A precursor to the recently concluded G20 Summit was the meeting between global economics captains to discuss how different countries could substantially increase their annual loans to developing nations.
This meeting was arranged after an independent panel led by economists Lawrence Summers and NK Singh. The G20 commissioned the duo to recommend reforms to multilateral development banks earlier this year.
The panel's aim for suggesting tweaks to the global financial structure was to help low-income countries manage their debt better and increase capital inflow for sustainable development goals.
As a responsible lender to developing nations, India showed a willingness to lead from the front in extending loans to these nations for development purposes. India often offers concessional loans with favourable terms to ease the repayment burden. It also engages in capacity-building and technical assistance programs to help recipient countries maximise the impact of the funds.
This is a strategic move for India, staking its claim as the champion of the developing world, as it promotes transparency and accountability through comprehensive project monitoring and evaluation. However, according to Shikhar Aggarwal, chairman of BLS E-Services, a technology-enabled digital service provider for banking and e-governance companies, increasing loans to developing nations presents potential economic benefits and risks for India.
On the positive side, it can open new markets for Indian businesses, enhance diplomatic relations, and generate interest income. But while it hardens its soft power, this initiative also carries risks like repayment uncertainties, loan defaults, potential non-performing assets, exposure to global economic fluctuations and resultant reputational risks.
"A balanced approach, focusing on prudent lending practices and risk assessment, is crucial to ensure sustainable economic gains for India in this endeavour," Agarwal noted.
It is, therefore, imperative that the country should be prudent while selecting recipients for these loans. While this decision is primarily based on strategic and economic considerations, it should also assess the potential for bilateral cooperation and consider factors like trade relationships, geopolitical interests, and development needs.
Pramod Kathuria, founder and CEO of digital home loan marketplace Easiloan, noted that India should select recipient countries for loans based on their economic and financial situation, commitment to development, creditworthiness, and strategic importance. India prioritises its infrastructure, education, healthcare, and climate change lending efforts.
Thankfully, the administration has already undertaken pre-emptive steps to mitigate the risk of loan defaults and debt crises in recipient countries. These measures include providing concessional loans with longer tenures, monitoring the debt sustainability of borrowing nations, and engaging in debt restructuring when necessary.
"India also participates in international initiatives, such as the G20 Debt Service Suspension Initiative, to alleviate debt burdens and promote financial stability in recipient countries. These actions reflect India's commitment to responsible lending practices and global economic stability," Agarwal added.
Moreover, the country also conducts rigorous due diligence, attaching conditionalities, providing technical assistance, monitoring the use of loans, and sometimes waiving loan repayments. And this is where fintech companies, with their digital-first approach, can help. Their agility can help them overcome the slow pace many legacy banking players display.
It is fortuitous that India had 3,085 recognised fintech start-ups as of April 30, as per Rao Inderjit Singh, minister of state for corporate affairs (independent charge). He appraised the Parliament in August this year that these start-ups are recognised under the Start-up India initiative launched by the Department for Promotion of Industry and Internal Trade (DPIIT).
As a responsible global player, India carefully navigates the delicate balance between advancing its economic interests and fulfilling its commitment to fostering socio-economic development in recipient countries through loans. This involves a strategic approach to aligning financial investments with the development needs of partner nations.
By leveraging its economic prowess, India aims to stimulate growth and job creation in these countries while ensuring mutual benefits and reinforcing diplomatic ties. This nuanced approach exemplifies India's dedication to being a cooperative global economic partner.