Liberalization in India led to revolutionary changes in the economy and also had an immense impact on India’s foreign policy. Economic diplomacy became a central feature of India’s foreign policy, and high growth rates in the ensuing years enabled the expansion of its development cooperation programme with other developing countries in Africa and the neighbourhood. From the early 2000s onwards, India started using concessional lines of credit as one of its key development partnership instruments. Through this system, India offers an alternative project financing option to other developing countries in Africa and Asia, and also creates opportunities for Indian companies to enter new markets. India’s lines of credit are completely demand-driven, mutually beneficial, and devoid of the strings attached to traditional donor-recipient conditionalities. The EXIM Bank currently has 236 operative lines of credit worth US$ 24.8 billion in about 60 countries.
Despite these dramatic changes, popular discourse on foreign policy in India continues to focus on political and strategic issues. Unlike other countries like the United Kingdom, questioning foreign assistance is not the norm. For instance, the Indian media has not delved in to key questions like identifying the exact goals of India’s development cooperation programme, and determining whether or not it is producing commensurate returns for the country. However, it will not be possible to evade these questions for a long time. At a time when India’s economy is slowing down, it will get increasingly difficult to justify the allocation of resources for global development to the domestic audiences without commensurate gains in the future.
As stated above, unlike the OECD-DAC countries, India does not believe in the donor-recipient relationship, and believes in partnership for mutual benefit. Thus, there is a recognition of self-interest in India’s development cooperation strategy but benefits must accrue to both countries. The EXIM Bank’s website clearly states that one of the main objectives of lines of credit is to help Indian exporters enter new markets and expand their presence in existing ones. However, we don’t yet have an objective analysis of the lines of credit programme to assess the exact economic gains of the programme. For instance, so far, India has extended concessional credit lines worth US$ 8.7 billion to African countries, but recent reports suggest that India’s exports to Africa decelerated from 2014 onwards. Apart from the mandatory 75% content clause, there is little evidence to prove that Indian lines of credit promote India’s investment and trade goals in recipient countries. My research on Indian investments and lines of credit in Africa revealed that Indian lines of credit are not very well aligned with Indian investments in Africa. A similar study on Cambodia, Laos, Myanmar, and Vietnam (commonly known as CLMV countries) also revealed that lines of credit contribute to India’s goodwill in recipient countries but have little role in promoting India’s commercial interests in the region. Research also suggests that India fares poorly when it comes to project completion; moreover, the disbursal rates of its lines of credit projects are quite low. Given that India is trying to construct a global image for itself through its development cooperation initiatives, such delays in project implementation bring disrepute to the country and also waste precious public resources. It is also important to note that many of the recipient countries in Africa, as well as the neighbourhood, have access to financial resources at much cheaper rates when compared to China and other countries which have a much better track record in project implementation. Therefore, problems concerning implementation must be addressed immediately.
As of now, India’s lines of credit programme (which is the main instrument of development cooperation) is operating as a standalone instrument of diplomacy, and is misaligned with the country’s economic interests. Generating goodwill is also an important objective of development cooperation, but given the emphasis on mutual benefit and India’s development challenges, India needs to weigh in on the economic gains of the programme as well. To make commensurate gains from its development cooperation initiatives, India should try to reorient its development cooperation strategy to be more economically productive and favour countries and sectors in which it has substantial interests. The country must also try to develop an integrated approach to trade, investment, and development cooperation. The scope of economic diplomacy cannot be restricted to the Ministry of External Affairs alone because economic diplomacy entails the use of the entire gamut of economic instruments for national interest. Therefore, there must be greater coordination between all government departments which have economic responsibilities and operate internationally. In other words, different government departments should contribute to aligning India’s development cooperation (lines of credit in particular) with its economic interests.
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Dr Malancha Chakrabarty is Senior Fellow and Deputy Director (Research) at the Observer Research Foundation where she coordinates the research centre Centre for New Economic ...Read More +