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World Development book case study: Does India need aid?

There are probably more arguments about aid – the value of it and how it is delivered – than about any other issue in development studies. In Britain this issue has recently flared up again. The overseas aid development budget was one of only two areas of government spending (the other was health) that was protected from cuts by the coalition government when it came to power in May 2010. That decision was always unpopular with many in the Conservative Party and spending on aid came under renewed criticism after it was revealed that Britain would give £1 billion ($1.6 billion) in aid to India over the next four years – even though India is now the tenth richest country in the world. The debate has been featured in every newspaper in this country and their headlines reflect a wide range of opinions. Links to some newspapers are listed at the end of this case study.

The case against continuation of aid has a simple and apparently compelling logic but a deeper analysis reveals that it is a much more complex issue than many people want to believe. The controversy provides an opportunity to test the views of people like Bauer, Sachs and Easterby (World Development: an essential text, chapter 6).

The UK international development secretary Andrew Mitchell has called India a ‘development paradox’. India has one of the highest economic growth rates in the world (8.5% pa), spends $32 billion a year on defence, has the fourth largest air force and is the world’s biggest arms importer. India has developed nuclear arms against the wishes of the UN and at huge cost to its health and education budget. There are 153,000 dollar millionaires living in the country and the country can apparently afford to spend $2 billion on a space research programme. Why give aid to a country that itself spends money on foreign aid, including funding programmes in African countries such as Nigeria and Ethiopia? In May 2011, India announced a £6-billion aid package to African countries to help them meet their Millennium Development Goals. It has also greatly increased its trade links to many countries in Africa.

At a time when British businesses are struggling to keep going, the Indian multi-billionaire Rattan Tata has bought control of Land Rover and Jaguar, teamaker Tetley, and the steel giant Corus, formerly British Steel. United Breweries, owned by Vijay Mallya and based in Bangalore, recently bought Scottish distillers White and Mackay, the fourth-largest whisky producers in the world. The continuation of British aid to a country with wealth like this does on the face of it seem perverse. In 2010, the Indian Finance Minister described British aid to his country as ‘peanuts’ compared to its total budget and the aid itself as ‘unwanted’.

The continued aid programme to India has particularly annoyed some people in Britain who had expected that India would place an order for Eurofighter Typhoon jets, partially manufactured in the UK, as recognition of Britain’s continued aid support. Instead the Indian government has given the $12-billion order for 126 fighter jets to the French firm Dassault. In June 2011, Andrew Mitchell said that Britain’s aid to India was ‘partly designed to win the bid. It’s a very important relationship. The focus is also about seeking to sell Typhoon.’

The British government’s disappointment at the Indian government’s decision has reminded some people of the trade criteria that were once conditions of most aid donations from Britain in the 1970s and 1980s. Aid was routinely given to countries that agreed to buy British arms or employ British contractors on major projects. In 1994 the World Development Fund won a case against the British government and stopped it giving $351 million of aid to Malaysia to build the Pergau dam. The funding was alleged to be linked to the sale of arms by British companies to Malaysia and the use of British contractors on the project. The high court ruled that the primary purpose of British aid must be the economic benefit of the recipient country and the welfare of its people. This made it clear that bilateral aid decisions could not be based on commercial considerations and has led to a period where there has been a clear separation of British aid funding from attempts to promote commercial opportunities.

The Department for International Development (DFID) has recently (2011) ended bilateral aid to several countries that it has assessed as having ‘graduated’ from being aid recipients. These include countries such as Vietnam, Serbia and Cambodia. Aid to Russia and China was suspended in 2011 because of increased wealth levels in those countries and further reductions in the numbers of countries receiving British aid are expected later in 2012. If these aid programmes are being ended, why is aid being continued to India, one of the fastest-growing economies in the world?

DFID’s explanation is that although India has some of the wealthiest people in the world, there are a greater number of people living below the poverty line than in any other country; over 300 million. There are more living below the poverty line in India than in the whole of sub-Saharan Africa.

In reality, since 1991, during which time India has experienced the highest growth in recent history, there has been no significant reduction in poverty or hunger. Two in every five children remain malnourished. A third of adults have an abnormally low body-mass index. Half of women of childbearing age are anaemic, a proportion far higher than in sub-Saharan Africa. More than 500 million Indians have no electricity, and less than a third have toilets. - Praful Bidwai, The Guardian, 7 February 2012.

DFID says that British aid to India will be concentrated in three of the poorest Indian states: Orissa, Madhya Pradesh and Bihar. The funding will be focused on private-sector investment and public-private partnerships and less on direct intervention to improve public services. This is compatible with the neoliberal politics of both the donor country and the Indian government and is criticized by some who think the fees charged by most of these organizations exclude the poorest in the population. Andrew Mitchell has also stated that money given to support public health and education programmes may have a negative impact by squeezing out current private-sector provision. India’s public-health spending as a proportion of GDP, is among the lowest in the world.

There is another justification for aid which has historic, and specifically colonial, origins.

Britain would be morally and politically wrong to terminate aid to India, home to the largest number of the world’s poor. Giving aid not only acknowledges the injustice of colonial exploitation, it also arises from an obligation to redress the gross structural imbalances that continue to mark the world despite recent power shifts between states. - Praful Bidwai, The Guardian, 7 February 2012.

However, the colonial past is cited as a reason for stopping aid by some critics of the developed world’s treatment of its former colonies.

The programme is unnecessary, patronizing and counter-productive. It smacks of an outdated, colonialist mindset rather than modern economic reality. India has grown up since Britain left in 1947. It deserves a relationship of equals, not subservience. The aid programme just reinforces the anachronistic image of India as helpless, impoverished and still reliant on its old imperial master. - Rahul Bedi, Daily Mail, 7 February 2012.

Opponents of aid to India often cite widespread corruption as a reason to stop money going to the country; they claim that only a small fraction of the money given by donors actually reaches its intended recipients. This quotation is only one of many that you can find that support this view.

In the mid-Eighties, Indian Prime Minister Rajiv Gandhi famously said that for every rupee given in aid, 85% disappeared in corruption. Sadly, that figure is probably even higher today. Aid has just ended up as a means of enriching the dishonest, while the poor continue to suffer.  - Rahul Bedi, Daily Mail, 7 February 2012.

Supporters of aid argue that this is a grossly exaggerated claim and that corruption is much less of a problem than claimed by its opponents.

The coalition government has a zero-tolerance policy on corruption. It has set up an independent aid watchdog to monitor how money is spent and details of all spending over £500 is set out on the DFID website for maximum transparency. The International Development Committee – a cross-party committee of MPs – supports the government’s approach in India.

British aid in India has made a huge difference. We have helped to free India from the scourge of polio. We have helped 1.2 million children go to school in the last ten years. And we have lifted more than 2 million people out of poverty in the poorest states. - DFID, February 2012.

Giving aid to India has attracted a lot of comment and ignited the debate about the value of aid. If you read through the evidence given by different journalists and politicians you can pick out where they stand compared to the views of Bauer, Easterby, Sachs and neo-Marxists, amongst others. It is a fascinating debate within which it is sometimes difficult to retain the original concept of aid: the term itself needs clarification. For many people, the clearest justification for the continuation is because aid is about poor people and not poor countries. According to this view, denying aid to poor people who live in a country where there are wealthy people is not equitable and India, which has over 30% of the world’s population living below the poverty line, should therefore continue to receive aid.

The Britain-India debate is a caricature of a debate over foreign aid that is decades old. Conservative groups in rich countries have always opposed aid as they see it as an extension of the welfare state. Developing country elites dislike aid because it smells of dependency, neocolonialism and reminds them of domestic policy failure. - Editorial – Hindustan Times 6 February 2012.

Reading and resources

There are video debates and many newspaper articles on this issue available online.

Articles associated with this issue which may be helpful in further reading;

‘Why India Needs Aid’ – Praful Bidwai, The Guardian, 7 Feb 2012

http://www.guardian.co.uk/commentisfree/2012/feb/07/why-india-needs-aid

‘Aid for trade policy rears its ugly head’ – Deborah Doane, The Guardian, 6 Feb 2012

http://www.guardian.co.uk/global-development/poverty-matters/2012/feb/06/old-british-aid-policy-rears-head

‘Halt India Aid’ – The Sun, 1 Feb 2012

http://www.thesun.co.uk/sol/homepage/news/sun_says/4103116/The-Sun-Says.html

Link to Times of India video debate on aid for India

http://timesofindia.indiatimes.com/videos/news/Debate-Does-India-need-British-aid/videoshow/11783224.cms

‘No, my country doesn’t need British aid. It’s patronising, stifling and just enriches a corrupt elite’ – Rahul Bedi, Daily Mail, 7 Feb 2012

http://www.dailymail.co.uk/debate/article-2097436/No-country-doesnt-need-British-aid-Its-patronising-stifling-just-enriches-corrupt-elite.html

‘To give by other means’ – Editorial, Hindustan Times, 6 Feb 2012

http://www.hindustantimes.com/editorial-views-on/Edits/To-give-by-other-means/Article1-807649.aspx

‘Is India ready to refuse UK aid?’ – Madeline Bunting, The Guardian, 10 Jan 2011

http://www.guardian.co.uk/global-development/poverty-matters/2011/jan/10/uk-aid-india

The success of aid programmes is always coming under scrutiny and it may be a good time to evaluate the success of aid schemes in Ghana which have also been featured in the recent news. It is being claimed by many people that Ghana is an example of an African country where aid has been successful in lifting levels of development and reducing poverty.

Ending Aid Dependency – Action Aid Report 2011

http://www.actionaid.org.uk/doc_lib/real_aid_3.pdf

‘In ten years time, Ghana may not need any aid at all’ – John Mulholland, The Observer, 15 Jan 2012

http://www.guardian.co.uk/world/2012/jan/15/ghana-aid-10-years

‘We’re not arguing for a culture of dependency. We’re arguing to end it’ – John Mulholland, The Observer, 15 Jan 2012. Features a conversation between Jeffrey Sachs and Bono

http://www.guardian.co.uk/world/2012/jan/15/ghana-aid-jeffrey-sachs-bono

Much more contentious is the possibility of withdrawing aid from Ghana if it continues to refuse to legalise homosexuality.

‘Ghana refuses to grant gays’ rights despite aid threat’ – BBC News, 2 Nov 2011

http://www.bbc.co.uk/news/world-africa-15558769