Indian Politics & Policy Volume 1, Number 2, Fall 2018 | Page 64

Foreign Assistance in India’s Foreign Policy: Political and Economic Determinants
India: Emerging Development
Partnership Policies
Historical Background
and Evolution
Historically, India’s assistance to
fellow developing countries began
in 1949 with scholarships
and humanitarian assistance in cases
of famine. 2 The Colombo Plan was the
main channel for scholarships, although
India’s own International Technical and
Economic Cooperation (ITEC) program
started in 1964 for training and
transfer of expertise. Nepal and Bhutan
were the earliest recipients of Indian assistance
and from 1959, India has been
giving program-based assistance as annual
grants to these countries, worked
into their and India’s five-year plans.
Indian assistance has traditionally
been coordinated by two ministries,
the Ministry of External Affairs (MEA)
and the Ministry of Finance’s Department
of Economic Affairs (DEA)
(see Agrawal 2007; Chanana 2009;
Chaturvedi 2012a, 2012b, 2008; Kragelund
2010; Mullen 2012, 2013; Naidu
2008; Price 2005, for accounts of India’s
emerging assistance policies). The
MEA concentrates on neighbors like
Nepal, Bhutan, and other South Asian
countries, for immediate geopolitical
reasons of keeping them from aligning
against India, and gave mainly grants
and lines of credit (LOC) (through the
Exim Bank since 2004–05), and also assistance
through the ITEC program.
ITEC, which came into existence
in 1964, operates through four modalities:
training in India, project assistance,
study trips, and humanitarian
assistance. The DEA (in the Ministry of
Finance) gave LOC to a range of developing
countries, especially South Asian
neighbors.
Exim Bank LOC
There was a basic policy shift from 2003
to 2004 from government to government
credit lines to government-supported
LOC through the Exim Bank of
India. As the Ministry of Finance put it:
Policy on Lines of Credit: For
about four decades, Department
of Economic Affairs on behalf
of Government of India had
been extending lines of credit
(LOCs) to friendly developing
foreign countries. These LOCs
were essentially “Government
to Government” (G to G) credit
lines as the credit agreements
were signed between GOI and
the Government of the recipient
country. Till 2003–04, the
LOCs were from Government
to Government. Accordingly
the full amount covered by the
LOCs, used to be provided in
the Budget. Since 2003–04, this
system has been substituted by
extending GOI supported Lines
of Credit through Exim Bank of
India. 3
To address a question that can
be raised, at the outset, viz., why should
LOC be considered foreign assistance
and not commercial activity? The answer
is that it is government-subsidized
and below market rates of interest:
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