise its focus — by training it on the neighbourhood first.

But foreign policy analysts and diplomats remained concerned, arguing that India must also demonstrate its intent to compete in economic diplomacy with China in the neighbourhood, even though its economic resources are no match for Beijing’s.

The budgetary hike for aid to neighbours will assuage some of those concerns. Bhutan, for instance, will received Rs 5,050 crore in aid this financial year — more than the foreign ministry’s total budget till just four years ago.