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Rephasing Global Development Finance

03 Jul 2025 GS 2 International Relations

Context:
India’s development cooperation with the Global South is evolving amid a shifting global economic landscape, rising debt distress, and shrinking traditional development aid (ODA). 

1. India’s Growing Role in Development Cooperation

  • Increased Engagement: India’s development assistance to the Global South rose from $3B (2010-11) to $7B (2023-24).

  • Key Instruments:

    • Lines of Credit (LoCs) under IDEAS (Indian Development and Economic Assistance Scheme).

    • Capacity building, technology transfer, and duty-free market access.

  • Challenges:

    • MoF’s caution on LoCs due to global liquidity crisis and debt risks in partner countries.

    • G-20 & VoGS 2024(Voice of Global South Summit ): PM Modi proposed a Global Development Compact (GDC) for balanced engagement.

2. Decline in Traditional Development Finance

  • ODA Crisis:

    • ODA (Official Development Assistance) dropped from $214B (2023) to $97B (proposed 2025-26)—a 45% cut.

    • USAID & FCDO collapse signals shrinking Western aid.

  • Impact on Global South:

    • Debt crises in LDCs (Least Developed Countries) worsen.

    • SDG funding gap surged from $2.5T (2015) to $4T (2024).

3. Triangular Cooperation (TrC) as a Solution

  • What is TrC?

    • Collaboration model: Global North donor + Global South pivot (e.g., India) + recipient country.

    • Examples:

      • Japan-Indonesia in ASEAN.

      • Germany-Brazil in Mozambique.

      • Germany-India in Africa (Cameroon, Ghana, Malawi) & Latin America (Peru).

  • Advantages:

    • Cost-effective, locally tailored solutions.

    • Expands infrastructure & social progress (e.g., energy grids → digital/health/education access).

  • Funding: Estimated $670M–$1.1B globally.

4. India’s Strategic Partnerships

  • G-20 Initiatives:

    • Global Innovation Partnership (GIP) with UK.

    • Expanded TrC with Germany, US, EU, France.

  • Future Approach:

    • Shift from LoCs to grant-based & investment-driven projects.

    • Leverage technical, financial, and human resources for sustainable outcomes.

Significance

  • India’s leadership in South-South Cooperation.

  • Decline of Western ODA & rise of alternative financing models (TrC).

  • SDG funding challenges & debt crises in Global South.

  • G-20 outcomes & India’s development diplomacy.



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