India to increase foreign aid
Last week India's new government announced that it would increase the number of donors from whom it would accept foreign aid, thereby inviting new aid packages of more than $25million a year. Although India already receives around $5billion a year in foreign aid, the announcement came as a surprise to many donors, given the previous government’s attempts to establish India as a "giver" rather than a "receiver" of aid.
New Prime Minister, Manmohan Singh, has signaled that the new government is continuing to work toward this goal, but has not been specific on how they plan to reach it. Although the direction of India's new foreign aid policy has not been clarified; it consists partly of extending soft loans to poorer countries while gradually decreasing its own dependence on foreign aid.
This approach has been criticized as "muddled, if not hypocritical" by the Royal Institute of International Affairs, based in London, and here is why. India, while refusing to be tied down by those who send her aid, sends out its own aid with strings attached. Its financing schemes, routed mainly through Africa, are linked to the purchase of Indian goods and services. Discount loans to finance Indian exports, as well as commercial loans in excess of $100million, were offered to African counties last year.
There is also the $19million World Bank contract secured by Indian auto-maker Tata Motors, to supply 500 buses to Senegal, lines of credit totaling around $800million to African interests, and the $40million extended to Angola for a railway project managed by the consulting arm of Indian Railways. These schemes help explain the 16% increase during 2003-4 of Indian exports to Africa. The former foreign minister of India says that these schemes, grouped under the India Development Initiative, were meant to promote India as a donor country and that the loose ties to Indian exports were supposed to promote trade between developing countries.
India's new finance minister has put the entire program under review, due to growing uncertainty as to whether the initiative was really meant to channel Indian aid into other countries or to attract investment to India.
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New Prime Minister, Manmohan Singh, has signaled that the new government is continuing to work toward this goal, but has not been specific on how they plan to reach it. Although the direction of India's new foreign aid policy has not been clarified; it consists partly of extending soft loans to poorer countries while gradually decreasing its own dependence on foreign aid.
This approach has been criticized as "muddled, if not hypocritical" by the Royal Institute of International Affairs, based in London, and here is why. India, while refusing to be tied down by those who send her aid, sends out its own aid with strings attached. Its financing schemes, routed mainly through Africa, are linked to the purchase of Indian goods and services. Discount loans to finance Indian exports, as well as commercial loans in excess of $100million, were offered to African counties last year.
There is also the $19million World Bank contract secured by Indian auto-maker Tata Motors, to supply 500 buses to Senegal, lines of credit totaling around $800million to African interests, and the $40million extended to Angola for a railway project managed by the consulting arm of Indian Railways. These schemes help explain the 16% increase during 2003-4 of Indian exports to Africa. The former foreign minister of India says that these schemes, grouped under the India Development Initiative, were meant to promote India as a donor country and that the loose ties to Indian exports were supposed to promote trade between developing countries.
India's new finance minister has put the entire program under review, due to growing uncertainty as to whether the initiative was really meant to channel Indian aid into other countries or to attract investment to India.
The article can be seen here.
(free registration required to view article)
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