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Budget aid ballast to diplomacy

New Delhi, July 13: The Narendra Modi-government is looking to drive its diplomatic manoeuvres with greater financial backing.

In little noticed moves, the government has ratcheted up the direct aid it gives to select countries, mostly in South Asia, by more than a third to Rs 9,434 crore. It has also pumped capital worth Rs 1,300 crore into the Exim Bank, which has already given out active credit lines to Third World countries, mostly in Africa, worth about $10 billion.

Top finance ministry officials said “the overseas direct aid in this year’s budget has been increased by some 34 per cent, while Exim Bank which gives soft loans to various countries under the government’s direction, besides supporting Indian exporters, will also receive a capital infusion”.

The officials said with this year’s capital infusion, Exim Bank would have received Rs 2,000 crore in two years. The government has raised its equity holdings to over Rs 5,000 crore in the bank, which should increase its ability to give soft loans in various countries.

The Rs 9,434-crore ($1.5 billion) direct aid is administered by the Development Partnership Administration. The country’s own aid arm also administers the $10-billion line of credit given out through the Exim Bank.

Of the direct aid, the largest chunk of Rs 6,074 crore will go to Bhutan, mostly to develop hydel projects and build infrastructure in the Himalayan kingdom. Afghanistan, where India has already pumped $2 billion in aid, will get Rs 676 crore. Most of the credit will be used to complete roads and dams. Sri Lanka, where India is working to rehabilitate and rebuild infrastructure among the Tamils of Jaffna, will get about Rs 500 crore.

Officials said the current lines of Exim Bank credit were mostly directed at Africa, helping Indian companies to build roads, railways, electricity grids, hydel power projects and educational and healthcare institutions in the continent.

Sources at the Exim Bank said the value of the credit lines could be expected to go up 50 per cent over the next two years, as India expands its footprint in Africa and Southeast Asia.

India’s $1.5 billion in direct aid is comparable with overseas assistance provided by Italy, Australia and South Korea. However, the aid is still modest by global standards.

Britain, where a debate raged last year about whether it should continue to give India aid, has an annual budget of 12 billion. The US, the world’s biggest donor, spends about $20 billion in aid. Japan gives about $6 billion and China over $14 billion a year, mostly in Africa.

Officials said it was likely that the country’s foreign aid would jump under the leadership of Prime Minister Narendra Modi.

The idea of an Indian aid agency was first introduced by former finance minister Jaswant Singh in his budget speech in 2003 when he outlined plans for an “India Development Assistance” (IDA) organisation. Earlier, India had decided to stop receiving aid from a large number of European countries who had threatened the country with sanctions after New Delhi conducted its second round of nuclear tests in 1998.

The proposal was not implemented as the BJP-led government demitted office the following year. Prodded by the then external affairs minister Pranab Mukherjee, India again started thinking of an aid arm and in 2007, it was announced that the country would set up the India International Development Cooperation Agency (IIDCA). However, the unit started functioning only in January 2012 with innocuous name of the Development Partnership Administration.

 
 
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