In Six Charts, a Visual Primer on India's Budget for Diplomacy

This year is seeing the highest ever allocation for the Ministry of External Affairs.

New Delhi: India’s foreign office has received an increase in budgetary allocation for FY’22, a funding boost that comes even as the ministry gears up to carry out multiple diplomatic challenges from vaccine diplomacy to finishing key infrastructure projects abroad.

The Union Budget has allocated Rs 18,154.73 crore to the Ministry of External Affairs for 2021-22. This is the highest ever allocation for the MEA – and an increase of 4.65% from this year’s budget estimates.

At the same time, budget documents also showed that there had been a sharp drop of 13% in the expenditure for this year – from budget estimates (BE) of Rs 1,7346.71 crore to Rs 15,000 crore in revised estimates (RE).

MEA’s decrease in expenditure for this year goes against the overall trend of the Indian government that revised its overall spending for FY21.

That’s because a large part of foreign ministry’s budget – around 40% – is tied up with development assistance projects in countries with whom India has a strategic relationship.

As an MEA official explained, the global lockdown due to the COVID-19 pandemic resulted in a shortfall of most of the infrastructure-related activities so the expenditure of ministries related to those sectors should be lower.

With the external affairs ministry’s aid allocation linked to major infrastructure projects, spending would, therefore, be much less as it would depend on the rate of progress.

While the MEA may have a record budget allocation for next year, it is still far from breaching the 1% mark in the Indian government’s total expenditure. This year, the foreign ministry’s share was the lowest in over a decade at 0.49%. This will increase slightly to 0.52% for 2021-22.

Within the Indian government, the MEA is not the only source for disbursing foreign aid. The Ministry of Finance’s department of economic affairs is a major player as it controls the lines of credit that India extends to foreign countries, which are an oft-used diplomatic instrument to increase economic and strategic visibility for Indian companies in key countries.

India has allocated Rs 9,724.7 crore for loans and grants to foreign government in FY22, which sums up all dispersals through North and South Blocks. This allocation is an increase of around 16% from the current year’s budget estimates.

The Union Budget also increased the revised expenditure within this category to Rs 8,457.64 crore for FY 21. However, this rise is solely due to the tripling in allocation for Exim Bank, which is apportioned money through the finance ministry.

As per the norm, Bhutan has been allocated the lion’s share of the foreign aid budget to sponsor the mega hydropower projects, which are a significant source of revenue for the Himalayan kingdom.

As the chart above shows, the increase in next year’s allocation follows a decline in actual expenditure on foreign aid projects over a couple of years.

The share of South Asia in India’s foreign aid budget had seen a decline in previous years, with New Delhi also allotting money for strategic projects like Chabahar port in Iran and to Indian Ocean nations of Mauritius and Seychelles.

It was supposed to pick up to 57% this year. But the revised estimates show that the six South Asian countries account for 45.7% of India’s total loans and grants for foreign governments in FY21. This is a dip from the region’s share of 57.1% in the actual expenditure of 2019-20. Next year, the South Asian stake may rise to 51.3%, according to FY22 budget estimates.