Does foreign aid matter to India?

Financial aid is hardly the most critical factor among those which determine quality of relationship between nations
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First Published: Wed, Nov 14 2012. 11 02 AM IST
The United Nations headquarters in New York. Photo: Don Emmert/AFP
The United Nations headquarters in New York. Photo: Don Emmert/AFP
Updated: Wed, Nov 14 2012. 11 04 AM IST
Last week, the new secretary of state for international development of the UK, Justine Greening, announced that no new financial aid grants will be made to India by the UK. Rather, direct financial assistance projects would be phased out by 2015 and replaced by a pure focus on technical cooperation, private sector development and strengthening of global partnership between the two countries. Saving over £200 million in just 2013-15, this is clearly a significant step for the UK in its drive for fiscal austerity. This probably also frees up UK’s resources for interventions in other parts of the world.
In an earlier column, Doug Johnson and I had argued that India could easily control the volume and nature of the foreign aid it receives. By all accounts, this aid in absolute figures is no small amount, although it makes for only around 3% of the government’s annual budget. In recent years, aid to India has been repeatedly called into question. Legislators in countries such as the UK and Switzerland have been demanding both that their governments explain the rationale for continuing to provide aid to India and that aid be scaled down using a gradual phase-out strategy.
The UK’s aid to India is just about 3% of the total budget of the ministry of rural development alone—it is unlikely our government is going to miss it. But foreign aid comes not just with “development” implications; they have serious political implications as well. Remember Naveen Patnaik’s ill-fated UK tour earlier this year? Rights groups threatened to gherao the Orissa chief minister and ask him some tough questions. It is unfortunate that Patnaik chose not to take on the protesters and clarify his position. However, this incident was interesting also for the tussle between the UK-based activist groups on the issue and the UK government, which recognizes that it has serious business interests in Orissa (and other mineral-rich states in India) that are of far higher consequence.
The increasingly obvious reality is that aid is hardly the most critical factor among those that determine the quality of relationships between countries—think trade, migration, environmental policy, etc. In this article though, let us look at a few reasons why foreign aid matters.
First, aid can help direct the attention of local policymakers towards domestic inequality. This does not mean supporting only advocacy/activist/policy non-government organizations (NGOs), but also supporting innovative and experimental approaches to conventional development challenges. This means supporting knowledge management initiatives and rigorous research, especially to measure the impact of development programmes and policy interventions.
Second, aid is still important when it comes to humanitarian crises such as droughts or natural disasters. While the democratic governments in this country are more than capable of taking care of sudden crises, aid projects have a role in calling attention to as well as actively helping those who are trapped in a vicious cycle of poverty—say the small-holder farmer who is battling rising input prices, lack of credit and the wrath of climate change.
Third, for bilateral and multilateral aid agencies, being present in India is not just to “give” to India, but also to “take” home lessons from her. The Indian (or the Brazilian or Chinese) model of governance and economy has important lessons that could be relevant to other developing countries (and increasingly, to the developed countries)—at least more relevant than just the historical experiences of the West. At the same time, our governments and local organizations still have much to learn from international experiences, which we are able to access more easily through engaging with the international aid architecture. Aid agencies—whether bilateral or multilateral—and strong domestic governments is a good recipe for a fruitful partnership
Overall though, it cannot be denied that the importance of foreign aid continues to diminish. Soon enough, it will not be about foreign governments and multilateral bodies giving aid to India, but about a mix of government and non-government bodies working together to share knowledge and resources; to continue work on improving systems of global governance; negotiating fiercely to further/guard each other’s global political positions; and to improve our understanding about development and help action that works.
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First Published: Wed, Nov 14 2012. 11 02 AM IST
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