External Assistance to India: From Aid Recipient to Regional Donor

What India announced

• In his February 2003 budget speech, Finance Minister Jaswant Singh said India should review its dependence on outside donors.
• He also said India should support other developing countries.
• The details came in June 2003. India would accept no more tied aid.
• It would take bilateral aid from just five countries: the UK, the US, Russia, Germany and Japan. The European Union stayed on too.
• Another 22 smaller donors were asked to send their money through NGOs, UN agencies or other multilateral bodies.
• India also paid back its bilateral debt early, except what it owed Japan, Germany, the US and France.
• It cancelled debts owed by seven heavily indebted poor countries. (Source: Chatham House working paper)

Why it was not a total rejection

• Aid already agreed was allowed to finish.
• The big donors, such as Japan, the UK and Germany, kept working with the Indian government directly.
• So the policy was about scale and efficiency. It was not about refusing all help.

India as a receiver of aid

• India took foreign aid from the first years after independence.
• From 1946 to 2012, India received about US$65.1 billion in US economic aid, adjusted for inflation. That made it the top US aid recipient in those years.
• By 2010, aid was under 1% of India’s GDP.
• In the second Covid wave of 2021, 52 countries sent help. The list included France, the US, the UAE, Australia and Bhutan.
• In 2025, the US mission in India began reviewing its grants after the US froze foreign aid. (Source: Wikipedia: Foreign aid to India)

India as a giver today

• India now sends help as well as taking it.
• Its technical help reaches far beyond South Asia. ITEC covers Asia, Africa, Latin America, the Pacific and the Caribbean.
• Even so, South Asia receives about 70% of ITEC grants.

Three main tools

• Grants. The MEA budget gives money to partner countries. There is no repayment.
• Lines of Credit. The EXIM Bank lends money for projects. The loan is repaid, usually on soft terms.
• ITEC training. India pays all costs for officials from partner countries to train in India.

ITEC and the DPA

• ITEC began in September 1964. It now covers 158 countries.
• It has spent over US$2 billion since it began. (Source: Wikipedia: ITEC)
• It trains civil and defence staff. It also funds projects, study tours, equipment and disaster relief.
• In 2012 the MEA set up the Development Partnership Administration to manage all outgoing aid in one place.
• For its role, see IntlRel0013 — India’s Climate Diplomacy and Development Partnership Administration.

Lines of Credit in 2003

• A 2003-04 plan used the EXIM Bank to offer long, cheap credit lines.
• The government paid up to 2.5% interest support to the banks, so the rate stayed near Libor plus 50 basis points. (Source: Chatham House working paper)
• Read more: IndEco0239 — Export-Import Bank of India (EXIM Bank).

The 2025-26 budget

• The MEA set aside ₹5,483 crore for aid to foreign countries.
• Bhutan got the most, ₹2,150 crore. That is about 39% of the total.
• Nepal got ₹700 crore, and the Maldives ₹600 crore.
• Sri Lanka rose from ₹245 crore to ₹300 crore.
• South Asia took ₹4,320 crore, roughly four-fifths of the total. (Source: Outlook India)

The 2026-27 budget

• Bhutan stayed at the top with ₹2,288 crore. Nepal rose to ₹800 crore.
• The Maldives fell to ₹550 crore, and Mauritius also got ₹550 crore.
• About ₹4,548 crore was set aside for immediate neighbours. (Source: Business Standard)

Trap: aid is strategy too

• Sri Lanka, Nepal and the Maldives are also where China has grown its footprint.
• So Indian aid builds goodwill, but it is also a geopolitical tool.
• Do not call all Indian aid a grant. Read the question for “grant” or “line of credit”.
• Related: IntlRel0072 — India-Bhutan Relations: Power Sector Cooperation.