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19 March 2015, Gateway House

Assessing India’s infrastructure aid diplomacy

With the Modi government’s focus on improving neighbourhood relations, India cannot afford delays in its aid projects in the region—especially because aid is an effective foreign policy instrument. Why are these projects getting delayed? Is the government taking remedial steps to improve India’s aid programme?

Former Researcher

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When Prime Minister Narendra Modi visited Sri Lanka this week, two of India’s aid projects were in the spotlight—the Northern Railway Rehabilitation project in the north, as well as the housing project for displaced Tamils in the Jaffna region. These projects have once again highlighted the importance of aid in India’s engagement with its neighbours.

Aid has for long been an effective but under-the-radar foreign policy tool, and Modi too projected the aid projects in Sri Lanka in the best light. The projects have indeed been a challenge that India has met under difficult post-civil war conditions.

However, India’s aid projects in neighbouring countries, such as the Terai road projects in Nepal and the hydroelectric dams in Bhutan, have faced numerous delays and problems, as a detailed study done by Gateway House shows.

As a key instrument of India’s aid diplomacy, it is imperative that infrastructure projects are executed on time and effectively.

What are the reasons and locations of the stresses and successes in India’s aid infrastructure? Gateway House looked at a total of 18 major grant-in-aid projects, three each in six neighbouring countries—Bhutan, Nepal, Bangladesh, Sri Lanka, Afghanistan, and Myanmar. We studied the Outcome Budgets from 2010-11 to 2014-15 of the Ministry of External Affairs to find some answers.

India’s aid programme in the subcontinent

In addition to grant-in-aid for infrastructure, India’s aid has two main components: training modules managed under the Indian Technical and Economic Co-operation programme, and credit lines managed by EXIM Bank. Both these tracks have been relatively successful, unlike the infrastructure projects that are frequently in the news for delays and mismanagement.

India’s aid is part of the annual budget of the Ministry of External Affairs. In 2014-15, Rs. 9,435 crores ($1.57 billion) was allocated by the ministry as aid. Of this, as much as 88% was budgeted for projects in South Asia—in Afghanistan, Nepal, Sri Lanka, Bangladesh, Myanmar, and Bhutan (See Table 1). [1]

Table 1: India’s aid in grants and loans

Aid and loans: recipient countries Budget estimates: 2014-2015 (in Rs. crores)
Bhutan 6074
Afghanistan 676
Nepal 450
Sri Lanka 500
Myanmar 330
Bangladesh 350
African countries 350
Mongolia 3
Eurasian countries 40
Maldives 183
Latin American countries 30
Others 449
Total Rs. 9435 crores (approximately $1.57 billion)








Source: Ministry of External Affairs, Outcome Budget 2014-2015

The three largest aid projects in India’s neighbouring countries are all infrastructure-related.  An assessment (Table 2) shows that most of them are delayed by at least a year.

Table 2: Assessment of India’s aid projects in the neighbourhood

Project Start date Finish date Revised date Implementing agency Consultant Allocation 2014-2015
Punatsangchchu-I Hydroelectric Project 2008 2015 2017 L&T, Gammon India Ltd., HCC, BHEL WAPCOS Ltd Rs. 2497 crores
Mangdechhu  Hydroelectric Project 2010 2017 2017 Jaiprakash Associates, Gammon India Ltd, BHEL, PES Engineers Pvt Ltd, Kalpataru Power Commission, Rs. 1031 crores
Punatsangchchu-II Hydroelectric Project 2010 2016 2017 Jaiprakash Associates Ltd, Gammon (India), BHEL, Hyosung Corporation WAPCOS Ltd Rs. 1174 crores
Construction of Salma dam 2004 2010 2015 WAPCOS Ltd Rs.198 crores
Afghanistan Parliament building 2005 2011 2014 Central Public Works Department Rs. 134 crores
Construction of two additional sub-stations at Doshi and Charikar 2009 2013 2014  BHEL Rs. 126 crores
Terai Road Project 2010 2014 No new date known  Vishwa- BSVR Joint Venture, GVR Infra Projects Chennai RITES Rs. 173 crores
Rail link at  Jogbani-Biratnagar and Jayanagar-Bijalpura Bardibas 2010 No exact date projected No exact date projected  IRCON RITES Rs. 94 crores
Integrated Check Posts (ICP Birgunj) 2011 2013 No exact date projected RITES Rs. 33 crores
Grant assistance to Bangladesh (1st tranche of $50 million) 2012 2012 2013 Rs. 162 crores
Agartala Akhura Rail link 2013 2016 2018 IRCON Rs. 49 crores
Inland river port at Ashuganj 2014 Not yet decided Not yet decided WAPCOS Rs. 29 crores
Sri Lanka
Housing project 2010 2015 -16 2015-16 UN-HABITAT, International Federation of Red Cross & Red Crescent Societies in partnership with Sri Lanka Red Cross, National Housing Development Agency Rs. 439 crores
Setting up of a hospital at Dickoya 2011 2012 2014  M/s Green Valley’s Shelters Pvt. Ltd. Hospital Services Consultation Corporation Ltd. Rs. 12 crores
Jaffna  Cultural Centre 2012 2015 2017 Rs. 17 crores
Kaladan Project (inland waterways component) 2008 2013 2015  Essar Projects India Ltd. Inland Waterways Authority of India Rs. 150 crores
Trilateral Highway Project 2005 2016 Not known Egis India Consulting Engineers Rs. 103 crores
Upgrade of the Yangon Children Hospital and Sittwe General Hospital 2011 2013 2014 Hospital Services Consultation Corporation Ltd. Rs. 13 crores

Source: Gateway House anaylsis of  Ministry of External Affairs Outcome Budgets

Of course, these projects are complex, long-term, and expensive. They are undertaken by a mix of Indian private and public sector companies, as well as by foreign companies and multilateral agencies. Some projects such as dams for hydropower benefit India in the long run since we will purchase the surplus power once the project is completed. 

The projects are typically funded as grants from the Ministry of External Affairs, except for the three hydroelectric dams in Bhutan which are funded as a combination of a loan as well as a grant.

To better understand the cause of the delays, a handy classification is used in Table 3. It shows that most hold-ups are either due to approvals pending with the recipient country or because of challenging working condition, or sometimes both. In many cases, the delay seems to be beyond the control of the Indian government or even the Indian business entity that is in charge.

Table 3: Classification of delays

Reasons for the delay Infrastructure project
Statutory approvals pending with  recipient Terai Road Project (Nepal); Trilateral Highway Project (Myanmar); Kaladan Multi-Modal Transport Project (Myanmar);  Hospital at Dickoya (Sri Lanka); Rail link at Jogbani- Biratnagar and Jayanagar-Bijalpura Bardibas (Nepal); Jaffna Cultural Centre (Sri Lanka)
Challenging work conditions faced by project managers Kaladan Multi-Modal Transport Project (Myanmar); ICP Birgunj (Nepal); Trilateral Highway Project (Myanamar); Salma dam (Afghanistan); Afghanistan Parliament building (Afghanistan); sub-stations at Doshi and Charikar (Afghanistan)
Delay in handing over of project site Parliament building (Afghanistan); sub-stations at Doshi and Charikar (Afghanistan); hospital at Dickoya (Sri Lanka); Kaladan Multi-Modal Transport Project (Myanmar)
Land acquisition issues faced by recipient Rail link at Jogbani- Biratnagar and Jayanagar-Bijalpura Bardibas ( Nepal); Terai Road Project (Nepal)
Financial approvals pending with India Grant assistance to Bangladesh
Technical issues faced by project managers Punatsangchchu-I Hydroelectric Project (Bhutan)

Source: Ministry of External Affairs Outcome Budgets, Gateway House analysis

The Terai Road Project in Nepal is an example of a statutory approval such as the clearance from the Department of Forests in Nepal for sourcing of construction material, being the main cause of delay. The Salma Dam in Afghanistan is an example of a setback caused by the uncertain security situation. More details are given in Table 4.

Table 4: Detailed reasons for the delays

Reason for the delay Example of infrastructure project Details of  the delay
Statutory approvals/ land acquisition Terai Road Project, Nepal The government of Nepal needs to accelerate clearance from the Department of Forests, as well as the sourcing of construction material for the roads. The project has also run into issues between the contractor and the consultant, which is being reviewed by the Dispute Review Expert. [2]
Challenging work conditions Salma dam, Afghanistan The Salma dam faced security issues from the start, which has delayed the project and led to a revision of costs. It is difficult to travel by road to the work site due to security concerns, and since January 2011, contractors have used helicopters. This has created logistical issues, such as difficulties in transporting raw material. [3]
Challenging work conditions Integrated check-posts (ICP) in Nepal A large number of strikes/bandhs in Nepal have impeded the progress of ICP Birgunj. This has also impacted the timely movement of equipment and material for the construction of the project. [4]
Delay in handing over of site/challenging work conditions Afghanistan Parliament building There was a delay in handing over the site and a change in the alignment of the building. Approvals for the interior design work were also delayed.  Another issue the project faced was that there were too few bidders for various packages of work. [5]

The government of India is taking multiple steps to streamline India’s aid management.

i) The creation of the Development Partnership Administration at the Ministry of External Affairs in January of 2012, with a mandate to effectively implement all aid projects from technical training to extension of credit lines to grant-in-aid projects, in close co-operation with the partner countries. This is a progressive step, as no single agency had been assigned to oversee all three forms of aid—from ITEC to EXIM Bank credit lines to grant in aid projects by the MEA. Now DPA is in charge of all three. The DPA asserts that it has “started to create in-house, specialized technical, legal and financial skills in order to fast track all stages of project implementation.” [6]

ii)  Under the concept of  ‘Small Development Project’ programmes, India is now engaging with aid partner countries on smaller grassroots projects which introduce local stakeholders into the process so that the implementation is swift.  For example, 466 such small projects have been completed in Nepal by India as part of our development cooperation with that country in just 10 years, at a relatively low cost of Rs 3.5 crores per project. [7]

Unfortunately, the Development Partnership Administration has primarily been set up as an implementation agency. It falls short of the “aid agency” that it was initially proposed to be, which could effectively formulate as well as implement India’s aid policy. [8]

India’s problems of delay in execution are unique because of the kind of aid it gives, which is largely in the capacity-building area, and in strengthening institutions of representative government. This is quite different from China, which has the ability to swiftly complete projects on an ambitious scale.

However China faces problems unlike ours—it is routinely accused by its aid recipients of undertaking projects that are resource-exploitative, and of bypassing local norms and regulations. Aid by western agencies comes tied with conditions, which is often seen as undue political interference. The perception of Indian aid by its recipients is far more favourable—a fact which we must take advantage of, by expanding our programmes.

For now, Prime Minister Modi has made India’s neighbours a foreign policy priority for his government. Unless the major aid projects related to infrastructure are streamlined for execution in a timely manner, the delays will continue to mar India’s infrastructure diplomacy.

Sharmadha Srinivasan is a Junior researcher at Gateway House. She has earlier interned at Espirito Santo Securities in the capacity of an economist, and at the Institute of Economic Affairs in London as a researcher.

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[1] Ministry of External Affairs, Government of India, Outcome Budget 2014-2015, 27 August 2014, <> p.12

[2] Embassy of India in Kathmandu, India-Nepal Relations, <>

[3] Gateway House compilation from interviews

[4] Embassy of India in Kathmandu, India-Nepal Relations, <>

[5] Ministry of External Affairs, Government of India, Outcome Budget 2013-2014, 27 August 2014, < > p.135

[6] Development Partnership Administration, Ministry of External Affairs, Government of India, <>

[7] Embassy of India in Kathmandu, India-Nepal Relations,<>

[8] Saran, S., India’s Foreign Aid: Prospects and Challenges, Research and Information System for Developing Countries, 16 February 2014, <’s Foreign Aid.pdf> Pg. 6


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