Donald Trump on his first day in office signed an executive order to halt foreign aid funding. Tech billionaire and Trump’s advisor Elon Musk has since ravaged through the US Agency for International Development (USAID), calling it a “criminal organisation” and “radical-left political psy op” (whatever that means). In the US and elsewhere in the West, aid is a polarising subject. But what about India?
India has been the highest recipient of foreign aid for several years. As recent as 2023, the country has received the highest aid from the OECD, second only to post-invasion Ukraine. India, the world’s fifth largest economy receives more aid than the 46 countries on UN’s least developed countries list. What is even more surprising, however, is that despite receiving all that aid, India is a ‘net donor’ of aid – meaning that India sends out more aid than it receives. This seemingly contradictory condition is reflective of India’s multipronged foreign policy and the place it occupies within the international system.
Aid – Charity or solidarity or strategy?
Aid has as many definitions as it has forms. And forms, it has plenty. Donors like to attach many a label to the aid they give. One thing it is not, is altruism. Aid doesn’t come as a free handout. Grants aren’t as common, most aid is (concessional) finance, which warrant interest repayment.
Aid has had mixed success around the world, and its effectiveness in bringing about positive change is debated by economists. Over the years, wealthy countries have been criticised for using aid as a tool for soft power than development – that the aid they dispense is riddled with conditionalities that infringe on the sovereignties of the developing world. Their ‘top-down’ agendas have been divorced from the true needs of the local populations. Such has been the story of aid from the OECD – the rich-country club of the world, consisting of the world’s high-income countries. At its worst, aid has been a mechanism to influence and keep the Global South in a position of dependency on its former colonisers, years after decolonisation.
Also read: Perplexity AI CEO Aravind Srinivas Challenges Elon Musk Over USAID
This dependency has encouraged developing countries to form alliances within the Global South, in what’s referred to as South-South Cooperation (SSC). At the outset, these countries are bound by solidarity, mutual interest, respect for each other’s sovereignty and a partnership, rather than a donor/recipient relationship. To term this a counterrevolution would be ignorant. Certainly, they may share a mutual dissatisfaction with Western hegemony, but such a view trivialises the relations these co-developing states have shared completely independent of the West. For countries of the South to come together is no recent feat. There are long legacies of SSC that have existed in the form of the non-aligned movement and the Group of 77 (G77). Shared histories of colonisation, ongoing economic challenges, ethnic plurality, border disputes, spices and flavoursome cuisine, and the label of “developing” – all come to manifest as shared diplomatic interests.
Nehruvian foundations
India’s keen participation in SSC is courtesy of Jawaharlal Nehru – a staunch proponent of third-world unity and non-alignment.
Thanks to Nehru, India’s aid programmes were conceived even before independence. In 1946, as prime minister of the interim government, Nehru invited Chinese and Indonesian agri-scientists for training in India. This became the foundation of India’s development cooperation and knowledge exchange. A year after its independence, India financed loans to Burma in 1948 and sent “economic and social development aid” to Nepal in 1951. The motivations for this aid were hardly that India had a surplus of what it gave to its neighbours. Rising from the ashes of British rule, India’s GDP in 1947 was merely Rs 2.7 lakh crore, with a literacy rate of just 12%.
Ostensibly, this was driven by solidarity, regional harmony, unity and Nehru’s alleged tryst with socialist values. But a direct, and far less romantic corollary to this aid was India’s strategic influence over its subcontinental neighbours. Nevertheless, to this date, the discourse surrounding India’s development cooperation hasn’t changed. The fact that we lent aid to our co-developing nations right from our infancy has earned us many bragging rights, which the current government also enjoys.
From Nehru to Narendra Modi, the philosophical underpinnings remain the same. India’s SSC still echoes the same philosophies. Today, the Ministry of External Affairs makes a point to avoid mention of Nehru, with lexicon that is coherent with other Modi-era branding –“VasudhaivaKutumbakam (the world is one)”.
India as a recipient
Nehru’s decision to assist its neighbours didn’t eliminate India’s own dire conditions. Simply put – India received aid for all these years because it needed it. Take for instance, India’s food deficit. Throughout the 50s and 60s, India suffered a grain shortage, for which it went to the US. India received $10 billion from 1950 to 1971, the largest amount of aid given by the US to any country at that time, according to The New York Times. The aid, however, was a consistent bargaining chip to influence Indian foreign policy and this frustrated New Delhi. Nehru’s frustrations with the aid deliberations with the Truman administration were palpable. “We would be unworthy of the high responsibilities with which we have been charged if we bartered our country’s self-respect or freedom of action, even for something we need badly,” he had said.
Since then, India has been a preferred destination for donors. The aid apparatus is indeed non-profit, but aid programmes are only continually funded if they show signs of success. India, with its relative harmony, political stability and a large network of aid organisations could be a comfortable abode for the world’s aid. In this way, aid helped make ground for more aid. And of course, poverty consistently plagued India (still does), so aid, however inconvenient, wasn’t refused.
In 2003, in the midst of a post-liberalisation economic growth spurt, the government announced that it would no longer accept conditional aid. Hence, India sought to reduce its reliance on aid. In 2012, UK and India agreed to shift from traditional aid towards a more horizontal development cooperation (the funds sent to India are still accounted as ‘aid’ by the UK).
As per the Receipt Budget 2025-2026, India receives most of its external assistance today in the form of loans. Much of this financing is sourced through multilateral institutions, such as the World Bank and Asian Development Bank. Japan is the largest bilateral donor of aid to India across sectors like transport, power, irrigation, environment and investment promotion.
India as a “donor”
It is important to note that India’s reception of aid and its provision of aid happened simultaneously. India’s experience as a recipient of aid also helped shape its cooperation with its partners. By 2015, India officially gave more aid than it received. The Union government prefers to call it ‘development cooperation’ instead of ‘aid’ and ‘co-developing partners’ instead of ‘donor/recipient’. India’s development cooperation consists of grants and loans, project-specific subsidised lines of credit (LOC), and capacity building (in the form of training programmes and scholarships).
Indian “aid” aligns with the ‘Neighbourhood First’ policy. Majority of the funds are allocated to neighbours, with emerging partnerships across other regions. Bhutan has consistently received bulk of the grants and loans. In 2023-24, India allocated about Rs 4600 crore fund, 52% of which went to Bhutan. In terms of credit lines, till date, Bangladesh has borrowed more than $7.8 billion, the highest borrower by a mile. Sri Lanka comes second, with LOCs worth approximately $2.2 billion. This is about more than development. These funds are pivotal to India’s so-called regional hegemony in South Asia and its extensions, and also a reason why the neighbourhood’s grievances with India never accumulate into stern diplomatic retort.
Indian aid aspires for mutual interest. The lines of credit contain a mandatory clause for lenders – the projects must be serviced wholly or considerably by Indian vendors, that too, with tax exemptions. It helps create new markets for Indian exports and allows India to revert the funds back into its domestic economy. This aspect is consistently highlighted as a counter to India’s claims of lending unconditional development finance.
India has at times reportedly sent inexperienced and unqualified vendors for multi-million projects in Africa, which leads to a reputation for corruption and misgovernance. Such cooperation helps garner support for India’s agendas and multilateral initiatives. But in cases like this, it hampers relations with partner governments and their citizens, who are stuck with poorly executed projects.
For true impact, the aid provided by India must be developmental and socially and environmentally responsible. To compete with other lenders such as China, and maintain distinctions from Western aid, India must truly do things differently.
Proponents of America’s far-right government (and their mascot, Musk) are steadfast against aid. Oceans away, in India, conversations about aid are largely absent in mainstream media despite the country’s prominence in the subject of aid. India trumpets its $4 trillion economy while shushing remarks about its continual poverty and increasing inequality, which produces the need for aid. It assumes a sense of superiority over other developing countries while struggling with the same issues they do. These are testing times for international cooperation; India must stand alongside the developing world. Through aid, and otherwise, time is ripe for India to truly earn the title of the leader of the Global South.
Jyotir Sondhi has completed MSc in Development Studies from School of Oriental and African Studies (SOAS), University of London.
