Policy Update
Asmatwali
Background
India’s Overseas Development Partnership (ODP) has evolved from a modest post-independence solidarity gesture into one of the most consequential instruments of New Delhi’s foreign policy. Rooted in the Colombo Plan (1950) and later institutionalised through the Indian Technical and Economic Cooperation (ITEC) programme in 1964, India’s development assistance today spans grants, concessional Lines of Credit (LoCs), capacity-building, and humanitarian assistance across Asia, Africa, and Latin America.
The institutional architecture of ODP was formally consolidated with the establishment of the Development Partnership Administration (DPA) within the Ministry of External Affairs (MEA) in 2012. The DPA coordinates India’s foreign assistance through four functional divisions: DPA-I (Lines of Credit and concessional finance), DPA-II (ITEC and capacity building), DPA-III (project grants), and DPA-IV (monitoring and evaluation). This institutional scaffolding gives India’s development diplomacy both coherence and operational reach.
Since 2000, India’s MEA has overseen development assistance worth over $48 billion to more than 65 countries, comprising $14.74 billion in grants, $32.6 billion in LoCs, and $656 million in capacity-building programmes. The ITEC programme alone has trained approximately 400,000 government officials from the Global South since its inception. The annual Union Budget, specifically the MEA’s Demand for Grants, offers the most transparent lens for decoding India’s shifting diplomatic priorities, alliance maintenance, and strategic recalibrations in South Asia.
Functioning of India’s Overseas Development Partnership
India’s Official Development Assistance operates through four main mechanisms, each tailored to meet specific foreign policy goals:
Grants and Project Support: These are demand-driven infrastructure initiatives executed directly between governments. They focus on prominent, high-profile projects such as educational institutions like the South Asian University, connectivity corridors, cross-border check posts in Bangladesh and Nepal, and hydroelectric facilities in Nepal and Bhutan.
Concessional Lines of Credit (LoCs/IDEAS): Administered by the Exim Bank via the Indian Development and Economic Assistance Scheme, these low-interest loans fund major development and infrastructure projects. They require partner nations to source at least 75% of the goods and services for their projects from India. To date, 68 countries have been granted more than 300 LoCs totalling $32 billion, with a significant portion concentrated in neighbouring South Asian countries.
Indian Technical and Economic Cooperation (ITEC): This primary soft-power program delivers roughly 12,000 civilian and 3,900 military training opportunities each year. Covering nearly 500 subjects, ranging from traditional farming methods to advanced fields such as cybersecurity and AI, ITEC cultivates enduring networks of trained professionals within partner governments.
Humanitarian Aid and Disaster Relief (HADR): From 2000 to 2022, India extended emergency financial relief to more than 85 nations. The $4 billion package provided to Sri Lanka during its 2022 balance-of-payments crisis serves as the most notable recent example of this assistance.
A core characteristic of India’s development program is that it does not impose political strings or policy demands on recipient nations, in contrast to the approach of many Western lenders. Nevertheless, actual budget trends show that this financial support is tightly linked to geopolitical realities, fluctuating in direct response to the health of India’s diplomatic ties with each nation.
Performance: Reading the Budget Numbers (2023–2026)
The Union Budget is India’s most credible public document for tracing ODP priorities. Analysis of the MEA’s Demand for Grants from 2023–24 through 2025–26 reveals a nuanced picture of expanding ambitions tempered by institutional and fiscal constraints.
Key Budget Figures:
2024–25 (Budget Estimate): Total MEA aid allocation of Rs 4,883.56 crore across all partner countries. MEA’s total budget stood at approximately Rs 22,154 crore.
2025–26 (Budget Estimate): MEA’s Overseas Development Assistance (ODA) portfolio rose to Rs 6,750 crore, a 20 per cent year-on-year increase, constituting 33 per cent of MEA’s total allocation of Rs 20,516.61 crore. South Asia accounted for 57.65 per cent of total aid allocation, the highest share since 2018–19.
2026–27 (Budget Estimate): Total ‘Aid to Countries’ allocation approximated $637 million, with notable recalibrations, Maldives rising to Rs 600 crore, Sri Lanka to Rs 300 crore, while Bangladesh fell sharply from approximately Rs 120 crore to Rs 60 crore amid diplomatic strain following the Hasina ouster. Notably, no allocation was made for the development of Chabahar Port in Iran, a departure from prior years.
Country-wise Aid Trajectory (2025–26):
Bhutan: Rs 2,150 crore is the highest bilateral allocation, reflecting India’s commitment to fund Bhutan’s Five-Year Plans (doubled to Rs 10,000 crore over the plan period) and the Punatsangchhu-II and Kholongchhu hydropower projects.
Nepal: Rs 700 crore stable allocation, supporting connectivity, power transmission, and cross-border infrastructure.
Maldives: Rs 600 crore (sharp increase from Rs 400 crore in 2024–25) reflecting New Delhi’s diplomatic recalibration following the Muizzu government’s initial pro-China pivot and subsequent rapprochement with India.
Bangladesh: Rs 120 crore (Budget Estimate, 2025–26) reflecting the sharp deterioration in bilateral ties following the August 2024 political transition in Dhaka and the contentious sheltering of Sheikh Hasina in India.
Sri Lanka: Rs 300 crore modest increase, reflecting continued engagement with the Dissanayake government despite initial uncertainty about Colombo’s India-China balancing.
Chabahar (Iran): Rs 100 crore allocated in 2025–26 for port development (under the 10-year operations agreement for Shahid Beheshti Terminal); absent from 2026–27 estimates, a significant strategic signal.
India’s peak ODP disbursement reached $4.3 billion in 2023, according to the Centre for Global Development (CGD). However, this was inflated by exceptional Exim Bank sovereign guarantee provisioning of Rs 4,630 crore in 2022–23 and Rs 3,561 crore in 2023–24, which has since been wound down. The MEA’s structural ODA budget, when stripped of these one-time provisions, reflects a more modest but consistent upward trajectory.
Impact: Development Diplomacy and Strategic Influence
India’s ODP has generated measurable impact across multiple dimensions, physical infrastructure, diplomatic influence, and people-to-people connectivity, though with varying degrees of success:
Infrastructure Delivery: India’s grant-funded projects have delivered visible dividends, such as the Maitri Setu (Friendship Bridge) over the Feni River with Bangladesh, hydropower plants in Bhutan and Nepal, Integrated Check Posts along multiple land borders, and coastal surveillance radar systems in Sri Lanka, the Maldives, and Seychelles. These projects directly contribute to regional connectivity, consistent with India’s Neighbourhood First Policy articulated by Prime Minister Narendra Modi in 2014 and the ‘Vishwa Bandhu’ framework reaffirmed in 2025–26.
Capacity Building as Soft Power: The ITEC programme has trained close to 400,000 professionals from over 160 partner countries since 1964. This has created a network of ITEC alums across governments, particularly in South Asia, Africa, and the Indo-Pacific, who carry institutional familiarity with Indian development models and administrative practices. As an ORF America background paper notes, several political leaders and military officials across the Global South are ITEC programme alumni, constituting a valuable soft-power dividend.
Crisis Diplomacy and Geoeconomic Differentiation: India’s ODP has increasingly served as a strategic anchor during moments of acute regional volatility, offering an alternative partnership model that stands in sharp contrast to the infrastructure-leveraged, debt-heavy optics of China’s Belt and Road Initiative (BRI). This geoeconomic differentiation is visible across three distinct regional theatres:
Sri Lanka (The Macro-Financial Rescue): India’s rapid $4 billion emergency stabilisation package during Colombo’s 2022 balance-of-payments crisis firmly established New Delhi as the region’s primary “first responder.” While Chinese state banks hesitated to adopt debt-restructuring frameworks in the aftermath of the Hambantota Port fallout, Indian financial intervention provided immediate, unconditional liquidity, reinforcing New Delhi’s credibility as a reliable partner in times of systemic distress.
The Maldives (The Sovereignty Safeguard): Following the initial pro-China pivot and “India Out” rhetoric of the Muizzu administration, India utilised calculated financial diplomacy rather than retaliatory measures. By extending budgetary support and rolling over sovereign treasury bills through 2024–25, New Delhi stabilised Malé’s fiscal baseline. Crucially, while Chinese mega-investments like the Sinamalé Bridge carried sovereign-lease risks, India countered by financing the Greater Malé Connectivity Project through a $400 million line of credit and a $100 million grant, ensuring that asset ownership remained strictly Maldivian.
Nepal (The Energy Integration Alternative): While China’s BRI promised sweeping trans-Himalayan rail networks that remain largely stalled due to financial and terrain viability concerns, India quietly pivoted to high-impact, functional grid connectivity. Beyond the operational Dhalkebar-Muzaffarpur line, New Delhi and Kathmandu signed landmark power-sharing joint ventures to construct two new 400 kV cross-border transmission lines (Inaruwa-New Purnea and Lamki-Bareilly) targeting 10,000 MW of power exports to India. By linking Nepal’s hydropower potential directly to India’s massive domestic energy market, New Delhi transformed development aid into a self-sustaining revenue engine for Kathmandu, in stark contrast to the stagnant, underperforming physical infrastructure favoured by Beijing.
Emerging Issues
Competitive Pressure: The China Factor and Aid Competition:
China’s Belt and Road Initiative (BRI) has significantly expanded Beijing’s infrastructure presence across South Asia in Sri Lanka (Hambantota Port), Pakistan (CPEC), Nepal, and Bangladesh. India’s ODP must increasingly compete not just in the quantum of funds but in the speed and reliability of delivery. India’s historical challenge, as analysts have consistently noted, is execution delay rather than budgetary inadequacy.
Implementation Gaps:
India’s DPA operates with significant capacity constraints. The Indian Foreign Service (IFS) has only approximately 850 officers managing 193 diplomatic missions, far below counterparts like the US (up to 350 annual recruits) or the UK (80–100). The MEA’s own training budget declined by 11.4 per cent in 2025–26, even as development ambitions expanded. Project cycles are frequently slow, and the gap between budget allocation and actual disbursement remains a structural challenge.
Political Volatility of Recipient Governments:
The 2024 political transitions in Bangladesh (Hasina’s ouster), Nepal’s recurring coalition instability, and the initial shift in the Maldivian government under Muizzu exposed India’s structural vulnerability: heavy dependence on specific political leaderships rather than broad societal engagement. India’s criticism of supporting Hasina without engaging the broader Bangladeshi political spectrum (BNP, civil society) has emerged as a post-mortem lesson.
Bangladesh Aid Cliff:
The sharp reduction in Bangladesh’s allocation in 2026–27 (effectively halved) risks stalling major Indian-financed projects on the ground, creating space for Chinese and other actors to fill the vacuum, a self-defeating strategic outcome. Structured mechanisms for the continued disbursement of project funds, even during periods of diplomatic strain, are absent.
Transparency Deficit:
India has historically advocated transparency in others’ development finance while maintaining a relatively opaque reporting framework for its own ODP. The Centre for Global Development highlights that India’s data must be ‘cobbled together from different sources,’ limiting independent evaluation and undermining India’s claim to moral authority in the Global South development discourse.
Exim Bank Provisioning Distortions:
The inclusion of Exim Bank sovereign guarantee provisioning within the MEA budget headline has distorted year-on-year comparisons. The MEA’s Parliamentary Standing Committee (Fifth Report, 2025–26) has recommended that provisioning be treated as a separate budget item outside core MEA funding. This structural reform would clarify the true ODP envelope and insulate it from one-time RBI-mandated provisions.
Chabahar Omission:
The absence of Chabahar Port allocation in the 2026–27 budget estimates following the 2025–26 Iran crisis and geopolitical pressures signals a potential retreat from India’s flagship Central Asian connectivity project. Given Chabahar’s centrality to the International North-South Transport Corridor (INSTC) and India’s strategic autonomy, this omission warrants urgent policy review.
Way Forward
India’s Overseas Development Partnership has grown significantly in both scale and institutional sophistication over the past decade. The budget trends reveal a foreign policy framework that is genuinely strategic, using ODP to maintain regional primacy, counter Chinese influence, manage neighbourhood crises, and build long-term soft power through ITEC. However, translating ambitious allocations into durable diplomatic outcomes requires transitioning from a flat list of objectives to a sequenced, prioritised execution roadmap.
Phase 1: Immediate Structural and Accounting Fixes (Months 1–6)
Priority 1: Delink Exim Bank Provisioning from Core ODA: Following the Parliamentary Committee’s recommendation, Exim Bank sovereign guarantee provisioning must be budgeted separately. This is the immediate baseline requirement; it creates a clean, comparable ODA metric that enables genuine year-on-year strategic assessment.
Phase 2: Operational and Execution Reforms (Months 6–12)
Priority 3: Prioritise Execution Speed Over Announcement Quantity: A credible ODP narrative in the China-competition context requires that announced projects are delivered on time. The next step is to create a Project Acceleration Unit within the Development Partnership Administration (DPA), backed by strict quarterly delivery benchmarks to ensure discipline.
Priority 4: Expand DPA’s Institutional Capacity: To sustain faster execution, the Indian Foreign Service (IFS) requires expansion to an optimal strength of 1,500 officers, alongside the lateral hiring of development finance, infrastructure, and technology specialists. Concurrently, the MEA’s role as the sole gatekeeper for development diplomacy must be moderated through new inter-ministerial coordination mechanisms.
Phase 3: Long-Term Diplomatic and Transparency Strategy (Year 1 and Beyond)
Priority 5: Shift from Regime-to-Regime to Society-to-Society Engagement: To insulate India’s investments from sudden political transitions in Dhaka, Kathmandu, or Malé, India must build long-term social capital. This requires developing structured, institutionalised programs targeted at civil society, the business community, and youth in partner countries.
Priority 6: Publish Comprehensive ODP Reports: As a final step to solidify global credibility, India should begin publishing an annual Development Cooperation Report (modelled on Japan’s ODA White Paper or the UK’s Statistics on International Development). This will enhance transparency, build institutional data, and ultimately strengthen India’s Global South leadership positioning.
India’s ODP, read through the budget lens, is at once a mirror of its diplomatic successes and its unresolved vulnerabilities. As External Affairs Minister S. Jaishankar has stated, ties with neighbours are “not merely transactional.” By implementing these reforms in a deliberate, sequenced order, India can successfully match the ambition of its allocations with the discipline of its delivery, converting short-term financial outlays into durable, long-term regional influence.
Priority 7: Long-Term De-Risking of the Chabahar-INSTC Corridor
Strategic Directive: India must actively manage the geopolitical and diplomatic costs of its long-term operational commitments at Chabahar Port through 2026–27 and beyond. Given that the International North–South Transport Corridor (INSTC) and Central Asian market-access rationale remain fundamentally compelling, this regional commitment must be handled as a distinct, long-term diplomatic endeavour rather than a localised infrastructure project.
Navigating the Sanctions-Treaty Nexus: Advancing momentum at Chabahar cannot be treated as a simple policy or budget adjustment. It requires navigating overlapping U.S. secondary sanctions risks, particularly given fluctuating Washington waivers, while stabilising long-term bilateral treaty obligations with Iran amidst regional volatility.
Phased Diplomatic De-risking: India’s engagement must move in tandem with deliberate, multi-layered diplomatic de-risking. This involves securing continuous, formalised sanctions exemptions from Washington by framing the port as a critical regional stability and humanitarian corridor, while simultaneously building insulated, alternative financial settlement mechanisms to protect commercial shipping partners from banking penalties.
References
1. Ministry of External Affairs, Government of India. (2025). Notes on demands for grants 2025–26: Ministry of External Affairs. https://www.indiabudget.gov.in/doc/eb/sbe29.pdf
2. Ministry of External Affairs, Government of India. (2024). Lines of credit for development projects. https://www.mea.gov.in/Lines-of-Credit-for-Development-Projects.htm
3. Ministry of External Affairs, Government of India. (2026). Development partnerships. https://www.mea.gov.in/development-partnership.htm
4. Ministry of External Affairs, Standing Committee on External Affairs. (2025). Fifth report: Demands for grants 2025–26. Lok Sabha Secretariat.
5. Nainar, A. (2025). India’s foreign assistance: Trends, processes, and priorities (Background Paper No. 25). ORF America. https://orfamerica.org/newresearch/india-foreign-assistance-priorities
6. Pant, H. V. (2025). Union budget and India’s strategic priorities. Observer Research Foundation. https://www.orfonline.org/research/union-budget-and-india-s-strategic-priorities
7. Exim Bank of India. (2026). Lines of credit. https://www.eximbankindia.in/lines-of-credit
8. Institute of South Asian Studies, National University of Singapore. (2024). Indian budget FY2024/25: Aid to the neighbours. ISAS Brief. https://www.isas.nus.edu.sg/papers/indian-budget-fy2024-25-aid-to-the-neighbours/
9. Centre for Global Development. (2026). How is India financing international development? CGD Blog. https://www.cgdev.org/blog/what-india-doing-international-development
10. Centre for Social and Economic Progress. (2024). India 2024: A neighbourly India. CSEP Policy Brief. https://csep.org/policy-brief/india-2024-a-neighbourly-india/
11. The Diplomat. (2026, February 9). The geopolitics of India’s foreign assistance for 2026–27. https://thediplomat.com/2026/02/the-geopolitics-of-indias-foreign-assistance-for-2026-27/
12. The Wire. (2025, February 2). Foreign aid: Who gains, who loses in India’s 2025–26 budget? https://m.thewire.in/article/diplomacy/foreign-aid-who-gains-who-loses-2025-26-budget
13. NewKerala.com. (2025, February 1). True Vishwa Bandhu spirit: India allocates Rs 5483 crore. https://www.newkerala.com/news/o/true-vishwa-bandhu-spirit-india-allocates-rs-5483-crore-319
About the Contributor
Asmatwali is a research and editorial intern at IMPRI. He is a scholar in the Department of West Asian and North African Studies at Aligarh Muslim University. Earlier, he worked on two project reports based on semi-structured interviews for the think tank JINF, Japan.
Acknowledgment
I am writing to express my sincere gratitude to IMPRI (Impact and Policy Research Institute) for providing me with the opportunity to prepare this policy update article and for fostering a rigorous learning environment that connects research with public policy practice. I also extend my sincere thanks to Tanvi, Swapnil Nerurkar & Yashkirti Pal for their valuable feedback, useful suggestions, and support in shaping this article in the required policy-update format.
Disclaimer
All views expressed in the article belong solely to the author and do not necessarily represent the views or policies of the organisation.
