Nepal among top 3 recipients of Indian aid

Ajay Banerjee

New Delhi, July 28

India’s efforts to expedite the development of Nepal are often comparted with the contribution made by China to the Himalayan country. An analysis done by security agencies here has found that Nepal has been consistently among the top-three recipients of aid from India.

The allocation of aid to Nepal, when seen in terms of the percentage of India’s GDP, is greater than the portion China allocates, from its own GDP. In 2023, while India allocated 0.00295% of its GDP for Nepal, China contributed 0.00124% of its GDP for the Himalayan country in the same year.

Dragon’s debt-trap diplomacy

• China’s loans to Nepal, particularly under the Belt and Road Initiative (BRI), are substantially higher and have raised concerns about the Himalayan country facing a potential debt trap
• The pattern has been observed globally, where heavy reliance on Chinese loans for large-scale infrastructure projects often leads to increased financial dependency and debt challenges

India’s approach emphasises sustainable development and fosters a debt-free relationship, showcasing India’s commitment to supporting Nepal without imposing financial burdens. On the other hand, China’s loans to Nepal, particularly under the Belt and Road Initiative (BRI), are substantially higher and have raised concerns about a potential debt trap.

The pattern has been observed globally, where heavy reliance on Chinese loans for large-scale infrastructure projects often leads to increased financial dependency and debt challenges for recipient countries. Explaining this, the analysis says, a grant is a financial aid provided without the expectation of repayment. It is typically used to support immediate needs, humanitarian assistance or developmental projects.

India’s grants to Nepal, such as the Rs 700 crore for this fiscal, provide immediate financial support for relief and development, without adding to Nepal’s debt burden. Under the BRI, China funds infrastructure projects through loans. These loans need to be repaid, often with interest.

India has allocated higher percentage of grant compared to China in terms of GDP in the last 6 years. India’s GDP is about $3.7 trillion. China’s is much greater, at $18 trillion. While in terms of absolute figures, India’s grants to Nepal are lesser than those of China, when seen as the percentage of GDP, Indian grant is higher.

The absolute amount China allotted to Nepal was Rs 1,600 crore in 2023, but it represents a smaller percentage of its much larger GDP. India’s approach fosters goodwill and strengthens diplomatic ties through direct support and capacity building. The focus on grants and humanitarian aid reinforces India’s role as a reliable partner.

While China’s infrastructure projects are substantial, the debt associated with these investments can lead to economic and political leverage over Nepal. This dynamic can influence Nepal’s policy decisions and strategic orientation.