In Charts, a Deep Dive into India’s Budget for Diplomacy

For 2022-23, India’s diplomatic budget has gone down despite the overall allocation for government expenditure showing an upward trend.

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New Delhi: The lingering impact of the COVID-19 pandemic is evident with India’s foreign aid allocations for development projects in strategically important countries yet to return to pre-pandemic levels, even as New Delhi retains substantial assistance for Afghanistan and Myanmar, latest budget figures show.

For 2022-23, India’s diplomatic budget has gone down despite the overall allocation for government expenditure showing an upward trend.

Last year, the Ministry of External Affairs proudly noted that it had got the highest ever allocation – Rs 18,154.73 crore. As per the latest budget documents, this got revised to Rs 16,000 crore for 2021-22 – a drop of 11.8%.

There also has been a decrease of 5% in expenditure allocation for the new financial year of 2022-23, at Rs 17250 crore. This is the sharpest year-on-year drop in budget estimates for the MEA in recent times.

The budget figures also starkly demonstrated the adverse impact of the pandemic, which began in early 2020, on MEA’s spending.

Also read: Despite GoI Expenditure Going Up, MEA’s Budget Goes Down by 5% for 2022-23

The latest figures for actual expenditure are for the year 2020-21, the first financial year when COVID-19 shut down national borders and the global economy.

Compared to the previous year, there was a sharp drop of 16.9% in actual expenditure by the MEA in 2020-21. This is the first time there had been a decrease in actual spending by the foreign ministry year-on-year since 2016-17, when the decline had only been 12.1%.

The MEA’s drop in actual expenditure for 2020-21 is not surprising and part of the overall trend for government spending during the pandemic. However, the decrease in MEA’s budget allocation for 2022-23 is going against the grain since the overall expenditure for the government of India has gone up.

As the above chart shows, MEA’s share in the government’s total expenditure budget has also decreased sharply in the last two years.

In its reports tabled in December 2021, the parliamentary standing committee on external affairs had observed that MEA’s proportion as a percentage of Government of India budget was a mere 0.5 in 2021-22, despite the ministry highlighting that it was the highest ever allocation. “While the increased allocation to MEA in absolute term is a fine development, however, it is continuously slipping down as a percentage of the GOI’s total expenditure,” the report said.

With ministry officials deposing that the allocated budget is adequate, the standing committee report observed that MEA has “accepted budgetary constraint as a given reality”.

Also read: The Winners and the Losers of Union Budget 2022

Nevertheless, the committee observed that it “strongly” felt that MEA’s allocation was “incommensurate and inadequate”.

“Budgetary resources will play a determining role in India’s pursuit of permanent seat at United Nations Security Council (UNSC) that require adequate global presence and expansion of diplomatic outreach. Provisioning of adequate finances is critical to ensure that India’s global footprint and diplomatic outreach is not circumscribed”, the report stated.

India has allocated Rs 8,133 crore for loans and grants to foreign governments for 2022-23. This category is based on the total dispersals of external affairs and finance ministries.

There has also been a drop in allocation in India’s aid for foreign countries – a 12.3% decrease between budget estimates of 2021-22 and 2022-23. The descent looks steeper when looking at the revised estimates for the current year. The original budget estimate of Rs 9,274.7 crore has been modified to Rs 7,084.44 core for 2021-22.

A significant chunk for the downward revision has been due to Bhutan. From an initial allocation of Rs 3004 crore, MEA’s revised estimates for Bhutan came down to Rs 1,755.23 crore this year.

According to officials, the COVID-19 pandemic over the last two years has meant that progress in the construction of the ongoing hydroelectric projects has slowed down, with cross-border movement severely restricted by Thimpu. At the same time, they added that India had ‘front-loaded’ some of the aid to Bhutan, which faced economic difficulties over the last couple of years.

In the neighbourhood, Myanmar has faced not just the COVID-19 pandemic, but was thrown into political turmoil due to the coup by the military junta on February 1, 2021.

India has continued to maintain links with the Tatmadaw, even as it also calls for the return of democracy and the release of all political prisoners. With several large development projects, the budget has enhanced the aid allocation for Myanmar by 50% to Rs 600 crore for the current year and the next one.

The other large neighbour where India’s aid programme has plunged into uncertainty is Afghanistan, with the Taliban in complete control after taking their military blitzkrieg in August last year.

As the chart shows, actual spending on aid projects in Afghanistan has declined since 2018-19, with New Delhi concentrating more on small development projects.

While the fate of Indian-sponsored projects is stalled, the budget has still kept aside Rs 200 crore as foreign aid for Afghanistan for 2021-22 and 2022-23. It marks a decline of 42% compared to the 2021-22 budget estimates.

As per sources, this allocation will be utilised to deliver Indian wheat to Afghanistan, which is likely to start next week. They also point out that India is also sending COVID-19 vaccines and medicines to Kabul and paying for the scholarships of Afghan students.

India has also retained Rs 100 crore for the development of the Chabahar port in Iran this year – and allocated a similar amount for the next financial year. The Iranian port is crucial to India’s trade with Afghanistan while avoiding Pakistani territory. 

The parliamentary standing committee had rebuked MEA for not allocating any amount for Chabahar port in 2020-21. “The justification offered by the Ministry for nil allocation at the RE stage was under utilization of allocated amount duet o delay in equipment delivery because of COVID pandemic induced restrictions and the skepticism regarding US sanctions on the port equipment suppliers,” said the report.

The ministry conveyed to the parliamentary panel that it distributed Rs 40 crore in May 2021 for payment for cranes and material procurement for Chabahar port.

Bangladesh, Maldives and Mongolia have also seen an increase in allocation for next year, ranging from 50 to 500%. However, Nepal’s aid allocation for 2022-23 has been cut by 24.2%, year on year.

Looking at the larger South Asian region, India’s total allocation for six neighbours has been reworked for this financial year from BE of Rs 4996.95 crore to RE of 3215.23 crore. It effectively brought down South Asia’s share in the overall aid budget to a record low of 33 per cent.

South Asia is slated to return to the top of India’s aid priority next year, with allocations accounting for 50.1 per cent of the loans and grants to foreign governments in 2022-23.

Note: This article was updated with additional information at 9 pm on February 2, 2022.