The Great Indian budget of 2018 is out. Experts are done with lauding and lamenting the good, the bad, and the ugly aspects in grave detail. Domestic compulsions ruled the roost this budget, like always. The missing element was the review of the fiscal neglect meted out the Ministry of External Affairs (MEA).
This budget allocates just 0.6 percent of the total expenditure to the MEA, which did not find any mention in Finance Minister Arun Jaitley’s speech. This has remained a trend for the past three years and is surprising considering India’s foreign policy objectives today are driven on carving a leadership role for itself in world affairs. A more crucial aspect is the concern regarding China’s increasingly aggressive economic, and military pitch in Asia, especially the subcontinent.
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The last few years have seen a flurry of activities on part of India’s engagement with the world. Movies like Slumdog Millionaire, Lion, and Dangal have put Indian Bollywood on the world map. Dangal even became one of the 20 highest-grossing films of all times in China. The present government has been vocal about making India a “global cultural power.” The country has been brandishing its spiritual image by promoting itself as the birthplace of Buddhism and Yoga.
China for its part has been exercising its soft power ambitions and using development agenda for the same. The Belt and Road Initiative is its most ambitious soft power maneuver to date. Chinese state media like Xinhua and CGTN have ramped up their operations overseas to report global news from the Chinese perspective.
Role of Economics
On paper, India, which used to be the highest recipient of the multilateral development aid, has made the transition into the role of a provider. In the financial year 2015-16, India gave Rs 77.19 billion (~$1.2 billion) in aid while it received Rs 21.44 billion (~$350 million) in aid from foreign countries and global banks. In 2016, the Ministry of Overseas Indian Affairs (MOIA) was merged with the MEA to enhance diplomatic back-up and coordination and increase efficiency.
What grabbed this budget’s headlines was MEA receiving an increase of Rs 2.13 billion (~$35 million) from the past year. It has been allocated Rs 15.01 billion (~$230 million). However, a closer view from the GDP standpoint reveals a steady decline in MEA budget allocation since 2015-2016. The Parliamentary committee in a report in 2017 had noted the “problem of budgetary constraints which has resulted in the lack of coherence in foreign policy implementation.” There has been a decline in the share of India’s external loans and assistance. The government had allocated a total of Rs 76.59 billion (~$1.2 billion) in the budget estimates for foreign aid. However, the revised estimates for this year has been further cut down to Rs 58.20 billion (~$900 million) — a drop of 22 percent.
There has been an exception to this with Nepal’s share being increased by over 43 percent to Rs 6.5 billion (~$100 million) in the next financial year. The announcement coincided with External Affairs Minister Sushma Swaraj’s Kathmandu visit in an attempt to reach out to Nepal’s left alliance headed by K.P. Sharma Oli. This is being viewed as part of the attempt to repair relations following the border “blockade” of 2015 and the Indian government’s support to Nepali Congress.
Bhutan has received the lion’s share of the budget with Rs 26.50 billion (~$414 million). While this was an increase from last year’s Rs 25.79 billion (~$401 million), this has steeply gone down from Rs 590 billion (~$9.1 billion) allocated by the previous government. Instructively, then-Foreign Secretary S. Jaishankar had noted in 2017 that MEA’s “big challenge” was utilizing its budget in Bhutan. Two big dams, Punatsangchhu-I and Punatsangchhu-II have seen their completion schedules gone awry due to technical troubles and geographic vagaries. However, Bhutan is of strategic importance to India, which has gone up especially after the Doklam episode. Other than that, it is also an important source of electricity, base minerals, cement, chemicals and wood products and a reliable and cheap source of India’s energy supplies.
The aid to Afghanistan was also slashed from Rs 1.25 billion (~$19.52 million) to Rs 650 million (~$10 million) this year. But it is slated to go up by Rs 1.75 billion (~$27.33 million) next year. The Trump administration has been wanting India to ramp up its economic development assistance to Afghanistan, which is strategic for India as well. India, in the past few years, had invested in several infrastructure projects, including construction of the Afghan Parliament, Salma dam hydropower and irrigation project, Zaranj-Delaram highway project (linking Delaram road in Afghanistan to Iranian border Zaranj). Currently, it is concentrating on education and development activities in the war-torn nation.
The region becomes further tactical for New Delhi as Beijing invests funds in the range of $46 billion in the China-Pakistan Economic Corridor project that would link western China to Gwadar port in Pakistan through a network of roads and railways. Realistically speaking, India does not have the economic wherewithal to check China’s growing footprints in South Asia. But it has been working on establishing links with Chabahar port in Iran via Afghanistan. Last year’s budget of Rs 1.5 billion (~$23 million), which remained largely unused, has been extended this year as well.
Other nations to have been allocated aid are African countries, which received Rs 2 billion (~$31 million), Bangladesh, which received Rs 1.75 billion (~$27 million), and Sri Lanka, which received Rs 1.50 billion (~$23 million). The budget also provides for Rs 2.8 billion (~$42 million) toward projects in Myanmar. Some of the amounts are likely to be used in the “restoration of normalcy and development of the Rakhine State.”
Praise where praise is due: this budget scored high on India’s maritime strategic diplomacy. Island nations like Seychelles, Maldives, and Mauritius have also been granted allocations. Seychelles allocation has also been increased from Rs 2 billion (~$31 million) to Rs 3 billion (~$47 million). Part of that amount will be used to develop facilities on Assumption island, including developing an airstrip and jetty there. The original pact was signed during Prime Minister Narendra Modi’s visit there in 2015. In Mauritius, the government has signed a Memorandum of Understanding for the improvement in sea and transport facilities at the Agalega island.
Diplomacy with an Eye on China
India’s aid in the region has become crucial as it is aimed at outgunning Chinese presence in the area. But it will be prudent to accept that Indian Rupee cannot fight the Chinese Yuan to parity. India’s economy is one-fifth of China’s in size. India suffers from key institutional constraints.
The Indian Council for Cultural Research is slated with the responsibility of undertaking various cultural missions across the world to enhance India’s global footprint. However, it is reported to be struggling with lack of proper funds. On the other hand, China has infused a whopping total of $20 billion in a bid to boost cultural diplomacy. China has also been expanding its cultural arm claiming Buddhism and establishing as many as 250 Confucius Institutes across the world.
It makes sense for the country to currently invest in projects related to science and technology, and the creation of a job market that would strengthen India’s economic presence. Yet, given India’s aspirations for global leadership and engagement, funding for diplomacy and foreign aid is a must. Diplomacy remains a crucial aspect of India’s growth story.
Shreya Upadhyay, Ph.D., is a policy analyst with the Takshashila Institution, Bangalore, India.