Cutting aid to India


by Rumbold
11th July, 2010 at 3:22 pm    

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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  1. Old Holborn — on 11th July, 2010 at 3:28 pm  

    “This would allow aid to be spent on other countries”

    Or how about “not spent?” This money is not surplus, we are having to borrow it and handing our kids the bill.

    Live Aid gave plenty to the 30 million starving of Ethiopia. End result? 70 million starving Ethiopians and civil war

  2. Thur — on 11th July, 2010 at 3:32 pm  

    Good post. Can I direct you in the direction of Jo Johnson (MP for Orpington) who suggested also suggested we should withdraw aid from India. http://www.jo-johnson.com/index.php?option=com_content&view=article&id=46:jo-speaks-in-global-poverty-debate&catid=16:latest-news

  3. Ashley — on 11th July, 2010 at 3:47 pm  

    OH is right.
    We are borrowing money to give to a country with a space program.
    India is a democracy and Indians can decide whether they want a big rocket or a flushing crapper, it’s none of our business, nor is it our problem.
    Do we have to give aid right up to the day when our GDP per capita is below theirs?

  4. Rowan Davies — on 11th July, 2010 at 3:56 pm  

    Blog post here from a Save the Children staffer on the influence of the Indian middle classes: http://www.savethechildren.org.uk/blogs/2010/05/india-beyond-the-contrasts/

    DFID page on India here: http://www.dfid.gov.uk/Where-we-work/Asia-South/India/ 42% of Indians live in absolute poverty (one-third of the global total). Total UK aid to India in 2008/9 was £297 million, which is frankly peanuts in terms of UK government spending.

    Development spending isn’t about what the UK government thinks about individual policy decisions taken by recipient governments; it’s about reducing poverty (DFID’s legal remit). Vast numbers of people in India live in poverty.

  5. Lydia Forsyth — on 11th July, 2010 at 4:44 pm  

    @Rowan Davies
    which is frankly peanuts in terms of UK government spending…

    Now there’s an old English proverb you foreigners or youngsters with a socialist education might not know….

    “Look after the pennies and the pounds will look after themselves”.

    Stop Aid Abroad completely!

    “Charity begins at home”, another English proverb.

  6. Don — on 11th July, 2010 at 6:24 pm  

    “Charity begins at home”, another English proverb.

    I think you will find that the phrase was coined by Terence in 170 BC.

  7. Old Holborn — on 11th July, 2010 at 6:34 pm  

    He who giveth, also taketh away – God, beginning of time

  8. Trofim — on 11th July, 2010 at 6:45 pm  

    What are the criteria for giving aid? Is it whether country A has a higher GDP than country B, or country A has a higher GDP per capita than country B, or a combination? If the former, then it would appear that for a start, the USA, Japan and Germany owe the UK some money, if the latter, then a whole row of countries owe us some money, such as Lichtenstein, Luxembourg, Singapore, Norway, Qatar. Shouldn’t Saudi Arabia be giving everyone aid? They’ve got a bit to spare, I understand.

  9. Boyo — on 11th July, 2010 at 7:11 pm  

    I agree its ridiculous to provide aid to countries with nuclear programmes. Better to invest the cash in stimulating trade thereby creating jobs both in those countries and in the UK.

    The sum is small in global terms but substantial at the same time – a number of UK government programmes are about to be cut that have significant impact at home and cost less.

    Personally I think the UK should (in a thoroughly phased and sensible way) eliminate the aid budget with the exception of emergency provision, investing the money at home. At the same time it should remove trade barriers and campaign for this to be the case in the EU and the world. The benefit of such activity would dwarf the cut in aid.

    Paradoxically aid is the easy option.

  10. quote — on 11th July, 2010 at 9:00 pm  

    Peter Bauer “Foreign aid is poor people in rich countries giving to rich people in poor countries”

  11. Niels Christensen — on 11th July, 2010 at 9:28 pm  

    Well India steals many jobs in UK and all over Europe.
    The money could be used to create jobs in the UK.
    If India really would fight poverty, they could take in more taxes.But thats not gonna happen.

  12. persephone — on 11th July, 2010 at 9:38 pm  

    In 2008/09 DFID provided £5.5 billion of aid which was to increase to £7.8 billion by 2010/11. This move looks to reduce that growth – it would be interesting to see what/if there is a threshold below DIFD can legally make reductions and still comply with their legal duty under the International Development Act

  13. persephone — on 11th July, 2010 at 10:00 pm  

    ” India steals many jobs in UK and all over Europe.”

    There are more than 700 Indian companies with investments in the UK. According to the Confederation for Indian Industry (CII) Indian companies are also the second highest foreign employers in Britain, after the US. Tata, the UK’s largest foreign investor, employs a total workforce of 47,000.

    Over the last few years big Indian companies eg ICICI Bank and Kingfisher Airlines have set up bases in London. Some Indian companies like Wipro and IL&FS have made London their European headquarters.

    India ranks as the second biggest foreign investor to the UK by number of projects. According to the UK’s secretary of state Vince Cable, bilateral trade with the UK is worth at least £11bn a year.

  14. Old Holborn — on 11th July, 2010 at 10:56 pm  

    “India ranks as the second biggest foreign investor to the UK by number of projects. According to the UK’s secretary of state Vince Cable, bilateral trade with the UK is worth at least £11bn a year.2

    so they need our money why exactly?

  15. Sunny — on 11th July, 2010 at 11:21 pm  

    I think I’m in agreement that aid to India is politically unsustainable.

    I am for aid but India has the capacity to look after its own much better – they just choose to spend that money elsewhere.

  16. persephone — on 11th July, 2010 at 11:28 pm  

    @ A few answers depending upon how you look at it

    Because the UK wants a few billion in trade

    OR

    Because as a UN member/developing country it has a (legal) commitment to prevent poverty

    OR

    Using your ‘logic’ some may say for better reasons than why the british colonialists/empire wanted more money

  17. persephone — on 11th July, 2010 at 11:55 pm  

    I saw this chart from OECD, albeit 07/08, which shows that India is highest as to development aid.

    http://www.oecd.org/dataoecd/42/53/44285551.gif

    It obviously does need a review – for eg Sudan should be highest in terms of being an aid recipient rather than India.

  18. Kulvinder — on 12th July, 2010 at 12:15 am  

    I agree its ridiculous to provide aid to countries with nuclear programmes.

    Well perhaps it’d be better to state its ridiculous for a country in substantial deficit to view its own ‘independant’ nuclear deterrence as anything other than a vastly expensive folly; especially given the fact that deterrence relies exclusively on a US missile system with US derived warheads and warhead components.

    Not to speak of the stellar job haliburton did in devonport.

    That said i completely support any aid given to India being redeployed to reconstruct Iraq.

  19. What? — on 12th July, 2010 at 12:45 am  

    I thought aid was what the subcontinent was forced to give the UK for a few hundred years and that the “aid” that the UK is now giving India was some sort of token loan repayment scheme for the ensuing poverty that cash outflow to Europe caused. :)

    “Foreign aid is poor people in rich countries giving to rich people in poor countries”

    - Exactly. The circle of life continues. But by all means, cut the cycle.

  20. fugstar — on 12th July, 2010 at 1:24 am  

    ‘Development’ ‘aid’ is not really charity, its something much more complicating and patronising. It is soft power, cooption of social work, and at the very least its not really the answer that i am sure folks are searching for.

    Its like a saline drip, which diverts indigenous reformative creativity, ngo-ises it, and makes it subservient to whatever gimick they are cooking up at in the UK development scene.

  21. Terence — on 12th July, 2010 at 4:20 am  

    Oh no, Persephone, *not* the British empire. Please assure me that you are not going to justify aid to a country that does not need aid by some sort of tenuous reference to the fact that once upon a time, over 63 years past, Britain once had a colony of India…

  22. Vikrant — on 12th July, 2010 at 5:24 am  

    I am for aid but India has the capacity to look after its own much better – they just choose to spend that money elsewhere.

    Like the $30 billion they are spending on those rural employment schemes? Anyways i was always under the impression that our aid to India was out of a desire to be in good terms with the Indians. I doubt that Indians care themselves that much…

    Someone mentioned using that money to create jobs here in England. But to create those white collar jobs and attract capital you need open borders to attracts the best and the brightest but then again putting a cap on those professionals has become a fashion! meh…

  23. Boyo — on 12th July, 2010 at 7:03 am  

    Kulvinder, i suppose that applies to the US too? Its deficit is greater than ours!

  24. Rumbold — on 12th July, 2010 at 8:43 am  

    Another solution would be to continue to slash trade barriers, thus benefiting the poorest in the world (as well as Johnny Consumer).

  25. Vikrant — on 12th July, 2010 at 10:17 am  

    Rumbold,

    A big part of slashing trade barriers is allowing free movement of human capital, something which was a big no-no back home now!

  26. Rumbold — on 12th July, 2010 at 10:20 am  

    Vikrant:

    I would like to see freer immigration in this country. The problem wasn’t so much the numbers, but the way it was managed.

  27. Vikrant — on 12th July, 2010 at 10:37 am  

    Yes I’d largely agree with that Rumbold. But surely capping immigration now is just a regressive measure which is prolly going to hurt white collared professionals. It is not answer to reigning in on illegal immigration and tighter border controls!

  28. Kulvinder — on 12th July, 2010 at 10:48 am  

    Kulvinder, i suppose that applies to the US too? Its deficit is greater than ours!

    Oh i agree, their fetish for the military industrial complex is frankly astonishing; given the fact they can’t actually afford it.

  29. boyo — on 12th July, 2010 at 10:50 am  

    I don’t think trade barriers and immigration are mutually exclusive. Look – through the WTO the EU and US enforce “free” markets on developing countries while fiercely protecting their own. I would suggest the opposite – the rich countries stop protecting their markets and allow the poor ones to develop theirs.

    Immigration really doesn’t have much to do with it. In any case, immigration was never used in the UK to help the indigenous poor but to undermine their bargaining power. Arguably, mass immigration sustains inequality (capitalism) so i do think numbers are a “problem”, although I do accept that with an ageing population and increase of wealth and an erosion of communal ties people are now more likely to accept immigration to sustain their standard of living than accept the necessary austerity measures. I think this is short-sighted, however, because in the long term it is not a solution.

  30. boyo — on 12th July, 2010 at 10:51 am  

    Although I suppose as Keynes said, in the long-term we’re all dead ;-)

  31. platinum786 — on 12th July, 2010 at 10:54 am  

    I think the whole way Aid works is pointless. There is no guarantee that it is spent where it should be. Most aid money is in the pocket of politicians.

  32. Michael Knight — on 12th July, 2010 at 11:56 am  

    Isn’t this just another way to keep a country happy and thus encourage investment?

    We’ll give you a few hundred million per year and in return can you please spend a couple of billion on this warship/fleet of Typhoon jets?

    Sounds like a good deal to me.

  33. MaidMarian — on 12th July, 2010 at 2:21 pm  

    Lots of interesting comments on here, but on balance, the article’s conclusion is correct.

    India wants to be an Asian economic powerhouse? Fine by me, but it can achieve that without overseas aid.

    It sounds as if some of the writers on here actually need to take their complaints up with the Government of India.

  34. boyo — on 12th July, 2010 at 3:43 pm  

    Indeed i have, i write to them weekly. In green ink, just to make sure my correspondence gets noticed!

  35. boyo — on 12th July, 2010 at 3:44 pm  

    Oh, wait a minute, no i don’t – i come here instead ;-)

  36. Rumbold — on 12th July, 2010 at 9:18 pm  

    Heh Boyo. Where the postage is free.

  37. Bill — on 12th July, 2010 at 10:51 pm  

    I agree its ridiculous to provide aid to countries with nuclear programmes.

    Except of course where their unfortunate citizens must occasionally subsist on grass and their leaders threaten to annihilate their neighbors :)

    I think some people are overlooking the benefits that the British gain from providing aid to countries around the world, irrespective of whether they need it or not. Not the least: a feeling of moral superiority and self-regard, a vice that the British ruling class has for so long succumbed to.

  38. persephone — on 13th July, 2010 at 12:28 am  

    Terence @21

    Its quite clear that I was answering the question at #14 and using the same logic employed there. Take whichever answer you choose at #16.

    I think the current aid situation is connected to the fact that India is a bigger business partner than aid recipient.

    As to what should happen next see my response at #17

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