Some of the International funding agencies have special terms for economic participation stipulating a substantial component of the aid to be used for sourcing equipment from the leading countries. Discuss on merits of such terms and if, there exists a strong case not to accept such conditions in the Indian context.

As a developing country with a growing economy, India has a responsibility to its people to put the needs of the nation before all else. Through recent campaigns such as ‘Make in India’, focus is again being placed on growth in the domestic sector in India. Though international trade is also an important component for the economy, especially with reference to balance of payment, domestic growth is important for creation of jobs etc which will then have an effect on consumption expenditure, savings and other economic indicators such as GDP etc. Stipulations such as the one requiring the country receiving the aid to source equipment from other countries are detrimental to local industries in the country in need of aid and it will also incur costs on importing equipment. In the long term, this could substantially increase the imports while the imports will receive no boost, because the state is not promoting the local industries by procuring equipment abroad. This will lead to an unhealthy reliance on imports, and neglect of the domestic industry. In consideration of these aspects and the adverse and long-term effects of mandatory equipment procurement, an argument can be made against borrowing from the international funding agencies unless there is an urgent need for funds which cannot be met elsewhere.