Aid to India: the end of an era

Following Justine Greening’s announcement last week that the UK will halt funding aid to India from 2015, DiA volunteer Nate Barker considers whether she has made a huge mistake

Although India has the 10th highest GDP in the world, it is still home to one third of the world’s poorest people. Photo by Emily Wight

With the 2015 target for achieving the Millennium Development Goals fast approaching, and discussions for the next EU spending programme (the Multi-Financial Framework, 2014-2020) underway, not to mention the severe impact of the global recession on the developed world, Western nations are keen to re-evaluate their aid commitments.

And last week’s news that the UK will halt all aid to India from 2015 represents a new direction for India and its position on the global stage.On the face of it, such a move might well have some popular support in the UK, where our policy of giving £280m to a nation which spends £750m on a space programme and £36bn on defence has previously come under attack from various sections of the media. To the British Government’s credit, they have pointed out that with a third of the world’s poorest people living in India, a tightly-focused aid programme targeting the poorest people in the poorest states can make a real difference to quality of life, while conceding that India’s economic growth and increase in wealth means that we are nearing the end of our aid programme there.

Nevertheless, the UK will continue to deliver aid to India until 2015, as per our existing aid spending programme. So, why should we be helping a middle-income country like India – one rich enough for the EU to be considering cutting off from aid? Well, firstly, India is not as prosperous as the EU data suggests. The EU definition of a middle-income country is based on India’s GDP, rather than the per capita approach favoured by other international institutions. In terms of GDP, India is ranked 10th in the world, alongside rich countries such as Russia and Canada – but when you break this down into a per capita figure, India plummets to 130th (out of 178), alongside poorer countries such as the Solomon Islands and São Tomé and Príncipe.

In short, India is not as rich as the EU criterion suggests; the OECD actually categorises India as a lower-middle-income state, alongside countries like Indonesia and Iraq. Although these states are now wealthy enough to have their own poverty-reduction programmes, external aid can bring expertise to help these operate more efficiently, whilst an influx of funds can increase the rate at which the poor are lifted out of poverty – a worthy outcome.

Secondly, our aid programme has adapted as India’s economy has grown, withdrawing from areas as the Indian state develops the resources and infrastructure in these areas to fight poverty itself, to the extent that our current aid programme is focused on only three states in India: Bihar, Madhya Pradesh, and Orissa. These states contain one quarter of India’s poor (those living on less than 80 pence per day), and have benefited little from India’s economic growth. Aid is delivered in partnership with local state governments and other bodies. Focusing our aid programmes on small pockets of poverty means we can lift a greater proportion of people out of poverty relative to expenditure, while the smaller sums involved reduces wastage. By decoupling aid delivery from the nation-state level, and targeting areas of poverty such as in India, we can maximise the efficiency of our aid programmes within middle-income states.

Thirdly, it’s important to recognise the different ways that aid can be used to benefit middle-income nations. For example, some of the UK aid budget for India is to promote private investment that will benefit the poor. This means that rather than provide services directly, some aid goes to making these target areas more attractive for investment. As a country with a strong private sector, this helps create opportunities for Indian companies to bring jobs, infrastructure, services, and money to target areas and is a more sustainable method of poverty reduction. This indirect approach is at its most productive in middle-income countries as it incentivises an existing economy to redirect its resources towards poverty reduction; lower-income countries with a less robust private sector are not capable of fully exploiting such opportunities and so would require a more direct approach. Tailoring aid to middle-income countries is less about direct intervention and more about helping to create an environment where poverty reduction can be handled more efficiently internally.

Although aid to middle-income countries may seem a poor use of limited funds, especially when said countries are spending their own money elsewhere, it evidently still has a vital role to play. Middle-income countries are usually undergoing economic expansion, with fantastic rates yet unevenly-distributed rates of growth. By refocusing aid on underdeveloped zones within these countries, donor nations can use their funds more efficiently to alleviate poverty, and by supporting internal investment they help to more evenly distribute the benefits of a growing economy, as well as empowering local enterprise. Ultimately, such measures cannot help but to build a social infrastructure robust enough to be able to help reduce poverty to a level where it can be managed without external help, and weaning countries off aid is surely the end goal of every aid programme.

It will be interesting to see the effects on India of our withdrawal of aid – but it is unlikely that conditions for some of the world’s poorest will improve.

 


The views expressed in this article are those of the author and do not necessarily represent the views of Development in Action.

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