How the USAID Funding Freeze Might Benefit India’s Regional Influence

The decision to pause USAID humanitarian aid in South Asia by the Trump administration isn’t expected to change much. This region struggles with high levels of debt, which causes more problems for its governments. South Asia is among the most indebted emerging markets. Almost half of this debt is owed to multilateral creditors, while the rest goes to bilateral creditors and bondholders. Although South Asia is the second-largest recipient of aid globally, assistance from multilateral and bilateral sources has remained mostly steady.

China has been steadily increasing its influence as a creditor, contrasting with the inconsistent support from the US. Trump’s plan to merge USAID with the State Department likely won’t alter the existing debt and aid balance in the region significantly.

India plays a crucial role here. It has the largest share of debt in South Asia and has led the G20’s efforts to ease debt burdens in developing countries following the pandemic. India is also one of the top creditor nations in the region. However, China’s debt obligations are becoming overwhelming, and US aid is becoming less reliable. This puts India in a unique position to potentially help, but it needs a platform, like SAARC, to do so effectively.

Trump’s strategies around investment, trade, credit, and aid may lead to US isolation, impacting South Asia significantly. A considerable portion of the region’s remittances comes from the US. Meanwhile, South Asia’s large workforce positions it uniquely in a global economy that relies on migration. If South Asian countries can navigate Trump’s stance on illegal immigration and trade, they might mitigate some of the negative effects of trade fragmentation. Strengthening ties with Washington could benefit New Delhi and enhance India’s standing within its neighborhood, as it seeks to effectively engage with the world’s major economies.