“Though India’s development finance architecture reflects its position as a natural leader of the Global South, it is impeded by structural challenges and constraints.” Critically examine. (15M)

India’s development finance architecture, centered around the Indian Development and Economic Assistance Scheme (IDEAS) and backed by the Exim Bank, reflects its long-standing commitment to South-South cooperation, non-alignment, and global solidarity. India’s role as a first responder to crises, champion of climate equity, and promoter of capacity building further positions it as a natural leader of the Global South.

India’s Development Finance Architecture: Strengths and Evolution:

1. IDEAS Scheme (Since 2005):
   1. Over 300 Lines of Credit (LoCs) worth $32 billion to 68 countries.
   1. Focused on infrastructure, healthcare, education, and IT.
   1. Notable beneficiaries: Africa, Asia, Caribbean, and CIS nations.
2. Strategic Partnerships via Triangular Cooperation (TrC):
   1. India-Japan projects in Africa, India-Germany TrC with 15+ projects (2022), and India-EU-Africa cooperation under G20 umbrella allows for shared costs, expertise, and legitimacy.
3. India’s Global South Advocacy:
   1. India launched initiatives like Vaccine Maitri, International Solar Alliance (ISA), and Coalition for Disaster Resilient Infrastructure (CDRI) to boost infrastructure in the global south.
   1. India contributed to Global Digital Public Infrastructure Fund with $25 million contribution).
   1. African Union got inducted into G20 during India’s presidency.
   1. Capacity-building programs under ITEC, UN-India Capacity Building Initiative ensured people-led development in the global south.

Challenges & Constraints:

1. Fiscal Limitations:
   1. Budget 2025-26 shows tightening of allocations to Exim Bank and IDEAS due to rising domestic priorities and global financial uncertainty.
   1. Though LoCs rose from $3 billion (2010–11) to $7 billion (2023–24), future scaling may be limited.
2. Debt Vulnerability in Recipient Nations:
   1. Many LoCs extended to Highly Indebted Poor Countries (HIPCs)—prone to slow repayments, are a causing strain on India’s fiscal balance exacerbated by shrinking global ODA, post-COVID debt crises, and rising cost of capital.
3. Fragmented Institutional Framework:
   1. India lacks centralized Development Cooperation Agency like USAID or JICA. Overlapping roles between MEA, MoF, Exim Bank, and MoCI hinder coherence.
4. Credibility Concerns & Conflict of Interest:
   1. LoCs are used to serve geopolitical goals like countering China’s BRI more than recipient needs.
5. Weak Project Monitoring & Execution:
   1. Several LoC-funded projects suffer from implementation delays, cost overruns, or poor local capacity.
   1. India also lacks robust result-based management and impact evaluation mechanisms.
6. Geopolitical Competition:
   1. China’s cheque-book diplomacy and BRI investments far outpace India’s concessional lending capacity. On the other hand, India faces difficulty matching China’s scale, especially in high-risk zones like Africa or the Indo-Pacific.
7. Perception Challenges:
   1. Skepticism over India’s leadership persists due to limited economic capacity, dependence on fossil fuels, and modest R&D and manufacturing base.

Way Forward:

1. Institutional Reform:
   1. Establish a dedicated Development Cooperation Agency for coherence, monitoring, and transparency and integrate IDEAS with new modalities like results-based financing.
2. Adopt Blended and Localised Financing Models:
   1. Combine market instruments with concessional aid under the Global Development Compact (GDC).
   1. Promote local ownership and sustainable revenue models in recipient countries.
3. Leverage TrC (Trilateral Cooperation) and Multilateral Platforms:
   1. Scale TrC initiatives with EU, Japan, and UN agencies for shared financial and technical burden.
   1. Expand India’s engagement in Africa’s Agenda 2063 and ASEAN connectivity initiatives.
4. Digital & Climate Diplomacy:
   1. Position India as a hub for Digital Public Infrastructure and affordable technology exports (e.g., CoWIN platform, UPI).
   1. Amplify India’s leadership in green development financing through ISA and CDRI.

Conclusion:

By reforming its aid architecture, embracing innovative financing tools like Triangular Cooperation and blended finance, and focusing on transparency and local outcomes, India can not only scale its impact but also emerge as a credible, sustainable, and strategic development partner for the Global South.

‘+1’ Value Addition:

• “India walks the talk when it comes to the Global South.” — PM Modi at the Voice of Global South Summit 2023.
• OECD ODA flows declined 45%, reaching $204 billion in 2023.
• As India transitions from a balancing to a leading power, it should leverage its rich cultural ethos like “Vasudhaiva Kutumbakam” to unite Global South countries.

Successful models of TrC:

• India-Japan’s developmental partnership in Asia and Africa.
• Germany-EU in Mozambique.
• India-EU-Africa projects under G20 umbrella.

https://www.thehindu.com/opinion/lead/rephasing-global-development-finance/article69765160.ece

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