India’s aid to SAARC nations falls

Prelims level : Mains level : GS-II India & its Neighbourhood Relations
No Set Found with this ID

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


  • Grant Assistance (GA) 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 one exception was the Maldives, to which Indian assistance has been consistently increasing year on year since 2013, despite the dip in bilateral ties.


  • The financial assistance is a “cyclical” nature, the GA figures for 2018-19 were expected to be higher for each of the countries involved. The GA for Nepal in 2017-18 was ₹26 crore, for instance, and was expected to rise this year to ₹650 crore.
  • These trends are mainly related to project cycles, for instances in Afghanistan, our major projects the Salma dam and the Afghanistan Parliament were done and handed over.
  • In Nepal the assistance required for major hydroelectric power plants like Punatsanghchu 1 and 2 and Mangdechu has been disbursed 75-90%. So, there is a natural tapering until we undertake the next major project.
  • India has shifted to work on small development projects (SDPs) rather than the ambitious highways, dams and big building projects that were started in 2008-09.
  • In Sri Lanka, the decline was explained by delays in land acquisition for 15,000 homes to be built by India in the plantation areas.
  • India emerged as a benevolent donor for her immediate neighbours with total foreign assistance, including technical and economic cooperation, and loans to foreign governments, increasing dramatically over the past years.
  • Out of India’s total foreign aid budget in 2015-16, about 74.6 percent was pledged for Bhutan, followed by 9.1 percent for Afghanistan, 6.6 percent for Sri Lanka, 4 percent for Nepal and 2.8 percent each for Bangladesh and Maldives.
  • It is noteworthy that aid by India to smaller nations in the neighbourhood goes beyond altruism
  • The relative shares of these economies in the aid outlay indicate their reliance on India on the one hand, and India’s strategic and economic interests in them on the other.

Economic Interest:

  • Bhutan holds greater significance for India as it is an important source of India’s imports of electricity, base minerals, cement, chemicals and wood products. Particularly, hydropower electricity is central to cooperation between India and Bhutan.
  • A major part of India’s aid to Bhutan during 2016-17 approximately 78 percent is budgeted for construction of hydropower project. 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. With escalating demand and competition over energy resources in the world, India is undertaking numerous projects in its neighbourhood for securing reliable and cheap sources of energy supplies.
  • 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.
  • 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. Due to limited transport arrangements connecting countries in South Asia, trade costs (or transport costs) are typically high for traders in this region.
  • India intends to reduce the cost of trading by directing aid towards improving regional transport connectivity, especially between north-eastern states in India and landlocked countries like Bangladesh, Bhutan and Nepal.
  • Enhancing connectivity among countries in South Asia fosters regional growth and prosperity.

Strategic and Security Interests:

  • China gaining access to these countries, it would open an easy route for it to eastern and north-eastern states in India. This raises a security concern for India.
  • In response to this threat and to ensure regional connectivity, India is engaging with South Asian countries on a sub-regional level.
  • It has inked motor vehicle agreements with Bangladesh, Bhutan and Nepal, which would provide an easy and seamless movement of cargo, people and vehicles among them.
  • In order to check China’s growing footprints in South Asia, India has expedited its own plans to establish links with Chabahar port in Iran via Afghanistan.

Significance of India’s Aid:

  • Indian aid programs does not interfere with recipient’s domestic policies and respect their sovereignty.
  • These programs thus are incompatible to western aid strategy, as India’s aid will have a direct impact on development of the recipient via targeted investment in sectors like energy, manufacturing, connectivity, trade infrastructure etc.
  • Foreign assistance from India however does not promote a culture of pauperization (absolute dependence) in the recipient country as advocated by traditional foreign aid theorists.
  • India’s aid strategy in South Asia rests on tenets of common development, equality and mutual benefit.
  • In addition, Indian aid projects provide autonomy to the recipients as these are based on a demand-driven approach wherein aid-receiving countries identify priority sectors for investment and development cooperation.
  • Sectors are predominantly energy and transport, which are pivotal to development of the entire South Asian region.
  • India does not follow ‘one size fits all’ approach while providing aid to South Asian economies. It formulates an aid package specific to interests of the recipient country.
  • This India’s aid programs in South Asia that are based on common development goals and are guided by recipients’ needs and demand.
Share Socially