PYQ Relevance:

[UPSC 2014] Some of the International funding agencies have special terms for economic participation stipulating a substantial component of the aid to be used for sourcing equipment from the leading countries. Discuss on merits of such terms and if, there exists a strong case not to accept such conditions in the Indian context.

Linkage: This question directly addresses the modalities and conditionalities of “international funding agencies” which are a core aspect of global development finance. This article highlights that the “rephasing global development finance” is necessary due to several factors, including the “shrinking ODA and debt crisis”, the profound decline in the “flow of global development finance”.

Mentor’s Comment: India’s development cooperation with the Global South is undergoing a significant reorientation. After years of steadily expanding economic assistance, rising from $3 billion in 2010–11 to $7 billion in 2023–24, the government is signaling a major policy shift. The Finance Ministry has red-flagged the continued use of Lines of Credit (LoCs), which have historically been a key engagement tool under the Indian Development and Economic Assistance Scheme (IDEAS). With the global liquidity crisis, rising debt distress in developing nations, and a sharp decline in traditional Official Development Assistance (ODA) from major donors like the U.S. and U.K., India is now pushing for a more diversified model.

Today’s editorial analyses India’s development cooperation with the Global South. This topic is important for GS Paper II (International Relations) in the UPSC mains exam.

Let’s learn!

Why in the News?

India’s development cooperation with the Global South has been steadily increasing over the years.

What are India’s modes of cooperation with the Global South?

Capacity Building: Focuses on training, education, and skill development of human resources in partner countries. Eg: The Indian Technical and Economic Cooperation (ITEC) programme provides training to officials from over 160 countries in various sectors like IT, agriculture, and governance.

Technology Transfer: Sharing India’s innovations, expertise, and cost-effective solutions with Global South nations. Eg: India has shared digital public infrastructure models like Aadhaar and UPI with countries in Africa and Southeast Asia.

Market Access: Providing duty-free and preferential access to Indian markets for exports from developing nations. Eg: Under the Duty-Free Tariff Preference (DFTP) scheme, least developed countries (LDCs) benefit from reduced tariffs when exporting to India.

Grants: Non-repayable financial assistance offered for key infrastructure or social sector projects. Eg: India provided grants for building parliament buildings in countries like Afghanistan and Mali.

Concessional Finance (Lines of Credit – LoCs): India extends low-interest loans to partner countries for development projects under the IDEAS (Indian Development and Economic Assistance Scheme). Eg: India extended LoCs for railway projects in Africa (like in Mozambique and Senegal) and for solar energy projects under the International Solar Alliance (ISA).

Note: IDEAS is a flagship initiative of the Government of India designed to promote development cooperation with partner countries, especially in the Global South, by extending Lines of Credit (LoCs) on concessional terms.

Why is the relevance of Lines of Credit (LoCs) under IDEAS being reconsidered?

Rising Sovereign Debt and Repayment Challenges: Many partner countries in the Global South are facing sovereign debt crises, reducing their capacity to repay concessional loans. Eg: During the G-20 summit, India raised concerns over the unsustainable debt levels in Africa and small island nations, signalling caution in issuing new LoCs.
Strain on Indian Public Finances: India borrows from global capital markets and extends credit at concessional rates under IDEAS, absorbing the interest differential. With global liquidity tightening, this model has become fiscally burdensome. Eg: The Finance Ministry flagged the increasing fiscal burden of absorbing interest costs in the 2025–26 budget, suggesting a shift away from LoCs.
Unpredictability in Global Capital Markets: Fluctuations in global interest rates and capital availability have made it difficult to maintain concessional lending under predictable terms. Eg: Due to the rising cost of borrowing post-COVID, India finds it less viable to sustain concessional credit lines compared to more flexible grant-based or Triangular Cooperation (TrC) models.

How has the decline in Official Development Assistance (ODA) impacted global development finance?

Reduction in Available Funding for Development Projects: ODA has dropped significantly from $214 billion in 2023 to an expected $97 billion, a ~45% decline, leading to fewer resources for critical development programmes, especially in least developed countries (LDCs).
Setback to Sustainable Development Goals (SDGs): The financing gap for SDGs has widened, rising from $2.5 trillion in 2015 to over $4 trillion in 2024. With limited ODA, progress toward achieving the 2030 Agenda remains off track, especially after COVID-19 and global shocks.
Increased Vulnerability of Debt-Stressed Nations: The shrinking flow of concessional finance has made it harder for debt-ridden nations to access affordable funding, jeopardizing development progress and worsening existing economic vulnerabilities.

What is Triangular Cooperation (TrC)?

Triangular Cooperation (TrC) is a development model that brings together three key actors:

A traditional donor from the Global North (e.g., Germany, Japan, USA)
A pivotal country from the Global South with development experience (e.g., India, Brazil, Indonesia)
A partner country, usually another developing or least developed country, which receives the support

What is the role of Triangular Cooperation (TrC)?

Bridges Global North and South: Triangular Cooperation brings together a traditional donor from the Global North, a pivotal country from the Global South (like India), and a partner country (often another developing nation). It creates inclusive platforms for shared learning, mutual respect, and context-specific solutions.
Promotes Cost-Effective and Impactful Development: TrC enables the co-creation of development solutions that are tailored to local needs while combining technical expertise, financial resources, and implementation experience from all three partners. This leads to cost-effective and sustainable outcomes. Eg: India and Germany have implemented TrC projects in countries like Cameroon, Ghana, Malawi, and Peru.
Expands India’s Development Diplomacy: TrC allows India to leverage partnerships with countries such as Germany, UK, EU, and Japan to implement projects in third countries, enhancing India’s role as a global development partner. It aligns with India’s vision of a Global Development Compact and was promoted during its G-20 presidency.

How can India leverage partnerships through TrC to enhance its development diplomacy? (Way forward)

Strengthening Strategic Alliances and Global Presence: India can collaborate with traditional donors like Germany, Japan, the UK, and the EU to implement development projects in third countries, enhancing its image as a reliable global development partner and expanding its geopolitical influence.
Promoting Scalable, Cost-Effective Solutions in the Global South: By combining India’s technical expertise with Northern financial resources, TrC enables context-specific, demand-driven projects in areas like energy, health, and education, aligning with India’s vision of a Global Development Compact.

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