What India’s Finance Budget Means For Its Foreign Policy – Analysis


As India’s Finance Minister Arun Jaitley unveiled the government’s finance budget for the next fiscal, it included the External Affairs Ministry’s budget outlay of Rs 14,798 crore. India’s multilateral and bilateral aid and assistance programmes for its neighbouring and other developing countries form part of this financial allocation. This assistance is provided to immediate neighbouring countries and also to countries of Africa, Central Asia, South Asia and Latin America. It also caters for aid for disaster relief and humanitarian aid. The provision also includes aid assistance to Bhutan, Myanmar and Afghanistan.

In comparison with last year’s revised estimate (RE), the MEA will have additional INR 13.72 billion to spend. The overall budget for Ministry of External Affairs has been increased from INR 134.26 billion to Rs 147.986 billion. The capital budget for the next fiscal is INR 21.50 billion; which is INR 3.02 billion more than last fiscal’s revised capital budget of INR 18.47 billion. The international aid allocation for the next financial year is INR 64.79 billion whereas in the last fiscal the revised budget was INR 59.40 billion.

India will spend INR 1.50 billion on the strategic Chabahar port in Iran, INR 500 million more than in last fiscal. A commercial contract for the development and operation of Chabahar Port was signed between India, Iran and Afghanistan last year in Tehran during Prime Minister Narendra Modi’s visit. The allocation for the port made a debut in last year’s revised budget as no allocation was made for the project in last year’s Budget, the government was later allocated INR 1.0 billion at the RE stage to start it.

The Modi government’s “neighbourhood first policy” is seeing aid worth hundreds of millions to neighbouring countries as well as those in the extended neighbourhood including the Indian Ocean rim countries of Mauritius and Seychelles but there has been a decline in allocated aid for countries like Afghanistan where India has already completed a few important development projects.

Bhutan, the biggest beneficiary of Indian foreign aid, will get INR 37.14 billion with INR 16.30 billion earmarked for capital expenses. The allocation for the year is INR 1.54 billion less than last year’s revised allocation of INR 38.68 billion. The Government of India had provided Bhutan with an assistance package of INR 45 billion towards the 11th Five Year Plan of Bhutan (2013-18) comprising of INR 28.0 billion as Project Tied Assistance (PTA), INR 8.50 billion for Programme Grant and INR 8.50 billion for Small Development Projects (SDPs).

India’s aid to Nepal for next fiscal is INR 3.75 billion, INR 550 million more than last year. The development assistance extended to Nepal in 2014-15 was INR 4.20 billion, and that in 2015-16 was INR 3.0 billion. Four lines of credit totaling INR 112.03 billion have been extended to Nepal so far.

Since 2005, the Government of India has committed INR 23.0 billion as grant assistance and INR12.9 billion under Lines of Credit for the rehabilitation of Internally Displaced Persons and reconstruction of infrastructure in the Northern and Eastern Provinces of Sri Lanka. India’s flagship project of assistance to Sri Lanka – the Housing Project for construction of 50,000 houses in the North, East and Central Provinces, had an overall commitment of over INR 13.72 billion in grants. Rehabilitation of the Northern Railway line, Palaly airport and Kankesanthurai harbor(Jaffna District, Northern Province); setting up vocational training centres and child care centres; construction of hospitals; livelihood and employment generation projects; women’s empowerment programme; construction of a cultural centre at Jaffna and other small developmental projects. Projects completed in 2015 include the Mahatma Gandhi International Centre in Matale (Central Province), Language Labs in Ampara, Matara, Badulla and Jaffna and a 200 bed ward complex in Vavuniya(Northern Province). Bilateral cooperation has continued to expand in various areas particularly, defence, economic, education, agriculture, development partnership,

Afghanistan will get INR 3.50 billion. There has been a deep reduction in the Indian support to Afghanistan. In 2015-16, INR 8.80 billion was spent in Afghanistan. This fell to INR 3.15 billion in the revised budget of 2016-17. The aid to Afghanistan is therefore down from the initial INR5.20 billion announced in the budget for 2016-17 but is up from the revised estimates for 2016-17. In several cases, the allocated amounts are closer to the revised estimates which are essentially the amounts likely to be spent in the current fiscal 2016-17 of which there are still two months to go.

Maldives has seen the highest jump in allocation — from INR 800 million last year to INR 2.45 billion, a three-fold hike. Other allocations to countries are Mauritius (INR 3.50 billion ), Seychelles (INR 3.0 billion), and Myanmar (INR 2.25 billion). In the field of development assistance, India had provided to Seychelles a grant of US$ 4.3 million for procurement of public transportation buses, medicines, ICT equipment and educational items.

In the case of Myanmar during the visit of the Indian Prime Minister to Myanmar from May 27-29, 2012. PM and President U Thein Sein signed 12 Agreements and MOUs including on USD 500 million Line of Credit, on Air Services, Border Areas Development, on Establishment of the Advanced Centre for Agriculture Research & Education (ACARE) Rice Bio Park Myanmar and Institute of Information Technology with Indian assistance, Establishment of Border Haats, Joint Trade and Investment Forum, MoUs for Cooperation amongst Think Tanks/ Institutes of the two countries and support for HRD through 500 training slots. With new road projects like the Trilateral Highway and Rhi-Tiddim road, India’s commitment to Myanmar’s development stands at US$ 2 billion.

India has responded promptly and effectively to assist Myanmar in humanitarian relief operations following natural calamities like Cyclone Nargis in 2008, the earthquake in Shan State in 2010 and cyclone Komen in 2015. Besides immediate relief material, medical assistance, supplies for rehabilitation work, biomass gasifiers, solar torches & lanterns, India also replaced 16 damaged transformers and given a grant of USD 200,000 to repair the Shwedagon Pagoda complex in Yangon.

India also gave assistance of USD 1 million for relief and reconstruction work in the quake affected zone in Shan State, of which 250,000 was given as a cash grant and the remainder used to finance reconstruction of 1 high school and 6 primary schools. India also donated US$200,000 in cash to GOM for Rakhine State rehabilitation. India again provided a sum of US$ 1 million to Government of Myanmar for promoting inter-communal harmony in Rakhine State which the Myanmar Government has chosen to use to construct 10 schools to serve both communities and promoting communal harmony.

Foreign policy analysts feel that these projects are being undertaken with Indian assistance at a time when China is increasing its presence in South Asia and the Indian Ocean region. Therefore, even though Mauritius and Seychelles are located thousands of kilometres from the Indian mainland in the southern Indian Ocean, they are strategically important for India which has stepped up naval cooperation with these countries. Chinese submarines have been making forays through the Indian Ocean, something which has worried India. Bhutan, on the other hand, has traditionally enjoyed the warmest ties and had also last year joined the boycott of the then proposed SAARC summit in Islamabad which was eventually cancelled. India has undertaken a few development projects in Afghanistan including the Friendship Dam there which has sent an important message to the Afghans.

This article was published at South Asia Monitor.

Monish Gulati

Monish Gulati is an independent analyst based in New Delhi.. He can be reached at [email protected]

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