Western donors wrestle with the contradictions of rising India

from The Financial Times

ByJo Johnson

Does India still need international aid? For an aspiring great power seeking a permanent seat on the United Nations Security Council, it is a sensitive question, just as it is for donor countries whose businesses and jobseekers face increasingly stiff competition from rivals based in the world’s second-fastest growing big economy.

A delicate transition has been under way since 2003, when the Hindu nationalist-led government of the day, irked by the tiresome conditions and bureaucracy associated with receiving small sums of money, announced it was phasing out aid from all but six bilateral donors: the US, Britain, the European Union, Japan, Germany and Russia.

This shift is now quickening. Some bilateral donors, led by the US, now believe the moment is approaching when the aid flow to India can be sharply reduced. They note that India boasts more dollar billionaires than any other country in Asia, has world-class companies in a range of sectors, from vehicle assembly to information technology, and that it harbours plans for costly prestige projects, including an unmanned moon-shot later this year.

“Washington is increasingly of the view that India either is a ‘great power’ or it isn’t, and can’t have it both ways,” observes one ambassador to India from an Organisation for Economic Co-operation and Development member that no longer operates an aid programme in the country. “It has not gone unnoticed that India is developing a sizeable aid programme of its own.”

The US is slashing its aid budget for India, which peaked at $1.6bn in 1960. This year’s budget request from USAid, whose mission is to reduce poverty and promote stability overseas, is for just $81m (£42m, €56m), down 35 per cent on the amount spent in India in 2006. The agency says it is “walking the last mile” with a country it entered in 1951.

The sharp fall reflects the intensity of USAid’s regional focus on Afghanistan – described by some as “the country programme that ate the agency” – and also the feeling that India, with its wealth of non-governmental organisations, capable private sector and competitive democracy, is better placed to tackle developmental challenges than many others.

“We have resource constraints,” says Elizabeth Hogan, deputy head of USAid India. “There’s a lot more to be done in India and we wish we had more resources. But people in Washington see an India with 9 per cent growth and as an emerging donor at a time when Afghanistan and Pakistan are absolutely critical strategic priorities.”

On a per capita basis, however, India’s population of 1.1bn receives little aid from the rest of the world and many NGOs fear it is far too soon for donors to consider retreat. Total aid to India, from all sources, is only $1.50 a head, compared with an average of $17 per head for low-income countries, according to figures provided by Britain’s aid agency.

With up to 400m people living on less than $1 a day, India is home to about one in three of the world’s very poorest people and about 40 per cent of all undernourished children. Many argue that it is the “swing state” that will determine whether the world meets the millennium development goals by 2015.

“Almost a third of children in India are not finishing primary education and there are 20m people aged between 14 and 18 who have not had any basic education at all,” says Shireen Vakil Miller, director of policy at Save the Children in India. “The US government either doesn’t see this side of India or doesn’t want to.”

Not all donors are scaling down to the same extent as the US. During a two-day visit to New Delhi that ended on Monday, Gordon Brown, the UK prime minister, announced grants of £825m ($1.6bn, €1.1bn) to India over the next three years, a sum that will consolidate the former colonial power’s position as the country’s largest bilateral donor.

Claiming UK support had helped raise primary school enrolment rates to 94 per cent, Douglas Alexander, the UK’s secretary of state for international development, said: “Without India getting on track, the world will fail to meet the millennium development goals. That is why the UK contribution – which accounts for one-third of all aid to India – is welcomed.”

Britain is still giving relatively large sums to a country whose economy is expected to eclipse its own within a few years not only because it shares unique historical ties with India, officials say, but also because the Brown government believes there is a “moral” obligation to help reduce poverty, which happens to coincide with the national interest.

Officials at the UK Department for International Development say poverty breeds conflict, increases vulnerability to natural disasters and accelerates over-exploitation of natural resources. It also undermines trade, business and investment opportunities.

“Why are we still here?” asks Susanna Moorehead, head of DFID India. “Because there’s a job to finish. We’re not going to achieve the millennium development goals by 2015 unless we do here in India. But we’re in a transition and if you visit India in 10 years’ time, our programme will be very similar to what we’re doing in China.”

DFID’s India programme, worth £266m in the year to March, is nearly eight times larger than the £35m in grants being allocated to China, now categorised as a middle-income country. Half of DFID’s aid to India is given to central government-run programmes and half to four “focus” states – Andhra Pradesh, Madhya Pradesh, Orissa and West Bengal.

Soon, however, DFID will release a “transition” strategy for India that will run to 2015, the target date for the achievement of the millennium goals. This will be based on the idea that there are “three Indias” – global India, developing India and poorest India – with DFID donating only to the most deprived.

India does little to solicit aid and, sometimes, much to deter it. Ahead of Mr Brown’s visit, Rahul Gandhi (left), a senior Congress party politician, hinted at the extent of corruption, claiming that only 5 per cent of development funds reached their intended recipients, down from 15 per cent when his father was prime minister.

His warning coincided with the release by the World Bank of a report that found “systemic fraud and corruption” in a flagship health programme and “suggested that other projects had been similarly compromised”. The bank in the year to June 2007 provided $3.7bn in new loans to India, its largest borrower.

Many in Indian policymaking circles, weaned on a post-colonial ideology of self-reliance, look forward to the moment the last donor leaves and take pride in the fact that a country once written off as a large, exotic basket-case now has a $1bn aid programme of its own.

“This is the contradiction of India,” says one senior government official. “This is our reality. We have to deal with the fact that we have one group of people at the cutting edge of globalisation and another group that doesn’t even have the basics. Some people find it very hard to hold these two ideas in their head at the same time.”