International Relations Multilateral Prelims cum Mains

Tight-fisted neighbour? Indian aid to SAARC nations falls

The News

  • India’s financial assistance to SAARC neighbours declined considerably in the past five years.


How were the figures revealed?

  • The startling figures were revealed in the Lok Sabha in answer to a question whether India had completed projects committed to countries in the neighbourhood.
  • Ministery of State for External Affairs submitted a chart of India’s grant assistance (GA), or projects financed through a grant, to neighbouring countries.


Trends in financial aid

  • According to the figures, the India’s grant assistance actually fell from ₹5,928.6 crore for 2013-14 to ₹3,483.6 crore for 2017-18 for Afghanistan, Bangladesh, Bhutan, the Maldives, Nepal and Sri Lanka combined.
  • Significantly, the drop for most SAARC countries was most steep in 2014, the year the NDA government launched its tenure with the “Neighbourhood First” slogan.
  • The one exception was the Maldives, to which Indian assistance has been consistently have increased ten-fold from ₹9.67 crore in 2013-14 to ₹109.24 crore , despite the dip in bilateral ties over the conduct of elections this year and the crackdown on the Opposition parties by President Abdulla Yameen.



  • An assessment of fund requirement is made before each financial year, based on the progress in execution aligned with project implementation cycle.
  • Time lines fixed for projects vary, and are determined based on consultations with host governments and ground situation.


Reasons for the downtrend

  • The GA figures did not include the lines of credit extended to Nepal, Sri Lanka and Bangladesh. These lines of credit are given at the minimal interest rates of 1-2%, the official explained, compared with loans offered by China at 6-7%.
  • Financial assistance had a cyclical nature, and the GA figures for 2018-19 were expected to be higher for each of the countries involved.
  • One of the major reasons for the decline was that many projects had been completed in the neighbourhood and there were fewer projects started in the period since 2014.


Recent projects in SAARC nations by India’s GA

  • Afghanistan: The Salma dam project, Zaranj-Delaram highway project (linking Delaram road in Afghanistan to Iranian border Zaranj) and the Afghanistan Parliament
  • Bangladesh: Land acquisition for the Akhaura-Agartala rail “last link” project.
  • Bhutan: Hydroelectric power plants like Punatsanghchu 1 and 2 and Mangdechu
  • Maldives: A police academy, a coastal radar project, and the refit of MNDF ship Huravee.


Importance of projects in SAARC nations for India

  • Developing large hydropower projects in Bhutan is in India’s economic interests as it gets easy access to cheap electricity, especially during times of power shortages.
  • India has endeavoured to strengthen relations with Afghanistan, which provides an easy route to Central Asia- the hub of energy, minerals and gas resources and access to markets in the Middle East and Europe.
  • India’s foreign aid activities are mainly focused on reconstruction and development of Afghanistan, which would provide security and economic benefits to India in the longer term.
  • India is also funding various infrastructure development projects in Sri Lanka, Bangladesh, Nepal and the Maldives. These are typically ‘aid for trade’ projects as they aim at developing these countries’ trade capacity and infrastructure (roads, sea ports and airports), which significantly alters the time and costs of trading with them.
  • Enhancing connectivity among countries in South Asia fosters regional growth and prosperity.
  • Bhutan, Bangladesh and Nepal share borders with both India and China. Thus India also has strategic and security interests in South Asia that it pursues through its foreign aid programs.

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