Britain has announced the end of new grant aid to India – in future aid will either be technical assistance or investment.  I think this is a mistake: the wrong decision, at the wrong time, for the wrong reasons.

We all know the clichés: India has a space programme; it has 61 billionaires and a burgeoning middle class. India became a middle income country four years ago, and though there are still 400 million people living in poverty that number is falling fast.  The era of Empire is over: it is for India, not us, to sort out its internal distribution of income and wealth.

What’s more, the citizens of both countries resent the aid relationship. Many Brits don’t see why they should pay taxes for aid to a country that is increasingly an economic rival, not an economic basket case; and Indians resent the patronising way aid is accompanied by finger wagging and expectations of contracts which do not befit a genuine partnership. What India both needs and want is the opportunity to trade, not more aid.

And yet: one third of the world’s poorest people (living on less than $1.25 a day) live in India. About 250 million Indians – a quarter of the country – will go to bed hungry tonight. About half the children in India are malnourished: a child in India is twice as likely as a child in sub-Saharan Africa to be underweight. The result can be stunting of mental and physical growth and development. Effects can be life-long, passed between generations, and can affect how well children do at school and their capacity to earn later in life. Lack of nutrition affects the economic potential not just of individuals but of the whole nation.

Furthermore, this is not, as is sometimes implied, merely a problem of inequality which could be sorted out if only the Indian authorities took it more seriously. India’s income per person is one third of that of China, and a sixth of that of Brazil. The poorest eight states in India contain more poor people (pdf) than the 26 poorest states in sub-Saharan Africa. If you spread India’s entire national income equally it would work out at about $10 per person per day. That is well above than the (preposterously low) international measure of poverty of $1.25 a day; but it only about a third of the (also far too low) US poverty line. (These numbers are at purchasing power parity, so don’t console yourself that $10 goes a long way in India.) That means that even if there were a way to redistribute income on a massive scale (which there isn’t: see Martin Ravallion’s calculations of the marginal tax rates that would be involved) the whole nation would still be appallingly poor and would still need our help.

Furthermore this problem will not go away any time soon even with healthy economic growth.  The OECD projects that over the next 50 years India’s income per head will grow approximately seven-fold but that in 2060 average living standards in India will still be roughly a quarter of the level of the United States.

It is entirely fair to say that aid won’t make much difference to any of this. It won’t accelerate economic growth very much, nor will it greatly affect the distribution of income. For a start, aid is far too small: India receives aid worth about 0.2% of its national income. But even where aid has been much larger, the effect on growth is very difficult to discern.

But that is not the right standard by which to measure aid. According to DFID, the aid provided by British taxpayers is currently paying for 835,000 children to go to primary school, and a further 700,000 students to go to junior secondary school. Between now and 2015, our existing aid programme (before it comes to an end) will provide nutrition programmes to 3½ million children and pregnant women, and pay for medical help in childbirth for 333,000 births. About 2.8 million people will get sustainable access to improved sanitation.

If India continues on its path of economic growth, and solves its problems of inequality, eventually those children will not need our aid. We can end our aid programmes now in the expectation that this will happen.  But let’s be clear: by ending aid prematurely we are playing chicken with children’s lives. Don’t pretend that we don’t know that the most likely consequence of this is that millions more people will suffer from malnutrition, hundreds of thousands of children will not be in school, and millions of people will not have access to toilets.

None of this contradicts the view that it is preferable for India to trade and grow its way out of poverty than to go on receiving aid. As India’s External Affairs Minister Salman Khurshid said the other day, “aid is the past, trade is the future.”  At the Center for Global Development, we work mainly on thinking about what the industrialised countries can do to help create the conditions in which developing countries no longer need our aid.

The British Secretary of State, Justine Greening, said recently:

“.. we must try to tackle the root causes of poverty – not just the symptoms. This means putting in place the building blocks of prosperity – what the Prime Minister has referred to as the ‘Golden Thread’ of development.”

And the British Prime Minister said:

“But we in the developed world must also put our own house in order…”

Both these remarks are absolutely right: but where is the action?

I’ve read the DFID press release carefully, and while I see the section on “aid is the past”, I did not find anything about the UK living up to its responsibilities to ensure that “trade is the future”.

The eighth Millennium Development goal includes a commitment to a “an open, rule-based, predictable, non-discriminatory trading and financial system”, yet the wealthy and powerful countries have failed to agree a development-friendly multilateral trade agreement. Nor have rich countries lived up to their commitment to introduce duty-free, quota-free access for least developed countries. Indeed, if anything EU trade policy is moving in the opposite direction, with growing protectionism, and is taking what ODI calls the ‘wrong approach’ to the role of trade in tackling global problems. We are increasingly preventing skilled Indian IT professionals from working in our markets, and we limit India’s ability to sell us services.

What is DFID offering? A ‘focus on sharing skills and expertise in priority areas’.  Technical cooperation always sounds nice: but while there are dozens of independent evaluations of technical assistance which find that it has not worked, there are practically none which find that it has. If India wants technical expertise, it can buy it in the marketplace.

‘Trade not aid’ is lazy thinking. There is no reason why we should not do both. We should do more to enable developing countries to grow and trade their way out of poverty. And we should provide aid to help the people of those countries in the meantime.

Al Jazeera had a discussion about this on 9 November, with Chetan Sharma, Alex Scrivener and me. You can watch it here:

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12 Responses to Should Britain give aid to India?

  • How about getting the aid to be transformative development so that each pound spent will increase the development of India  as a whole rather than focusing on basic needs targets only?

  • I’m finding it hard to get exercised over this decision. UK funding isn’t so very huge and it makes sense to pick and choose where they are going to work. I agree that the rationale is faulty, particularly in light of Ravallion’s analysis. But your reasoning – the # of children who won’t get nutrition or vaccinations or schooling – assumes that the UK aid budget won’t go to children *somewhere*. If the aid budget remains the same, this means they’ll invest in poor children in other countries who are also deserving. If on the other hand the rising income of India becomes an excuse to cut the aid budet, your reasoning holds up.

    • Bill

      Thanks. You are right of course: if we are going to shift the aid from India to some other programme where it will be as effective, or more so, then this could be justified.

      If DFID has ways to spend money more effectively than its current programmes in India, then the Bilateral Aid Review was the time to present that case.

      Presumably DFID believed at the time of the Bilateral Aid Review that spending £280,000 a year in India was the best use of that money. They have now decided to spend that money elsewhere, not because they have found a more effective way to spend aid but because they no longer wish to give aid to India.

      Owen

      Owen

  • Hi Owen,

    If I’m correct, the figures DFID quote relate to its support to Government of India’s programmes on education and health (like the Sarva Shiksha Abhiyan programme for primary education). One would hope that Government of India would be able to cover the financial gap left by DFID’s withdrawal from other sources, such as increasing tax revenues (or from diverting money from its space programme!), or even the growing pot of CSR money originating from corporates in India.  What will be harder to replace is the technical expertise DFID brings to India which appears to be valued by the government.

    I also assume this decision doesn’t mean the support going to UK and Indian NGOs through specific Funds that DFID has, will stop. This way its work to support India to meet MDG targets on critical human development issues will continue.

     

     

  • Thanks Owen. Very well put.
    Bill,
    It seems to me that it would be fine to cease giving aid to India if the decision was based as part of an overall assessment of the UK’s aid portfolio which focused on prioritising aid on localities (not necessary countries) where need is greatest and odds of efficacy are highest. But that isn’t what’s happened here. Rather, the sound bites and the space programme won the day.

  • The trouble with this decision is that it has been made for purely political reasons.  Will some folk in middle England get NICE to pay for their cancer drugs now that we are clawing back aid from India?  Probably not.  I agree that technical aid has a dubious record.  I’ve seen instances where reports are commissioned and written but then gather dust on a shelf because there has been no attempt to persuade the government client to implement recommendations.  Also, there has been lots of talk about trade being the future from the FCO since the coalition government took office but I haven’t seen any real action.  However, I have seen lots of playing to the gallery by Justine Greening.  I fear that there will be a few more decisions like this to come.

  • Hi Owen,

    If it is the rhetoric about the middle class and our space programme that led to the UK change its mind, that’s unfortunate. But the scene of poverty and deprivation that you paint in India are also as much of a cliche (or a fact) as the prospering middle class.

    Also, when you say that “ending aid prematurely is playing chicken with children’s lives”, you seem to be assuming that DFID programmes in India are huge successes and meet all the goals and results stated in their complicated project logframes. It also sounds as if DFID funds these programmes in India in a vacuum  where the Indian state doesn’t exist. Quite the opposite, with DFID support focused on three Indian states that are of course very poor, but also have had able and popular state governments over the last decade. If UK aid to these states stop, the states will stretch their existing resources (or seek more resources from the central government) to cover the gap – but it is unlikely that the consequences for India in particular would be as dire as you predict. 

    On the other hand, I agree totally about the UK govt not walking the talk on other more pressing and powerful issues of international collaboration – trade, migration, etc.  

  • Owen–
    As usual you present both sides of the argument fairly. The factor that you left out (and which may not be known publically) is whether the government of India really wanted UK to maintain its aid program. I have heard from my colleagues in India that the GOI has often felt that the government’s transaction costs in negotiating and managing aid from bilateral donors like the US and UK outweigh the benefit. The time that the government spends on foreign aid programs is probably better spent making their own programs to reach the poor work better. Surely you would agree that if the GOI declined UK aid, that the UK would be right to end its program. Moreover, if the main argument for maintaining aid programs is to relieve the suffering of the poor, get more children in schools, the British taxpayers can opt for charitable giving to non profits working in India who may provide a more efficient delivery mechanism for reaching the poor than the government to government channel.

  • Thought-provoking post Owen. I hope we can keep this important discussion alive not only in the blogosphere but at the policy level.

    I was responding to a comment disagreeing with me (and citing this post as something he agreed with instead) on a similar subject on my own blog; then realized that I should’ve put my thoughts here in the first place. So here they are.

    “…I don’t think that Owen’s post necessarily disagrees with mine in all instances. We may disagree about the need for continued, perhaps indefinite, aid (read: free stuff like education and nutrition) to countries like India but I’m very willing to listen to him and others. He says that the ‘right standard’ by which to measure aid is that DFID is helping children and mothers. I’m arguing that the ‘right standard’ is economic growth, which he also mentions. We disagree. 

    In some cases we do agree though. By saying things like this he is reinforcing the need for a broader policy discussion in donor countries on the matter: 
    “…if anything EU trade policy is moving in the opposite direction, with growing protectionism, and is taking what ODI calls the ‘wrong approach’ to the role of trade in tackling global problems.”

    Also, I’m not calling for the end of aid right away (as noted in my post, this could be disastrous and ultimately counter-productive); I’m calling for broader, policy-level discussions around the non-sustainable, handout-style types of aid that create dependencies. The more I research the more I find that the UK especially is out in front of this policy-level discussion shifting, so kudos to them.

    Lastly, the arguments Owen presents in favor of aid unfortunately fall into the stereotypical ‘it’s bad so we should fix it’ category. He’s perpetuating heart-string style advocacy (citing output, not long-term outcome, statistics and saying things like “we are playing chicken with children’s lives”) that I don’t find particularly productive in the larger discussion.”

    My post is here in case you or anyone is interested: http://talesofatravelingturkey.blogspot.be/2012/11/the-irony-of-aid-dependency.html

  • Jeff Barnes (Nov 14) – it seems the Indian Government has stated their indifference to aid (and were considering refusing it) – for example, Pranab Mukherjee’s comment two years ago that the UK’s aid is “peanuts” (http://articles.timesofindia.indiatimes.com/2012-02-05/uk/31026669_1_british-aid-international-development-secretary-end-aid)

    May also be of interest – two points to put the Indian space programme into context.
    Firstly, the space programme cost 1.1% compared to the spending on the social welfare programme (£780 million compared to £70 billion respectively).
    Also, the technology of the space programme seems to have created genuine and wide-spread benefits. Satellites are used for mapping and forecasting floods, droughts, and other natural hazards, as well as urban planning. The mobile satellite has spread phone coverage, and enabled tele-medicine in rural areas with little other access to medical advice. Data links have been used for a video education scheme in 2,400 rural villages. And, from a purely capitalist perspective, it’s sped data transmission for the National Stock Exchange.
    No-one here has suggested this, but from what I’ve read in the press, it seems generally assumed that the space programme can be easily dismissed – I just wanted to point out that perhaps this isn’t the case. 

  • Hi Owen,

    Very interesting blog post and we’re following the debate with interest at DI! 

    To help inform it, I wanted to share some additional data on aid to India and on the real state of poverty in India. This follows on from your well-made point about multidimensional poverty in Indian states, plus the frequent comparisons with China. In the last month our team has pulled together a short piece of data analysis with some basic stats on Indian aid and poverty in India, which I hope is helpful to your readers : http://www.devinit.org/indian-poverty-and-aid-briefing.

    Regards, Cordelia Lonsdale, Development Initiatives

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