India’s Budget: Foreign Policy Priorities

India’s budget for 2022-23, which was announced on February 1, envisages a total spending of $527.36 billion, of which $2.24 billion has been allocated for the MEA.

Of this, $817.96 million has been set aside for development assistance to countries in South Asia, Africa and Latin America. The bulk of this amount ($675 million) is for South Asia. This is understandable as it is India’s immediate neighborhood. Importantly, it is here that India is facing the greatest challenges with regard to rapidly growing Chinese economic and strategic presence and influence.

As in previous years, Bhutan is India’s largest aid recipient and has been allotted an outlay of $302 million. Bhutan enjoys a “special relationship” with India, given its strategic location in the Himalayas – in addition to funding several development projects, including hydropower dams, India has been financing a major part of Bhutan’s five-year plans. It is followed by Nepal ($100 million), Myanmar ($80.22 million), Maldives ($48 million), Bangladesh ($40.11 million), Afghanistan ($26.74 million) and Sri Lanka ($26.74 million) in budget 2022-23.

While allocations of development assistance to Afghanistan, Bhutan and Nepal have been cut under the budget for financial year 2022-23 in comparison to last year’s budget estimates, allocations to Bangladesh, Maldives, and Myanmar have been hiked under the recent budget, while Sri Lanka’s allocation remains the same. Nepal, Bangladesh and Maldives were allocated $120 million, $26.74 million, and $33.4 million respectively last year.

Although India is yet to extend diplomatic recognition to the Taliban regime in Afghanistan, it will continue to provide development assistance to the country, albeit at a smaller scale than what it planned to provide the Ghani government last year.

India’s budget for 2022-2023 reveals an allocation of $26.74 million in development assistance to Afghanistan for the coming fiscal year, compared to $47 million that was allocated to Afghanistan under President Ashraf Ghani.

With the Taliban coming to power in August 2021, India’s presence in Afghanistan shrank significantly. New Delhi shut down its embassy and four consulates, and work on infrastructure and development projects was suspended. Hence, the “cutback on the budgetary allocation” in development assistance to Afghanistan, an official in India’s Ministry of External Affairs (MEA) told The Diplomat. However, the revised estimate for last year was $26.74 million and that has been retained this year, the official added.

Moreover, India’s “commitment to the Afghan people continues,” he said, pointing out that in the coming fiscal year, funds will be spent on providing Afghanistan with food grains, vaccines, and medicines as well as scholarships for Afghan students.

In contrast to the cut in aid to Afghanistan, under budget 2022-23, Myanmar has been allocated $80.22 million compared to $53 million in last year’s budget, a 51.36 percent hike in development assistance.

China’s large presence in Myanmar and India’s need for the Tatmadaw’s support in fighting anti-India insurgents in its Northeast are important factors underlying India’s continued engagement of the Myanmar military, despite the coup it staged in February last year and the horrific violence it has been unleashing on civilians opposing military rule. Despite New Delhi’s “unease with military rule in its neighborhood,” India will continue working on several major development projects in Myanmar, the MEA official said.

Besides, India is deeply concerned over the mounting unrest and instability in Myanmar. This has triggered a flow of refugees into India, which has implications for stability and security in India’s restive Northeast. In order to stabilize the situation in Myanmar, India has stepped up its development projects in Myanmar, the MEA official said, explaining the hike in allocation to the military-ruled country in the latest budget.

A major beneficiary of Indian development assistance is the Indian Ocean island of Mauritius. With a whopping $117 million under budget 2022-23, Mauritius is India’s second largest aid beneficiary. The country occupies an important space in India’s diplomatic and strategic radar. Development aid to Mauritius, which has a large Indian diaspora population, is an important part of India’s strategy to counterbalance China’s growing presence in the Indian Ocean.

Mongolia may not be in India’s immediate neighborhood but it is a country of interest to India. Both countries share long borders with China and have had troubled relations with Beijing. Besides, Mongolia is home to a large number of followers of Tibetan Buddhism and is likely to play a significant role in post-Dalai Lama politics. Consequently, India’s bonding with Mongolia over Buddhism – it has been involved in the resurgence of Buddhism in post-Communist Mongolia, as hundreds of Mongolians come to India for spiritual learning and to attend the 14th Dalai Lama’s annual sermons in India – could shape Tibetan-Chinese politics.

Budget 2022-23 has allocated $1.56 million to Mongolia. This may not seem a large amount but it is a significant 500 percent hike considering that Mongolia was allotted just $260,000 in last year’s budget. A significant part of the budget earmarked for Mongolia will go toward fostering cultural and educational ties.

Strategic analysts have criticized budget 2022-23’s allocations for the MEA, the ministry that is mandated with managing India's external relations. It is meager, just 0.43 percent of the total government budget. And although total allocations have increased this year, the amount set aside for India to conduct its diplomacy has fallen. “This is the sharpest year-on-year drop in budget estimates for the MEA in recent times,” observes Devirupa Mitra in the news website, The Wire.

Development aid is not the only tool that India has to build influence in other developing countries, the MEA official said, drawing attention to lines of credit, concessional loans that India increasingly prefers in its engagement of countries in Asia and Africa.

So far India has extended 306 lines of credit worth $30.59 billion to 65 countries for projects in a wide range of critical infrastructure sectors including transport connectivity, power generation, agriculture and irrigation, capacity building, and so on. India’s neighbors have been major beneficiaries of these loan with credit lines worth $7.862 billion having been extended to Bangladesh, $2.129 billion to Sri Lanka, $1.65 billion to Nepal, $765 million to Mauritius, $1.33 billion to Maldives, and $476 million to Myanmar.

Resources for lines of credit come from the budget for the finance ministry.

The COVID-19 pandemic and its crippling impact on India’s economy forced the Narendra Modi government to pay more attention to domestic economic problems. However, India’s budgetary allocations for diplomacy have always been small and never crossed 1 percent.

Budget 2021-22 allocated the MEA $2.36 billion, its highest ever in absolute terms. This was just 0.52 percent of the government’s total budget for last year.

“Keeping in view the extent and magnitude of India's diplomatic outreach and foreign policy objectives,” the allocation made for MEA by budget 2021-22 is “incommensurate and inadequate," India’s parliamentary standing committee on external affairs said in its report in March 2021.

Sufficient funding is important to ensure that India's global footprint and diplomatic outreach is “not circumscribed,” the report said, going on to “strongly recommend” that the allocation for the MEA be “suitably and appropriately enhanced from what is being provisioned now."

The finance ministry has paid little heed to the parliamentary panel’s recommendation in its latest budget.

Not only has it not provided MEA with adequate resources to conduct India’s foreign relations befitting a major power with big ambitions, but worse it has slashed the resources for the new financial year.

The Narendra Modi government can expect sharper criticism of the 2022-23 budget by the parliamentary select committee on external affairs.