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Restructuring Global Development Finance

Restructuring Global Development Finance

03-07-2025

Why in the News?

  1. India’s development partnership with countries in the Global South has been growing for many years.
  2. There has been a change in the way India wants to support these countries.
  3. The government is also rethinking the use of credit lines due to rising global debt and financial risks.
  4. At the same time, Triangular Cooperation (TrC) is emerging as a new and helpful model for development.

What is the Global South?

  1. The Global South refers to developing countries, mostly located in Asia, Africa, Latin America, and Oceania.
    1. These countries usually have lower income levels, less industrial development, and greater challenges in education, health, and infrastructure compared to developed nations.
    2. It does not refer to the geographic south of the world.
    3. For example, Australia is in the southern part of the globe but is not part of the Global South, while India, which is in the northern hemisphere, is considered part of the Global South.
  2. Origin of the Term: The term "Global South" became popular in the late 20th century as an alternative to older terms like "Third World" or "Developing World", which were considered outdated or disrespectful.
  3. It is used to group countries that face common development challenges and often work together in international forums.

Who are the Countries in the Global South?

  1. There are approximately 130 countries that are often included under this term.
  2. Some examples include:
    1. Asia: India, Bangladesh, Nepal, Indonesia, Vietnam
    2. Africa: Nigeria, Kenya, South Africa, Ethiopia
    3. Latin America: Brazil, Argentina, Mexico
    4. Oceania: Papua New Guinea, Fiji

Why is the Global South Important?

  1. Large Population: Most of the world’s population lives in the Global South. For example, India and China together have over 2.7 billion people.
  2. Rich in Natural Resources: These countries are often rich in minerals, forests, energy, and biodiversity.
  3. Rapid Economic Growth: Many Global South countries like India, Brazil, and Vietnam are growing quickly and becoming major players in the global economy.
  4. Role in Global Issues: These countries are key to solving global problems like climate change, poverty, pandemics, and food security.

India and the Global South

  1. Historical Role: India has always supported cooperation among developing nations, especially during the Non-Aligned Movement and South-South Cooperation.
  2. Recent Initiatives: India has become a voice of the Global South at platforms like the G20, BRICS, and United Nations. In January 2023, India hosted the Voice of the Global South Summit to bring together over 120 developing countries.
  3. Soft Power and Diplomacy: India uses technology, education, medicine, and capacity building to help other countries in the Global South.

What is the Brandt Line?

  1. The Brandt Line is an imaginary line drawn on a world map in the 1980s by former West German Chancellor Willy Brandt.
  2. It was created to show the dividing line between rich, developed countries (mostly in the Northern Hemisphere) and poor, developing countries (mostly in the Global South)        

 Where does it run?

  1. The line roughly follows 30° N latitude, cutting the world map:
    1. It passes between the USA and Mexico.
    2. Runs north of Africa and the Middle East.
    3. Goes over China and Mongolia.
    4. Then dips south to include Japan, Australia, and New Zealand in the “rich North” side                                                                                                                                                                

What are the Key Highlights?

  1. The financial commitment rose from $3 billion in 2010-11 to $7 billion in 2023-24.
  2. Key modalities of engagement include Capacity building, Technology transfer, Duty-free market access, Grants and Concessional finance (mainly through Lines of Credit – LoCs)
  3. The IDEAS scheme has been the primary tool for extending concessional LoCs.
  4. 2025-26 budgetary signals show that the Ministry of Finance is cautious about continued use of LoCs due to financial risks.
  5. At the G-20 Summit, India flagged the issue of rising sovereign debt in the Global South.
  6. In the Voice of Global South Summit (2024), Prime Minister of India proposed a Global Development Compact (GDC) to promote a balanced use of all five modalities.
  7. India aims to complement this approach through wider partnerships, including triangular cooperation with other countries.
  8. India earlier borrowed from global capital markets and extended concessional loans to partner countries, bearing the interest gap itself.
  9. Due to the global liquidity crisis, this model has become less relevant:
    1. Capital markets are unpredictable
    2.  Many partner countries are unable to repay debts
  10. India is encouraged to rethink its strategy and adapt to the new financial realities by reducing reliance on LoCs.

Decline in Foreign Aid and Rising Debt Crisis

  1. Official Development Assistance (ODA) providers like USAID and FCDO are facing a budget crisis.
    1. ODA is expected to drop to $97 billion, a 45% cut from the $214 billion in 2023.
  2. Global South countries are struggling with a rising debt crisis.
  3. Due to geopolitical tensions, the overall flow of global development finance is sharply declining.
  4. The OECD’s Development Assistance Committee (DAC), which leads ODA flows, often sets conditions on aid that impact recipient countries’ economic and political choices.
  5. This decline in aid will impact development programmes in Least Developed Countries (LDCs) the most.
  6. Over the last two decades, multiple global crises (economic, geopolitical, health) have made it harder for developing countries to access stable funding.
  7. This situation is slowing down development progress and risks undoing past achievements.
  8. The funding needed to meet the Sustainable Development Goals (SDGs) by 2030 has increased from $2.5 trillion (2015) to $4 trillion (2024).
  9. Without significant increases in finance, progress toward the SDGs will remain off track.
  10. At the same time, borrowing has become more expensive and uncertain for developing countries.

Rationale for Triangular Cooperation (TrC)

  1. Triangular Cooperation (TrC) is a model of international development cooperation where:
  2. Three Main Partners Collaborate:
    1. A traditional donor country (like Japan, Germany, or the US).
    2. An emerging or middle-income country with development experience (like India, Brazil, or South Africa).
    3. A recipient developing country (often from the Global South, like those in Africa or Asia)
  3. TrC allows resource pooling and shared expertise to support development in third countries.
  4. The flows from non-DAC (non-traditional donors) have grown significantly:
    1. From $1.1 billion in 2000 to $17.7 billion in 2022.
  5. Examples of successful TrC:
    1. Japan and Indonesia have jointly implemented projects in ASEAN countries.
    2. Germany and Brazil have cooperated in Mozambique.
  6. TrC promotes:
    1. Shared learning
    2. Mutual respect
    3. Solutions tailored to local needs
  7. TrC bridges the gap between Global North and South, making development partnerships more inclusive and effective.
  8. Although global data on TrC is still limited, preliminary estimates suggest the flow is between $670 million to $1.1 billion.

 Partnerships with Results in Triangular Cooperation (TrC):

  1. TrC can boost social progress by building physical infrastructure:
    1. Example: Expanding regional energy grids helps improve digital access, education, and healthcare.
  2. In 2022, Germany and India signed a Joint Declaration of Intent to implement TrC projects in third countries, especially in Africa, Asia, and Latin America.
  3. TrC projects are currently being implemented in countries like:
    1. Cameroon, Ghana, and Malawi (Africa)
    2. Peru (Latin America)
  4. These examples show how TrC can restructure global development finance to be:
    1. Efficient
    2. Outcome-oriented
    3. Cost-effective
  5. During India’s G-20 Presidency, TrC engagement was expanded with countries like:
    1. Germany, United States, United Kingdom, European Union, and France
  6. These partnerships include various forms:
    1. Grant-based projects
    2. Investment-driven projects
    3. Example: Global Innovation Partnership (GIP) with the U.K.
  7. These initiatives prove that combining technical, financial, and human resources can deliver strong development results in partner countries.

What is the Significance?

  1. Strengthens India’s Global South Leadership
    1. Enhances India’s image as a reliable and responsible development partner.
    2. Shows solidarity with countries facing development and debt challenges.
  2. Promotes Inclusive Development
    1. Focuses on need-based and locally suitable solutions through capacity building, technology transfer, and concessional finance.
    2. Encourages partnerships based on mutual respect, not conditionality.
  3. Balances Global Power Dynamics
    1. Offers an alternative to traditional aid models dominated by the OECD-DAC countries.
    2. Supports South-South and Triangular Cooperation to reduce dependency on the Global North.
  4. Supports Sustainable Development Goals (SDGs)
    1. Helps address critical gaps in funding for infrastructure, health, education, energy, and digital connectivity.
    2. Contributes to progress on the 2030 Agenda.
  5. Builds Strategic Partnerships
    1. Deepens ties with countries in Africa, Latin America, and ASEAN through joint projects.
    2. Enhances cooperation with developed nations (e.g., Germany, UK, Japan) via TrC.
  6. Cost-Effective and Outcome-Oriented
    1. TrC ensures more efficient use of technical and financial resources.
    2. Promotes shared ownership and sustainable outcomes in third countries.

What are the Challenges and Way Forward?

Challenges

Way Forward

1. Shrinking global Official Development Assistance (ODA)

Diversify funding through Triangular Cooperation and partnerships with non-DAC countries

2. Rising sovereign debt levels in partner countries

Shift focus from credit-based models to grants, capacity building, and technology sharing

3. Declining relevance of Lines of Credit (LoC) due to global liquidity issues

Develop a balanced engagement strategy using five modalities: grants, LoC, tech, market, capacity

4. Budgetary constraints in traditional donor countries

Mobilize domestic and private sector resources, and co-create with like-minded partners

5. Lack of data and transparency in TrC outcomes

Improve data collection, monitoring, and evaluation mechanisms at the global and regional levels

6. Limited capacity in some partner countries to absorb aid

Focus on local institution building and long-term technical cooperation

7. Risk of overlapping goals and duplication in multi-country partnerships

Ensure clear coordination and division of roles among partner nations

8. High cost and unpredictability of borrowing for development

Promote blended finance models and low-interest innovation funds

Conclusion

India's evolving development strategy reflects its growing maturity and responsibility in global affairs. By embracing cooperation that is inclusive, balanced, and forward-looking, India is helping to build a more equitable international order. Focusing on partnerships that prioritize mutual benefit and long-term sustainability will strengthen trust and solidarity among developing nations. This approach can lay the foundation for a more stable and just global development framework.

Important Key Words Mentioned in the Article

Term

Simple Explanation

Development Cooperation

Helping other countries grow through money, training, technology, and knowledge sharing.

Lines of Credit (LoC)

Loans given at low interest by India to other countries to help them build projects.

Indian Development and Economic Assistance Scheme (IDEAS)

A government scheme to provide LoCs and development help to other countries.

Capacity Building

Training people and improving skills and systems in partner countries.

Technology Transfer

Sharing Indian tools, machines, and knowledge with other countries.

Market Access

Allowing goods from partner countries to be sold in India without high taxes.

Grants

Money given to other countries without expecting repayment.

Concessional Finance

Loans given at lower interest rates and easy repayment terms.

Sovereign Debt

The money that a country owes to other countries or lenders.

Global Development Compact (GDC)

A plan for balanced and fair development cooperation among countries.

Official Development Assistance (ODA)

Foreign aid given by rich countries to poorer ones for development.

OECD-DAC

A group of rich countries that gives foreign aid and sets rules for it.

Triangular Cooperation (TrC)

A partnership between one donor country (North), one developing country (South), and a third country to do development projects together.

Global Innovation Partnership (GIP)

A joint initiative (like India-UK) to support new ideas and startups in other countries.

Blended Finance

Using both government and private money together for development projects.

 

Ensure IAS Mains Question

Q. "The Global South is no longer just a passive recipient of aid but an active participant in shaping global governance." Discuss the growing importance of the Global South in international affairs and analyze India’s role in championing its interests. (250 words)

 

Ensure IAS Prelim MCQ

Q. Consider the following statements regarding the Global South

  1. The Global South includes countries primarily located in the southern hemisphere of the globe.
  2. India is considered a leading voice of the Global South in international forums like the G20 and BRICS.
  3. The term "Global South" is used to describe countries with advanced industrial economies.

How many of the above statements is/are correct?

  1. Only one
  2. Only two
  3. All three
  4. None

Answer: a

Explanation:

Statement 1 is incorrect: The Global South is not defined by geographic location but by economic and developmental challenges, including countries in Asia, Africa, Latin America, and Oceania.

Statement 2 is correct: India actively represents the Global South in forums like the G20 and BRICS, notably through initiatives like the Voice of the Global South Summit.

Statement 3 is incorrect: The Global South refers to developing countries, not advanced economies.

 

 

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