Establishing IAPD is consistent with geo-economic initiatives

India’s economic and strategic interests have increasingly become global. There are several indicators of India’s deepening and widening integration with the world economy, leading to the country’s future wellbeing increasingly tied to global development.

Meanwhile, differences between domestic policies and management and international relations have become much less sharp, suggesting that ultimately perceptions of how domestic economic, social, and governance challenges are met significantly influences perceptions about a country and its leadership.

First, the country’s total international trade in goods and services is projected to be about $800 billion in FY12 and rise to around $1,500 billion before the end of this decade. India, a strong supporter of multilateral trading arrangements, has nevertheless been pursuing an ambitious agenda of preferential trade agreements (PTAs) for strategic geo-economic reasons.

The PTAs have not just been confined to trade, but also covered services, investment, non-tariff barriers and movement of natural persons. The issue of fiscal dumping, where fiscally strong states pursue measures designed to shift the tax base, and high value activities and associated human talent of countries to their own jurisdictions, has also been part of some of India’s PTA negotiations.

Second, total inward FDI stock is around $200 billion and outward FDI stock exceeds $100 billion, with both expected to exhibit strong growth. Forex reserves were $318 billion as on August 19.

Third, inward remittances through official channels were $55 billion in 2010. These flows have been crucial in enabling India to manage its persistent large trade deficits. India’s 30 million strong diaspora is spread globally. Various policy initiatives have significantly increased density of relations between India and its Diaspora.

One of the consequences of the above indications of global integration is that regional and global developments, some seemingly inconsequential, could have significant impact on the country’s economic well-being and social and political cohesion. Energy and key minerals dependence on global supplies is only one of the aspects.

The implications of the geo economic, geo political and security initiatives of other rising powers, particularly China, on India’s core economic and strategic interest also require a sophisticated multi-faceted response from India.

It is in the above context that India is considering establishing Indian Agency for Partnership in Development (IAPD). It will be responsible for implementing, auditing, monitoring, and providing technical assistance to the recipient countries.

It would coordinate all aid-related projects, lines of credit (LOCs), technical cooperation and training of foreign nationals. IAPD is expected to bring greater coherence and strategic intent to India’s economic and technical assistance activities.

It also has the potential to improve managerial and project management efficiencies as obtaining better outputs and more favourable outcomes from the assistance provided is, as with other budgetary allocations, critical for India’s public financial management.

The IAPD constitutes one of the initiatives of India’s increasing pursuit of geo-economics which emphasises integrating economic diplomacy in its overall external relations with different nations and regions.

The IAPD initiative represents a formal acknowledgement that India is now a recipient of still very useful foreign assistance, particularly in social sectors, and in infrastructure, as well as net provider of assistance. India’s inward assistance has been large in absolute terms but among the lowest in per capita terms. India has progressively restricted its inward sources of assistance to only a handful of bilateral and multilateral agencies, freeing diminishing resources for assistance for other countries, a gesture which needs to be recognised more widely.

The share in global assistance of 15 high-income countries who are members of 50 year old Development Assistance Committee (DAC) has been decreasing. The DAC countries are unlikely to be able to substantially increase aid in medium term due to their concerns and priorities concerning reviving growth and reestablishing fiscal and financial sustainability.

The IAPD will reportedly be responsible for distributing more than $11 billion over next five to six years. About $2 billion per year of assistance by India will be roughly the same as Australian or Belgium’s current annual assistance.

There is now increasing contestability among various assistance providing agencies. IAPD will need to position itself appropriately as its activities and performance will be tracked and compared globally.

The IAPD must consciously study the experiences of other similar agencies and draw appropriate lessons as effectiveness of assistance in advancing country’s interests in a mutually beneficial manner has proved to be a very difficult task. This is also the case with managing limited resources for assistance effectively.

India has been quietly providing economic assistance for several years, particularly in its neighborhood. This has taken the form of lines of credit (LOCs), grants, technical consultancy, development projects, information technology (IT) cooperation, particularly in agriculture, health and education, capacity building and humanitarian aid.

Currently, India has more than 120 LOCs to 54 countries worth $6.43 billion, including $1 billion to Bangladesh for developing railway infrastructure to enhance connectivity, and reduce transactions costs of trade and other economic interactions. Confidence building measures by Bangladesh in enhancing connectivity, such as transit facilities, could create a mutually beneficial bilateral relationship.

In 2008, India allocated $5.8 billion for infrastructure development in Africa and more assistance is expected. Consistent with the emphasis on leveraging information technology in social sector, India has implemented pan-African-e-network project encompassing 40 countries.

The Indian Technical and Economic Cooperation (ITEC) is expected to train 5,500 persons from 120 countries in 2011, up from 3,400 persons in 2005. Its geographical scope needs to be expanded beyond African countries, Bhutan, Sri Lanka, and Afghanistan.
In principle, the IAPD initiative is a logical and well considered response. However, it will be assessed by its performance in increasing India’s economic and strategic space, particularly in the focus countries involving is extended neighborhood of southern and Central Asia, Africa, and parts of Latin America and the Gulf region.

The professional and technical staffing decisions, governance structure, and financial management of the IAPD should be made consistent with the above objective. Mechanisms for feedback loop, and data generation, data analysis, and data mining capabilities will need to be developed; and domain expertise driven feedback mechanism for corrections in on-going projects and activities instituted.

Mukul G Asher is a professor at Lee Kuan Yew School of Public Policy, National University of Singapore (mukul.asher@gmail.com) & Gurpreet Singh Bhatia is an associate fellow, Research and Information System for Developing Countries, New Delhi.