The new Conservative minister for aid is considering slashing Britain’s £250 million aid contribution to India. The move comes after sustained criticism of giving aid to a country that spends billions of pounds on nuclear weapons and a space programme.
Is this a good idea? Let us assume for a moment that giving aid is a good thing, and that the aid we give India is effective, and doesn’t just go to erecting giant statues of politicians. The case for continuing large scale aid to India is that despite its huge economy, it is a poor country on a per capita measure; hundreds of millions still live in poverty, and this is likely to stay the case for years to come. Moreover, there is no guarantee that the Indian government or private donors would step in to continue any cancelled aid projects.
Against this are two arguments; opportunity cost and providing cover for the Indian government. The latter relates to the notion that foreign aid frees native governments fro having to provide equivalent services from their own resources. For example, if Britain is providing access to clean water for villages in the Punjab, the Punjabis will not bother to lobby their local politicians to provide this service. Thus the government will not be obliged to do so and the Punjabis will remain dependent on British aid unless they are rich enough to fund it privately themselves.
The former, opportunity cost, is the next best thing the money could be used for; either tax cuts, national debt reduction, spending on other departments or aid to other countries. So if it was used for aid for other countries, would spending in, say, Ethiopia, be more effective than spending the same amount in India?
There is no easy answer to this. Withdrawal of British aid cannot be conditional on the Indian government agreeing to provide the same services, as the government would simply refuse (knowing then that the aid would stay in place). Perhaps the best solution would be a phased withdrawal of aid, whereby no new projects are funded, and the old ones run their course. This would allow aid to be spent on other countries without imperilling potential vital projects which help some of India’s poorest.
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Filed in: Economics,South Asia