Foreign Economic Relations
Since independence India has had to draw on foreign investments to finance part of its economic development. Although the government has attempted to be as self-reliant as possible, the absolute amount of foreign aid to India has been high. In per capita terms, however, it has been much less than most other developing countries receive.
In August 1958, the World Bank (see Glossary) organized the Aid-to-India Consortium, consisting of the World Bank Group and thirteen countries: Austria, Belgium, Britain, Canada, Denmark, the Federal Republic of Germany (at that time, West Germany), France, Italy, Japan, the Netherlands, Norway, Sweden, and the United States. The consortium was formed to coordinate aid and establish priorities among India’s major sources of foreign assistance and to simplify India’s requests for aid based on its plans for development. Consortium aid was bilateral government-to-government aid from the thirteen consortium countries, and almost all of the aid, including that from the World Bank Group, was for specific projects judged to be valuable contributions to India’s development. Of the Rs630 billion in aid authorized by all aid donors between FY 1974 and FY 1989, more than 60 percent was provided by the consortium.
Collectively, the Western nations have donated a substantial amount of aid to India. In 1980 this aid totaled nearly US$1.5 billion and reached US$2.5 billion in 1990. In 1992 Western aid reached a new height: US$3.9 billion, which represented 49.8 percent of all Western multilateral and bilateral aid given to South Asian nations that year. The largest bilateral donor is Japan. Between 1984 and 1993, Japan’s official development assistance grants to India totaled US$337 million. Much greater than the outright grants has been Japan’s large-scale loan program, which supports economic infrastructure development (power plants and delivery systems, and road improvement) and environmental protection. Between 1984 and 1993, Japanese loans to India totaled nearly US$2.4 billion. A ¥125 billion (US$1.2 billion) loan financing major projects was granted in December 1994, bringing Japanese loans to India since 1957 to a total of ¥1.6 trillion.
United States assistance was significant in the late 1950s and 1960s but, because of strained India-United States relations, fell off sharply in the 1970s (see United States, ch. 9). The United States accounted for 8.6 percent of all of the aid India received from independence through FY 1988, but for only 0.7 percent in FY 1989 and 0.6 percent in FY 1990. United States aid to India remained relatively insignificant in the early 1990s when it took the form of grants for food aid and consultants in a wide variety of economic growth areas, such as computers, steel, telecommunications, and energy production. In FY 1993, actual United States obligations through the United States Agency for International Development totaled almost US$161 million. The bulk of this aid was provided as United States Public Law 480 food aid grants with lesser amounts for development assistance (including energy and the environment, population control, child survival, acquired immune deficiency syndrome (AIDS) prevention, and economic growth) and housing guaranty loans. Germany and Britain also have substantial aid-to-India programs.
Among countries not in the World Bank consortium, the Soviet Union was the most important contributor, providing more than 16 percent of all aid between 1947 and FY 1988. Since 1991, however, Russia has provided little aid.
About 90 percent of all aid received by India has been in the form of loans. Aid disbursements from all providers for FY 1990 were Rs67 billion.
India maintains a small but well-established foreign aid program of its own. In FY 1990, Rs1.6 billion of aid was authorized, of which Rs582 million was for Bhutan and Rs578 million for Nepal. Bangladesh and Vietnam received significant amounts of aid during the 1980s, but, as the result of changing world political and economic conditions, these programs were small by the early 1990s (see South Asia; Southeast Asia, ch. 9).
Foreign Aid to India page