Unpacking ‘IDEAS’: How India’s Development Assistance Scheme Is Shaping Global Growth – IMPRI Impact And Policy Research Institute

Policy Update
Sarah Ansari

Introduction

India has a rich tradition of offering development aid to nations across Asia, Africa, and the world, demonstrating its dedication to South-South collaboration and international unity. This dedication was further solidified and broadened through the introduction of the Indian Development and Economic Assistance Scheme (IDEAS), marking a significant milestone in India’s commitment to global cooperation and development. As recommended by the Ministry of External Affairs (MEA), under this scheme, Government supported Export and Import Bank of India (Exim Bank) Lines of Credit (LoCs) are made available to developing countries for support of developmental and other projects.

Origin and Background

Since its independence, India has played a significant role in providing foreign aid, initially offering technical assistance and capacity-building programs to other developing nations. This effort was a key component of India’s foreign policy, which focused on non-alignment, opposing colonialism, and promoting decolonisation. As India’s economy grew, its development assistance expanded to include concessional loans, in addition to grants and technical cooperation.

For nearly four decades, the Department of Economic Affairs, on behalf of the Indian government, provided financial support to friendly developing countries, mainly in Africa, Asia, and the Caribbean,  through Lines of Credit (LOCs). Initially, these LOCs were government-to-government agreements, where the Indian government directly funded the recipient country. However, since 2003-04, the process has changed, and LOCs are now extended through the Export-Import Bank of India (Exim Bank), with the Indian government providing support and guarantees.

Objectives of IDEAS

Intending to create mutually beneficial relationships, IDEAS has the following objectives:

• Development Cooperation: The main goal of IDEAS is to support development in partner countries, especially those that are less developed. To achieve this goal, financial aid is provided for infrastructure projects and technical assistance. By addressing the needs of the recipient countries, goals such as poverty, reduction, economic growth, and sustainable development are assisted.
• Strengthening Economic Ties: Another key objective that IDEAS focuses on is strengthening economic relationships between India and other developing countries. By providing funding for development projects in other countries, doors for trade and investment are opened in India, fostering long-term economic partnerships and boosting India’s export of goods and services.
• Enhancing Global Presence: The IDEAS scheme also works as a strategic tool for enhancing India’s global presence. It enables South-South collaboration and helps India build diplomatic goodwill and strengthen its role as a key player in international affairs.

Functionality & Operations of IDEAS

IDEAS operates through a structured framework, utilizing several mechanisms:

• Lines of Credit (LoCs): Concessional credits for specific projects, including infrastructure, healthcare, and education, with flexible repayment terms and lower interest rates.
• Grants and Technical Assistance: Additional funding and expertise for developmental projects, knowledge transfer, and capacity building.
• Bilateral and Multilateral Agreements: Partnerships with international organizations, regional forums, and recipient nations to implement IDEAS.
• Project Implementation: Collaboration with Indian organizations and firms to ensure efficient use of financial assistance and support Indian businesses.

Detailed Additional Key Components of IDEAS

• Lines of Credit (LoCs): The Indian government provides financial assistance to several countries through Lines of Credit (LOCs), which are essentially loans with favorable terms, such as low interest rates and long repayment periods. This support is offered to countries in various regions, including:

1. Asia (excluding Bangladesh, Nepal, and Bhutan)
2. Africa
3. The Commonwealth of Independent States (CIS) region, which includes former Soviet republics like Russia, Ukraine, and Belarus
4. Latin America

• EXIM BANK: The Export-Import Bank of India (Exim Bank) was established by the Government of India under the Export-Import Bank of India Act of 1981, modeled after global Export Credit Agencies. Exim Bank acts as a catalyst for the growth of industries and small and medium enterprises (SMEs) by offering a comprehensive range of products and services. 

Additionally, Exim Bank provides Lines of Credit (LOCs) to international financial institutions, regional development banks, sovereign governments, and other overseas entities. These LOCs enable buyers in those countries to import developmental and infrastructure projects, equipment, goods, and services from India on deferred credit terms.

• Classification of countries: Countries are categorised into three main groups under the current Guidelines for issuing Lines of Credit (LOCs), as outlined in the table below. The classification is based on the following criteria:

1. Heavily Indebted Poor Countries (HIPC), Low-Income Countries, and Middle-Income Countries are classified according to the World Bank’s Economic Classification (July 2009).
2. Least Developed Countries (LDCs) are classified by the UN Office of the High Representative for Least Developed Countries, Landlocked Developing Countries, and Small Island Developing States.

This categorisation helps determine the eligibility and terms of LOCs for each country.

Source: dea.gov.in

Impact of IDEAS

The Indian Development and Economic Assistance Scheme (IDEAS) has made significant contributions to various countries and sectors. These contributions/impacts have been discussed below:

1. Financial Assistance Aligned with the “Neighborhood First Policy”: The Indian government, through the Exim Bank of India, provides development assistance in the form of concessional Lines of Credit (LOCs) Under the Indian Development and Economic Assistance Scheme (IDEAS). To date, over 300 LOCs totaling $32 billion have been extended to 68 countries worldwide, supporting around 600 projects across various sectors such as infrastructure, agriculture, industry, healthcare, and IT.

A significant portion of these LOCs, totaling $7.862 billion, has been allocated to neighboring countries, including Bangladesh, Nepal, Sri Lanka, Myanmar, and Maldives, in line with India’s “Neighbourhood First” policy. These LOCs focus on regional connectivity initiatives to accelerate growth, promote people-to-people contact, and enhance trade and commerce.

2. Beyond “Neighborhood First” Policy: India has also extended 196 LOCs worth $12 billion to 42 African countries and has also allocated funds to Latin America, Oceania, and the Commonwealth of Independent States. Through these LOCs, India has collaborated with Global South countries on various projects, including power plants, sugar factories, technology parks, university campuses, metro projects, and infrastructure development.

3. Infrastructure Development: The LOCs enable the Indian government to partner with countries for infrastructure development and improve the lives of people in partner countries. These infrastructure projects are crucial for promoting economic activities and improving quality of life. One such example is Sri Lanka’s 900-kilometer road network, which was funded by an Indian assistance program. 

Challenges and Criticisms

In recent years, India’s Lines of Credit (LoCs) have emerged as a quasi-strategic financial instrument. Given the dynamic environment in which they operate, the government has demonstrated a high degree of responsiveness in adapting to evolving circumstances and addressing emerging needs. Despite, such successes, IDEAS faces several challenges: 

1. Fragmented Cooperation Framework: India’s development cooperation framework remains fragmented and requires consolidation. While the Ministry of External Affairs and Ministry of Finance serve as central hubs, the Ministry of Commerce and Exim Bank have increasingly taken on more prominent roles over time, contributing to a more complex institutional landscape.
2. Conflict of Interest: The IDEAS scheme is often viewed as a means to advance India’s geopolitical interests, rather than solely a development aid initiative. Detractors contend that the program may favor projects in countries that align with India’s strategic priorities, potentially overlooking areas of most pressing need. LOCs aim to boost economic benefits through trade and investment growth, involving the private sector, and also strengthen diplomatic ties aligned with specific strategic interests.
3. Poor Project Management: Further, effective project management forms the third pillar of the LOCs’ guiding principles, complementing the other two objectives. Subpar project management can undermine the entire initiative, making it crucial to implement robust project management practices to ensure success.
4. Debt Sustainability: Additionally, concerns have been raised about the ability of recipient countries to sustainably manage their debt, especially given the increasing international attention on debt-funded development initiatives. Critics warn that certain countries may face debt traps if the projects fail to yield adequate economic benefits, exacerbating their financial vulnerabilities.

Way Forward

The IDEAS scheme, initially launched for a five-year period starting in FY 2005-2006, was granted a five-year extension by the Cabinet on March 3, 2011, covering FY 2010-2011 to FY 2014-2015. Subsequently, on November 18, 2015, the Government further extended the scheme for an additional five years. In the Union Budget for the fiscal year 2024, the scheme got the following allocations.

Source: indiabudget.gov.in

In recent years, the LoC portfolio has experienced rapid expansion on multiple fronts: its overall size, its proportion within the total bilateral assistance provided, and its share of the Exim Bank’s balance sheet have all seen significant growth. 

As the global development agenda evolves, IDEAS will need to adapt to new challenges and opportunities. For instance, the scheme could be aligned more closely with the United Nations Sustainable Development Goals (SDGs) to ensure that it contributes to global efforts to eradicate poverty, promote sustainable development, and address climate change.

Conclusion

IDEAS is a cornerstone of India’s foreign policy and development cooperation, driving progress in partner countries, especially in Africa and South Asia, through concessional loans, capacity-building, and technical support. Simultaneously, it advances India’s strategic and economic interests by fostering bilateral ties, and economic diplomacy, and showcasing India’s soft power globally. To amplify its impact, IDEAS must overcome challenges such as project implementation, debt sustainability, and alignment with global development goals. By addressing these issues, India can solidify its position as a leader in South-South cooperation and global development.

References

About the Contributor– This article has been written by Sarah Ansari, a Research Intern at IMPRI. She graduated with a BA (Hons) Economics in 2023.

Acknowledgement–

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