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. (UPSC 2014)

International funding agencies often tie aid to procurement from donor countries. Such conditions can support India, but also affect cost and autonomy.

• Merits: Access to advanced, tested technology not yet available domestically.
• Merits: Concessional loans usually offer low interest, long repayment and grace periods.
• Merits: Better quality, faster execution and lower technical risk in complex projects.
• Merits: Can deepen strategic ties and provide training and skills transfer.

• Demerits: Raises project cost by limiting competition and favouring donor firms.
• Demerits: May weaken Make in India and reduce opportunities for Indian industry and MSMEs.
• Demerits: Creates dependence for spares, maintenance and future upgrades.
• Demerits: Technology transfer is often partial, not truly building capability.

In India, such terms should be accepted only for critical technologies and highly concessional finance; otherwise, untied aid better protects national interest, competitiveness and self-reliance.