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June 3, 2003

Finance Ministry to formulate new guidelines for bilateral aid in consultation with development partners

The Finance Ministry will frame a new set of guidelines which will govern future bilateral aid flows to India. While framing the guidelines the Ministry will invite inputs from bilateral aid partners.

Following the Finance Ministry's decision to reduce bilateral aid flows through the government, the Finance Secretary today met representatives of several countries likely to be affected by the new decision. He expressed Government's deep gratitude to all the donors for their generous development assistance over the years which has benefited India greatly. The Finance Secretary explained that the new decision sought to take into account changing realities in the field of development cooperation. It was clearly stated that the ongoing economic development cooperation projects/programmes shall continue ensuring that there is no disruption/dislocation with the projects being allowed to run their stipulated course. He said that unlike the past, development needs are large but have localized and geographical singularities. Institutional needs have also changed. The involvement of government leads to universalisation of development models which is counterproductive in today's scenario. Thus the government has decided that bilateral assistance that is no langer routed through the government machinery could be accessible to the institutions, projects NGOs etc. directly. This was expected to improve the efficiency of the development effort.

It was stated by the Ministry of Finance and was generally appreciated that the development cooperation should be appropriately seen as a dynamic process recognizing the changing realities. The external aid, in order to be meaningful and efficacious, must result in an end to the requirement of further aid. India, that is fast emerging as a systematically improved player in global economy, has therefore decided to reorient its aid policies. It would also result in ODA getting released in favour of developing countries in need greater than India of external aid. This objective is also being strengthened by India establishing 'India Development Initiative' with which developing countries would be sought to be helped with grants and credits besides a debt write off in favour of highly indebted poor countries.

It would also be more efficient as the bilateral partner would as a rule have interaction with government only at the beginning of the financial year when the total bilateral assistance package will be discussed and finalized. The Finance Ministry would be primarily interested in addressing India's security concerns and overall development priorities. Thereafter the bilateral partners would be free to interact with the beneficiaries. However, it was emphasized that such aid flows would normally be in the form of grants rather than loans and government commitments to repay loans would be kept to a minimum.

Explaining the reasons behind early repayment of bilateral debt, the Finance Secretary said this was entirely a commercial activity based on the overall fiscal management policy of the government of India. It had no connection to any bilateral relations with any donor country, with all of whom India has very good bilateral relations that India greatly values. India proposes to repay approximately 1.6 Billion Dollar equivalent of bilateral debt in the current fiscal year.

Following the announcement of the decision to readjust bilateral cooperation, the Finance Ministry proposes to issue detailed guidelines on how the decision will become operational. In the process of framing the guidelines, the Finance Ministry will take into account the views of India's bilateral partners in development. The nodal officers in the Ministry have been asked to meet the representatives of the bilateral partners to address their specific and unique concerns.

The meeting was attended by representatives of diplomatic missions and aid agencies of 14 countries including Denmark, France, Netherlands, Italy, Switzerland, Australia, Canada, Czech Republic, Slovak Republic, Belgium, Kuwait, Norway, Sweden and Austria. Senior officers of the Ministry of Finance and External affairs were present at the meeting.

India Committee of the Netherlands / Landelijke India Werkgroep - 13 juni 2003