Rephasing global development finance

The Hindu

2 days ago

India's development cooperation with the Global South has been showing a rising trend for the last several years. India has made consistent efforts to expand the facets of these engagements and has also almost doubled the flow of quantum — from around $3 billion in 2010-11 to around $7 billion in 2023-24. While capacity building programmes and the initiatives for technology transfer and duty-free access to India markets have been important modalities of this engagement, the main instrument has been the extension of lines of credit (LoC) under the Indian Development and Economic Assistance Scheme (IDEAS).
If budgetary provisions for 2025-26 are any indication, the red flag from the Ministry of Finance on credit lines, as a modality of engagement, is absolutely clear. At the G-20, India expressed serious concerns over rising sovereign debt levels across the Global South. During the third Voice of Global South Summit (VoGS) in 2024, Prime Minister Narendra Modi articulated the concept of a Global Development Compact (GDC), thereby implying a harmonious balance between all the modalities of engagement with the Global South. It is worth noting that there are five modalities of engagement, viz., capacity building, technology transfer, market access, grants and concessional finance. This balanced approach on modalities may be supplemented by India by having wider and deeper partnerships with countries that can work across third countries.
In this backdrop, under the modalities of engagement, India has to refocus on LoCs as an instrument of engagement. India was largely borrowing from global capital markets and providing the resources to the partner countries at a concessional rate of interest. The difference in the rates of interest was being absorbed by the Government of India. With a rising global liquidity crisis, such schemes have lost their relevance as capital market predictability and the repaying capabilities of partner countries have become severely constrained. India should take full advantage of this new reality.
Shrinking ODA and debt crisis
The traditional official development assistance (ODA) providers are going through their own budgetary crisis while the partners of the Global South have challenges in coping with the debt crisis. With rising geopolitical complexities, the flow of global development finance in any case is witnessing a profound decline. The collapse of USAID and the decline of the Foreign, Commonwealth and Development Office (FCDO) have highlighted the emerging crisis in development finance. The availability and leveraging of resources have been hampered further by the declining trend in ODA, which is likely to be close to $97 billion. This proposed slashing of foreign aid is a near 45% reduction from the levels of ODA in 2023, which stood at around $214 billion. At the Organisation for Economic Co-operation and Development (OECD), its Development Assistance Committee (DAC) has been an elite club for ODA providers, dictating the terms and conditions for the economic and political programmes for the South.
Shrinkage in the resource flow is likely to affect several development programmes, across least developed economies, particularly at a time when several of them are passing through an unprecedented debt crisis. Over the last 20 years, a series of overlapping crises and major geopolitical and economic transformations have reshaped the global financial environment, leaving many developing countries struggling to access funding. This has posed a risk to development progress at risk and jeopardised achievements.
The investment needed to achieve the Sustainable Development Goals (SDG) by 2030 has also surged from $2.5 trillion in 2015 to over $4 trillion in 2024. Without a major increase in financing, progress toward the SDGs (already derailed by the COVID-19 pandemic and other global shocks) will remain elusive. Simultaneously, borrowing has become costlier and less predictable.
Rationale for triangular cooperation
A ray of hope lies in the possibility of evolving a new mechanism of pooling resources with like-minded countries. The flows from the 19 non-DAC countries that report to the OECD rose from $1.1 billion in 2000 to $17.7 billion in 2022. Some of these countries such as Indonesia and Brazil have evolved a rich global experience with Japan and Germany of working in third countries. Japan and Indonesia have worked together in several Association of Southeast Asian Nations (ASEAN) economies to implement development projects. Similarly, Germany and Brazil have worked together in Mozambique in multiple development areas. Triangular Cooperation (TrC) has emerged as a powerful mechanism to bridge the divide between the Global North and the Global South.
The beauty of the TrC is that it brings together a traditional donor from the Global North, a pivotal country from the Global South, and a partner country (often from the Global South), creating inclusive platforms for shared learning, mutual respect and the co-creation of solutions tailored to local needs. Comprehensive TrC data is still being compiled at the global stage. However, the efficacy and the success of the model has been well established. Some preliminary data collection suggests TrC to be between $670 million to $1.1 billion.
Partnerships with results
The TrC has shown that addressing physical infrastructure can advance social progress. For instance, improving regional energy grids expands digital connectivity and provides access to opportunities in education and health. In this context, in 2022, Germany and India signed a Joint Declaration of Intent on the implementation of TrC projects in third countries (during the sixth India-Germany Inter-Governmental Consultations), with a focus on Africa, Asia, and Latin America. Since then, TrC projects are being implemented in several countries which include Cameroon, Ghana and Malawi in Africa, and in Peru in Latin America.
These offer clear examples as to how to rephase global development finance in a manner that ensures assured and efficacious outcomes in a cost-effective manner. Engagement in TrC was further emphasised during India's G-20 presidency, with expanded collaborations involving countries such as Germany, the United States, the United Kingdom, the European Union, and France. These partnerships span a variety of sectors and modalities, from grant-based projects to investment-driven initiatives such as the Global Innovation Partnership (GIP) with the U.K. These efforts illustrate how leveraging technical, financial, and human resources can deliver results in third countries.
Sachin Chaturvedi is Vice-Chancellor, Nalanda University, Rajgir, Bihar, and Director-General at the Research and Information System for Developing Countries (RIS), a New Delhi-based think-tank. The views expressed are personal