External Affairs

A Visual Guide to the External Affairs Ministry's Share of the Budget 2020 Pie

The 3% decrease in the MEA's budgetary allocation for FY'21 comes despite the ministry having improved its utilisation of funds over the last few years.

New Delhi: While the Ministry of External Affairs saw a slight dip in allocations in the Union Budget, a deeper dig into the numbers shows that the drop takes place despite an improved spending record in recent years.

In the Union Budget, announced on Saturday, the ministry received an allocation of Rs 17,884.78 crore for the upcoming financial year 2020-21, which was a 3% decrease compared to the budget estimates (BE) of this financial year (FY’20).  The BE for FY’21 however is almost the same as the revised estimate (RE) for FY’20, which comes in at Rs 17,372.27 crore.

The decline in allocation comes after a gap of four years. The last time that the Union Budget had proposed a more compact budget for the MEA compared to the previous year was in February 2015 by then Union finance minister Arun Jaitley.

As seen from the above chart, the dip comes despite the MEA showing that it has been able to spend nearly all its allocated revised estimates. The latest figure for actual expenditure in the budget is for 2018-19, which stands at Rs 15,527.69 crore, which is Rs 54 crore less than the revised estimate for that year. It was an exceptional year, since it was the first time that the MEA’s revised estimates went up compared to the budget estimates since the NDA government took over in 2014.

Also read: Missing and Wanted in Budget 2020 – a Boost for India’s Economy 

But, from 2014 to 2017, the MEA’s actual expenditure had been much below its allocated expenditure. This was a reversal of the trends of the early part of the decade, when the actual spending was above allocation from 2010 to 2013.

While foreign policy is seen as one of the government’s top priorities, the budget for the Ministry of External Affairs has always been less than 1% of the total expenditure. For 2020-21, MEA’s share in the Indian government’s expenditure will be going down to 0.57% – the lowest in the last decade. For the last four years, it had remained steady at around 0.64%, after it reached the highest peak of 0.81% in 2015.

The entire portion for the MEA is, of course, not spent directly on development assistance projects. For example, around 31% of 2020-21 expenditure budget has been allocated for MEA’s establishment costs, like embassies and salaries.

Since other ministries like finance are also involved in disbursing funds, a better matrix to understand India’s sponsorship of projects and programs in foreign countries would be to examine the numbers for grants and loans. In the budget for FY 2020-21, the category for “loans and grants to foreign countries” includes projects and programs coordinated by both North and South Blocks. 

India allocates not even half a percent of its total governmental expenditure on loans and grants to foreign government. For 2020-21, just like the trend for MEA’s budget, the proportion of loans and grants for diplomatic outreach in India’s overall has gone down, compared to last year, to 0.27%.

While actual expenditure had gone over allocations in 2018-19, the spending on grants and loans to other countries by India had gone beyond the budget estimates, but remained slightly below the revised estimates. A year earlier in 2017-18, India’s overall foreign aid had actually surpassed the revised estimate, but had been much below the anticipated budget estimate. From 2014-15 to 2016-17, the actual expenditure on foreign aid was much lower than both the budget and revised estimates.

Around 57% of the total grants and loans to foreign countries in 2020-21 would go to the six countries in South Asia – Bhutan, Nepal, Afghanistan, Maldives, Sri Lanka and Nepal. This means that South Asia’s share in Indian foreign aid will remain steady at this level for the second consecutive year, after several years of decline in its portion.

As usual, Bhutan will get the largest share in the Indian foreign aid pie.

India’s Indian ocean ally, Mauritius is second, with several large Indian development projects entering an advanced stage.

The third highest aid goes to Nepal, which has been allocated Rs 800 crore in 2020-21. This will be a decrease of Rs 400 crore from the revised estimate of Rs 1200 crore for this year. Incidentally, the revised estimate increases the allocation for Nepal in 2019-20 by nearly Rs 200 crore.

Also read: Six Charts to Make Sense of India’s Budget for Foreign Policy

According to officials, the reason for the cut in Nepal’s aid is that disbursal of money depends on the demand of various projects. With 90% of the India-sponsored housing project in Nepal complete, officials had anticipated that the budget for next year would be pruned.

However, India also has several large pending projects like Railway lines and since they have land acquisition issues, there may not be enough progress next year to warrant a similar level of spending as in 2019-20.

The other interesting allocation was that of Rs 100 crore for the strategic port of Chabahar in Iran.

When the Iranian foreign minister Javed Zarif was in India last month, he had mentioned that the project was in doldrums as companies were afraid of investing in it, despite the US having given a limited exemption for Chabahar under its sanction regime against Tehran.

India had also allocated Rs 45 crore for current year for Chabahar, but it has been brought down to zero in the revised estimate. Therefore, it remains to be seen if the circumstances improve in 2020-21 to allow India to spend money on this project.