Foreign Aid to India: Amount, Forms, Impact and Problems

In this article we will discuss about the Foreign Aid to India. After reading this article you will learn about: 1. Amount of Foreign Aid 2. Forms of Foreign Aid 3. Impact 4. Problems.

Amount of Foreign Aid:

Considering the huge size of population and the degree of problem faced by the country, the inflow of foreign aid at different times was quite considerable. During the First Plan, India received on an average an external assistance to the extent of Rs 40 crore per annum and the same amount was raised to Rs 573.3 crore per annum which was about 3.2 per cent of GDP.

Since then the country faced a bad situation and. started to depend more on foreign loan during the three years of Annual Plans. During the Fourth Plan, there was a severe cut in aid from USA on political ground and due to mounting debt servicing problem, the Government decided to allow the path of self reliance since the Fourth Plan.

During the Sixth Plan, Rs 9,929 crore was envisage as an inflow of foreign aid. The Seventh Plan envisaged a net inflow of foreign aid of Rs 18,000 crore from different sources. Table 16.6 shows details about authorisation and utilisation of foreign aid to India.

Table 16.6 reveals that the utilisation of foreign aid was quite less than authorisation. At the end of Fourth Plan, total utilisation of foreign aid was Rs 11,922 crore as against the total authorisation of Rs 13,056 crore. During the seventh plan the shortfall was quite higher as the total authorisation of Rs 44,971 crore, i.e., about 50.5 per cent.

Again in 1990-91, the amount of foreign aid authorized was to the extent of? 8,123 crore ($ 4.5 billion), against which the amount utilized was Rs 6,707 crore ($ 3.7 billion), i.e. about 82.5 per cent. Again in 2013-14, the amount of foreign aid authorized was to the tune of? 54,513 crore ($ 9.02 billion) against which the amount utilised was Rs 35,185 crore ($ 5.85 billion), i.e., about 64.5 per cent.

Forms of Foreign Aid:

The foreign aid received by India has been classified broadly into three forms:

(a) Loans, (b) grants and (c) PL 480/665 etc. assistance repayable in rupee or in convertible currency. All these forms of foreign aids are urgently required in order to meet the deficiency in resources required for financing developmental plans. Among these forms, loan has a problem of its servicing if not utilised in a productive manner.

Grants has no problem as it is once for all payment having no repayment burden. PL 480/665 assistance had lesser problems as it was repayable in term of rupees. This type of assistance continued till 1977-78. Table 16.7 shows the flow of all these forms of foreign aid received under different periods.

Table 16.7 reveals that up to the end of Fourth Plan out of the total authorised foreign aid of Rs 13,056 crore, the shares of loan was Rs 9,665 crore (about 74 per cent) and the share of grants was Rs 753 crore (about 6 per cent) and the shares of assistance under PL 480/665 was Rs 2,638 crore (about 20 per cent).

During the fifth plan out of total foreign aid of Rs 9,844 crore the respective shares of these component were to the tune of Rs 7,913 crore, Rs 1,795 crore and a mere of ? 136 crores. During the sixth plan the authorised amount of loans and grants were Rs 14,843 crores and a mere Rs 1,564 crore making the total of Rs 16,407 crore.

Again during seventh plan the authorised amount of loan and grants were Rs 42,231 crore (93.9 per cent) and Rs 2,740 crore (6.1 per cent) making the total authorised foreign aid to Rs 44,971 crore. Moreover, in 1990-91 out of the total authorised foreign aid of Rs 8,123 crore received by India, the share of loan was Rs 7,601 crore and the share of grant was Rs 522 crore.

Again in 2013-2014 out of the total authorised foreign aid of Rs 54,513 crore received by India, the share of loan was Rs 54,372 crore (99.7 per cent) and the share of grant was Rs 140 crores (0.3 per cent). Moreover, in 2013-14, out of the total amount of foreign aid of Rs 35,185 crore utilised by India, the share of loan was Rs 31,772 crore (90.3 per cent) and the share of grant was Rs 3,412 crore (9.7 per cent).

Thus during this entire period of planning till 2013-2014 the total amount of authorised foreign aid received by India was to the extent of Rs 7,15,300 crore out of which only 4,99,554 crore was utilised. Again the share of authorised loan was Rs 6,62,570 crore (about 92.6 per cent), the share of grant was Rs 49,955 crore (about 7.0 per cent) and the share of assistance under PL 480/665 was Rs 2,774 crore (0.4 per cent).

Again, total amount of foreign aid utilized in India till 2013-2014 was to the tune of Rs 4,99,554 crore out of which the loan utilised was Rs 4,49,033 crore (89.5 per cent), the share of grant utilised was Rs 49,691 crore (9.9 per cent) and the share of PL 480/665 was Rs 2,820 crore (0.6 per cent).

All these aids were again made available either as tied aid (tied to a definite project) and untied aid. About one third of the total external aid made available to India was in form of untied aid.

Impact of Foreign Aid:

Foreign aid is playing an important role in the economic development of the country by enlarging the production capacity of the various sectors through additional supply of foreign exchange, transfer of technology and supplementing saving.

Thus the foreign aid had been creating a favourable impact on the economy of the country on the following lines:

Problems of Foreign Aid:

In-spite of creating a favourable impact on the development of the country, the foreign aid has also been creating various types of problems in the country.

These problems are described below:

(1) Increasing volume of foreign aid has been resulting in political pressures on the economy from the donor countries. Insistence of USA to accept Dunkel proposal is an example in this respect.

(2) Foreign aid has also been suffering from the problem of uncertainty and thus stands in the path of perspective planning.

(3) The country is having lesser absorptive capacity of aid due to its lesser exportable potential.

(4) The foreign aid has been attached with a huge burden of external debt as the debt servicing burden of the country has already reached serious proportion.

Suggestions:

Under such a situation, steps must be taken by the Government to attain flexibility approach for ensuring optimum utilisation of aid. Thus Government should convince the donor country to extend more of untied aid.

Moreover, to avoid uncertainty there should be long period regular commitments for aid. Again the technological aid should be in the form of technology transfer for building indigenous technology base.