THE CONTEXT: Amid a steep 7.1 per cent fall in Official Development Assistance (ODA) to USD 212.1 billion in 2024 and record-high developing-country debt servicing of USD 921 billion in 2024, India’s traditional Lines of Credit (LoC) model faces headwinds. Prime Minister Narendra Modi’s Global Development Compact (GDC), announced at the 3rd Voice of Global South Summit 2024, seeks a balanced mix of trade, capacity-building, technology and concessional finance to reset that paradigm.
THE BACKGROUND:
| MILESTONE | KEY FEATURES | IMPACT |
|---|---|---|
| IDEAS Scheme (2004) | Budget-funded interest equalisation on Exim Bank LoCs | > 300 LoCs worth ~USD 32 billion to 68 countries |
| Budget 2025-26 | MEA aid & loans head ₹20,516 crore (-7 % YoY after one-off guaranteed payment) | Signals sharper scrutiny of loan portfolios |
| Triangular Development Co-operation (JDI, 2022) | India-Germany joint projects in Cameroon, Ghana, Malawi, Peru | Pilot for “pooled expertise & pooled capital” |
THEORETICAL FRAMEWORK:
| APPROACH | CORE IDEA |
|---|---|
| South–South Co-operation (SSC) | Horizontal, demand-driven knowledge & resource exchange among developing states |
| Triangular Co-operation (TrC) | SSC + facilitation/funding from a North partner/multilateral; risk-sharing & technology conduit |
| Blended-Finance 2.0 | Public concessional finance crowds-in private investment via guarantees and first-loss capital |
CURRENT SCENARIO AND DRIVERS:
-
- Liquidity Crunch: Global public debt hit USD 102 trillion; 61 developing states spend >10 % of revenues on interest, shrinking fiscal space for SDG projects.
- SDG Financing Gap: UN estimates the annual shortfall has widened from USD 2.5 trillion (2015) to USD 4 trillion (2024).
- ODA Retrenchment: Proposed UK FCDO and US budget cuts could push ODA below USD 200 billion by 2026.
- Non-DAC Surge: Flows from 19 non-DAC providers jumped from USD 1.1 billion (2000) to USD 17.7 billion (2022), validating peer-learning models.
INDIAN POLICY ECOSYSTEM:
-
- IDEAS 2.0 (proposed): Align LoCs to SDG impact, introduce currency-hedged local-currency windows.
- EXIM Bank-NABARD “Rural Connect” Window: Channel Indian agri-tech start-ups to African LoC projects – pilot under discussion.
- Global Innovation Partnership (GIP) with the United Kingdom: Scaling 25 Indian social-enterprise models to third countries; leverages grant + equity blend.
- Draft Development Partnership Administration Bill: envisions a statutory “India Development Partnership Agency” for transparency, evaluation and ethical safeguards (cabinet note 2025 – in-process).
GLOBAL BEST PRACTICES:
| COUNTRY/INSTITUTION | PRACTICE | PROBITY |
|---|---|---|
| Japan–Indonesia–ASEAN Grid | Co-financed cross-border energy projects with technology transfer | Integrity pacts cut procurement collusion |
| Germany–Brazil–Mozambique Health Initiative | Tri-sectoral governance board (govt–NGO–private) | Ensures objectivity & citizen oversight |
| OECD “TOSSD” Reporting | Unified metric for SSC & TrC flows | Enhances transparency & accountability |
THE ISSUES:
-
- Debt Sustainability Risk: High coupon LoCs can exacerbate partner debt distress when local currency’s slide, eroding goodwill and violating principles of responsible lending.
- Project Pipeline Deficit: Many Global-South partners lack bankable, climate-aligned project proposals; India’s LoCs remain under-utilised (~40 % disbursement lag).
- Fragmented Governance: Multiple Indian agencies (MEA, Exim Bank, Line Ministries) create coordination gaps, delaying clearances and ex-post evaluation.
- Limited Private-Capital Mobilisation: Indian concessional windows seldom crowd-in domestic corporates or impact funds, missing SDG-aligned investment opportunities.
- Data Opacity: Absence of a real-time public dashboard on LoC performance weakens parliamentary scrutiny and public trust.
- Ethical Concerns Abroad: Allegations of tied-procurement and lack of environmental-social safeguards can tarnish India’s image of Vasudhaiva Kutumbakam.
THE WAY FORWARD:
-
- Shift to Pooled, Guarantee-Backed Funds: Create a South-South Green Infrastructure Fund, seeded by India and like-minded partners, using partial-risk guarantees to unlock climate FDI. This de-risks projects without adding sovereign debt.
- Local-Currency LoCs: Pilot rupee-denominated loans with currency-swap lines (as done in SAARC) to insulate borrowers from FX shocks and meet G-20 debt sustainability norms.
- Impact-Linked Interest Rebates: Tie concessionality to verifiable SDG outcomes; projects achieving targets earn interest rebates, boosting accountability and developmental additionality.
- One-Stop Development Partnership Portal: Integrate proposal submission, ESG appraisal, and live disbursement tracking; leverages blockchain for immutable audit trails, reinforcing probity.
- Triangular-Co-operation Accelerator: Fast-track co-creation with Germany, Japan and UK by offering Indian digital public goods (DigiLocker, UPI) while they provide grant/technology – a win-win blend.
- Ethics & Compliance Charter: Mandate integrity pacts, social-environmental impact assessments and RTI-compatible disclosure for every LoC, aligning with probity in governance principles.
- Institutionalise Post-Project Evaluation: Create an independent Evaluation Board under CAG to audit developmental and ethical outcomes, feeding lessons back into policy design.
THE CONCLUSION:
Re-phasing global development finance from a credit-heavy, donor-driven model to collaborative, outcome-based triangular partnerships will future-proof India’s development diplomacy, uphold debt sustainability, and reinforce its moral leadership of the Global South.
UPSC PAST YEAR QUESTION:
Q. International aid’ is an accepted form of helping ‘resource-challenged’ nations. Comment on ‘ethics in contemporary international aid’. Support your answer with suitable examples. 2023
MAINS PRACTICE QUESTION:
Q. Triangular Development Co-operation (TrC) represents the next stage of India’s engagement with the Global South. Analyse and suggest how India can recalibrate its Lines of Credit to address emerging debt-sustainability concerns.
SOURCE:
https://www.thehindu.com/opinion/lead/rephasing-global-development-finance/article69765160.ece
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