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Rediff.com  » Business » The end of bilateral funding

The end of bilateral funding

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November 28, 2003 13:13 IST

From being an "aid-receiving" country, India is now moving towards becoming an "aid-granting" nation. The government has decided not to receive bilateral funds, except from six foreign countries.

A new policy for bilateral development assistance was initiated in June this year and specific guidelines were issued in September. This brings an end to grants and credit assistance to central and state governments from bilateral donors (except six).

It also indicates that bilateral donors are welcome to provide support to Indian civil society organisations through multilateral organisations.

The government has decided to reorient the flow of assistance from bilateral partners and to set up a mechanism to streamline it. In this regard, alongwith its subordinate agencies, it will avail of fresh bilateral assistance:

  • only from the US, the UK, European Union, Japan, Germany and the Russian Federation;
  • if it is routed through, or co-financed with, multilateral agencies; and
  • if it is for technical assistance programmes that aim at enhancement of knowledge/skills of Indian nationals.

Bilateral assistance from countries other than those mentioned above will be directed towards projects of economic and social importance only. Such assistance can be made available directly to universities, non-governmental organisations and autonomous bodies, expect the government-funded ones like the Indian Council for Agricultural Research, the Council for Scientific and Industrial Research and so on.

There is another condition -- only organisations governed by the Foreign Contribution (Regulation) Act may alone receive bilateral assistance and others should get permission from the appropriate authority.

Further, bilateral partners will have to identify the organisations and projects on their own, and may submit, twice in March and September, a list of organisations they wish to assist alongwith a brief description of the purpose/project to the government.

A meeting with the partner will then be convened by the Department of Economic Affairs, which will initiate its response. Once this list is approved, the bilateral partner may transfer the funds directly to the accounts of the recipient organisations, and provide the information to the government twice in April and September.

The government's policy to favour six countries, puts others in a disadvantageous position. Not only will their operative freedom be curtailed, but also, there could be delays in sanctions and executions at various levels. Their administrative costs will go up significantly because they'll have to deal with a number of organisations.

The organisations receiving assistance will be in a disadvantageous position too. Those who do not have the permission to receive foreign contribution will have to apply for the same and get the approval.

Further, organisations getting funds from both -- any of the favoured six, as well as the "others" -- will have to adopt two different procedures to receive funds.

Though the government may not want to reconsider the policy towards the six favoured countries, they can at least modify some of the guidelines to make the system more balanced.

Since channelling through the Foreign Contribution (Regulation) Act has been made compulsory, screening and scrutiny by the DEA will be a burden. One of the reasons indicated for the new policy is reducing the administrative expenses.

But if scrutiny by the DEA and submission of statements and so on is made compulsory, it will increase the administrative cost. Since the home ministry is likely to receive all information and statements, the governments can have intended control directly through the ministry.

The processing by the DEA is totally unnecessary and will cause delay and harassment. Moreover, the DEA does not even have the machinery for the process.

To avoid delays, the government should receive applications and give clearance to funds twice a month. It may also be worthwhile considering automatic approval for smaller grants, say, less than Rs 500,000.

The purpose for which grants are to be given should not be restricted to projects of economic and social importance only. This will put the CSOs in a disadvantageous position. Also, since the country's foreign exchange position is sound, the government may not attach importance to such fundings. But it should consider that the funds are being used for development activities within the country and for the upliftment of the underprivileged.

It is also learnt that some of the bilateral partners are thinking of closing their operations in India due to the restrictions. The diversion of funds to other countries will significantly reduce the flow of funds in the sector. The amount of flow may be negligible to the government with respect to GDP or the present foreign exchange flow, but the amount is certainly substantial to CSOs.

The opportunities are there and if CSOs organise themselves and convince the donors and the authorities with some good proposals, it will benefit them to a large extent.

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