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A Global Shift in Foreign Aid, Starting in India
November 15, 2012
Britain's decision to stop giving development aid to India by 2015 marks a turning point in the former colonial power's relations with New Delhi, and is raising questions about the global future of foreign aid in a fast-changing economic world order.
"Having visited India I have seen firsthand the tremendous progress being made," the British development secretary, Justine Greening, said Nov. 9, while announcing the end of more than 50 years of aid to India. "India is successfully developing, and our own bilateral relationship has to keep up with 21st century India," she said.
Britain's move may be just the first in a full-scale pullback of aid to faster-growing developing nations, some aid professionals believe.
"There is a real concern that all the major donors are looking at excluding emerging economies from their aid programs," Emma Seery, the head of development finance at Oxfam, said by telephone. "These countries have large pockets of poverty, and we are afraid that this trend will remove this extra lifeline from the poorest," she said.
For decades, the United Nations has urged developed countries to spend 0.7 percent of their national income on aid to poorer nations, a target that continues to be elusive. According to the most recent figures of the Development Assistance Committee, a consortium of the world's main donors, the developed world gave nearly $120 billion in assistance to the developing world in 2009, or 0.32 percent.
The United States, which doled out some $30 billion in 2010, leads the pack.
But many traditional donors are now openly reconsidering the need for, and role of, foreign aid. The United States, for example, facing a budget crisis, has considered proposals to significantly trim the billions in foreign aid it gives. "The proposals have raised the spectre of deep cuts in food and medicine for Africa, in relief for disaster-affected places like Pakistan and Japan, in political and economic assistance for the new democracies of the Middle East, and even for the Peace Corps," Steven Lee Myers wrote in The New York Timeslast year.
U.S. aid to India, targeted toward clean energy, food security and health, has dropped 25 percent in recent years, from nearly $127 million in 2010 to a proposed $98.3 million in 2013. India's emergence as a regional and global power, the 2012 annual letterfrom the U.S. Agency for International Development said, "creates an opportunity to evolve the traditional donor recipient model of development into a true partnership."
This threatened drought of Western aid comes as some emerging market countries, including India, have themselves become donors to more impoverished countries.
Before a visit this week from President Hamid Karzai of Afghanistan, aimed at wooing investment, India approved development projects in Afghanistan to the tune of $100 million as part of India's $2 billion aid package to the war-torn country. In 2010, the country extended a $1 billion line of credit to Bangladesh, the highest ever one-time assistance, and last year, it offered $5 billion in credit to African nations. With a broadening aid portfolio, New Delhi recently announced plans to set up its own aid agency.:ranger:
For India, once the world's largest foreign aid recipient, with some $55 billion funneled to the country between 1951 and 1992, the change from recipient to donor comes as the country tries to redefine its role in the international community.
For decades, as India made its haphazard transition from being a British colony to an economic powerhouse, it depended heavily on aid from prosperous nations and international institutions. In 1958, for instance, Britain offered India some ₤40 million in foreign aid, as India struggled to build a nation and implement its second five-year economic plan. British Treasury officials referred to the "long-term problems of Indian development" when announcing the package.
Sixty years later, Britain's decision to pull the plug on funding to India was met with little more than a shrug by India's political class. "We don't really need the aid," P. Chidambaram, the finance minister, said last week. "We have accepted it in the past, but I think both countries have agreed that we can emphasize on trade rather than aid."
Part of the reason for such nonchalance, analysts say, is that British aid to India, which amounts to $450 million per year and is used primarily in health care and education, is small. Last year, the finance minister at the time, Pranab Mukherjee, reportedlydismissed the funds as "peanuts" compared to India's own spending. (Mr. Mukherjee is now the president of India.)
Indeed, in recent years, India has ramped up its spending on social welfare programs, including a large rural employment scheme and a food subsidy system, aimed at lifting its millions out of poverty.
But perhaps more significant is the fact that India now sees – and projects – itself as a global power and a partner to developed nations like Britain, rejecting the traditional model of rich nations aiding poor ones. "Aid is past, trade is future," Foreign Minister Salman Khurshid recently said.
This ambition stems from the Indian economy, which, even with a recent slackening, continues to grow at a faster rate than other large economies. In 2007, the World Bank moved India to a "lower middle income" country from a "low income" one. But, activists point out, it continues to be a country of rampant poverty and vast inequities. Despite two decades of growth, over 400 million people in India live on less than $1.25 a day, and the country's malnutrition figures are among the worst in the world. India has had some success with its welfare programs, but it spends only 0.9 percent of gross domestic product on health care, among the lowest in the world, and 3 percent on education.
This dichotomy appears to be in tune with global trends in poverty. A 2010 study by economist Andy Sumner at the Institute of Development Studies titled "The New Bottom Billion" found that two decades ago, 93 percent of the world's poorest lived in low-income countries. Now, nearly three-quarters of them, or one billion people, live in middle-income economies.
Economists at the Asian Development Bank, too, speak of a "middle income trap," where rapid growth in short periods of time is followed by economic stagnation. While India is growing fast, said RanaHasan, ADB's principal economist in India, "historical record tells us this is not the time to disengage."
In recent years, ADB, which focuses primarily on infrastructure projects in India, has moved its focus from large nationwide projects such as highways and power grids to development projects in "lagging" states, like Bihar, Chattisgarh and Assam.
British aid in India, said Ms. Seery of Oxfam, has a "real and significant impact," and its withdrawal could have significant negative repercussions for its poorest. It has played a major role, she said, in India's successful drive to eliminate polio, and it continues to help children attend primary schools and to give women and children access to good health care. "The decision to unaid," Ms. Seery said, "was too hasty from a development perspective."
Some Indian analysts argue that the decision has less to do with India's development than Britain's own political and economic compulsions. In recent years, Britain has become home to a strong anti-aid sentiment, with a section of the political class arguing that India, which has its own space program, no longer needs aid from Britain, itself in the throes of an economic slowdown.
In a poll by The Guardian newspaper, which asked if Britain should stop granting aid to India "in response to its former colony's 'rapid growth and development progress' over the past decade," 89 percent responded in the affirmative.
Others say Britain's new approach stems from the absence of quid pro quo. Last year, India's decision to select a French company over its British rival for a multi-billion dollar contract to supply fighter planes caused great furor in London, with several British politicians saying India ought to have favored the British company on account of the millions it receives in aid from Britain.
"They believe that British aid must get a bang for its buck, which means it must spread British influence," said JayatiGhosh, a professor of economics at Jawaharlal National University in New Delhi. "The aid is just not doing that anymore."
A Global Shift in Foreign Aid, Starting in India - NYTimes.com
http://india.blogs.nytimes.com/2012...=true&_type=blogs&_php=true&_type=blogs&_r=1&
http://india.blogs.nytimes.com/2012...=true&_type=blogs&_php=true&_type=blogs&_r=1&
November 15, 2012
Britain's decision to stop giving development aid to India by 2015 marks a turning point in the former colonial power's relations with New Delhi, and is raising questions about the global future of foreign aid in a fast-changing economic world order.
"Having visited India I have seen firsthand the tremendous progress being made," the British development secretary, Justine Greening, said Nov. 9, while announcing the end of more than 50 years of aid to India. "India is successfully developing, and our own bilateral relationship has to keep up with 21st century India," she said.
Britain's move may be just the first in a full-scale pullback of aid to faster-growing developing nations, some aid professionals believe.
"There is a real concern that all the major donors are looking at excluding emerging economies from their aid programs," Emma Seery, the head of development finance at Oxfam, said by telephone. "These countries have large pockets of poverty, and we are afraid that this trend will remove this extra lifeline from the poorest," she said.
For decades, the United Nations has urged developed countries to spend 0.7 percent of their national income on aid to poorer nations, a target that continues to be elusive. According to the most recent figures of the Development Assistance Committee, a consortium of the world's main donors, the developed world gave nearly $120 billion in assistance to the developing world in 2009, or 0.32 percent.
The United States, which doled out some $30 billion in 2010, leads the pack.
But many traditional donors are now openly reconsidering the need for, and role of, foreign aid. The United States, for example, facing a budget crisis, has considered proposals to significantly trim the billions in foreign aid it gives. "The proposals have raised the spectre of deep cuts in food and medicine for Africa, in relief for disaster-affected places like Pakistan and Japan, in political and economic assistance for the new democracies of the Middle East, and even for the Peace Corps," Steven Lee Myers wrote in The New York Timeslast year.
U.S. aid to India, targeted toward clean energy, food security and health, has dropped 25 percent in recent years, from nearly $127 million in 2010 to a proposed $98.3 million in 2013. India's emergence as a regional and global power, the 2012 annual letterfrom the U.S. Agency for International Development said, "creates an opportunity to evolve the traditional donor recipient model of development into a true partnership."
This threatened drought of Western aid comes as some emerging market countries, including India, have themselves become donors to more impoverished countries.
Before a visit this week from President Hamid Karzai of Afghanistan, aimed at wooing investment, India approved development projects in Afghanistan to the tune of $100 million as part of India's $2 billion aid package to the war-torn country. In 2010, the country extended a $1 billion line of credit to Bangladesh, the highest ever one-time assistance, and last year, it offered $5 billion in credit to African nations. With a broadening aid portfolio, New Delhi recently announced plans to set up its own aid agency.:ranger:
For India, once the world's largest foreign aid recipient, with some $55 billion funneled to the country between 1951 and 1992, the change from recipient to donor comes as the country tries to redefine its role in the international community.
For decades, as India made its haphazard transition from being a British colony to an economic powerhouse, it depended heavily on aid from prosperous nations and international institutions. In 1958, for instance, Britain offered India some ₤40 million in foreign aid, as India struggled to build a nation and implement its second five-year economic plan. British Treasury officials referred to the "long-term problems of Indian development" when announcing the package.
Sixty years later, Britain's decision to pull the plug on funding to India was met with little more than a shrug by India's political class. "We don't really need the aid," P. Chidambaram, the finance minister, said last week. "We have accepted it in the past, but I think both countries have agreed that we can emphasize on trade rather than aid."
Part of the reason for such nonchalance, analysts say, is that British aid to India, which amounts to $450 million per year and is used primarily in health care and education, is small. Last year, the finance minister at the time, Pranab Mukherjee, reportedlydismissed the funds as "peanuts" compared to India's own spending. (Mr. Mukherjee is now the president of India.)
Indeed, in recent years, India has ramped up its spending on social welfare programs, including a large rural employment scheme and a food subsidy system, aimed at lifting its millions out of poverty.
But perhaps more significant is the fact that India now sees – and projects – itself as a global power and a partner to developed nations like Britain, rejecting the traditional model of rich nations aiding poor ones. "Aid is past, trade is future," Foreign Minister Salman Khurshid recently said.
This ambition stems from the Indian economy, which, even with a recent slackening, continues to grow at a faster rate than other large economies. In 2007, the World Bank moved India to a "lower middle income" country from a "low income" one. But, activists point out, it continues to be a country of rampant poverty and vast inequities. Despite two decades of growth, over 400 million people in India live on less than $1.25 a day, and the country's malnutrition figures are among the worst in the world. India has had some success with its welfare programs, but it spends only 0.9 percent of gross domestic product on health care, among the lowest in the world, and 3 percent on education.
This dichotomy appears to be in tune with global trends in poverty. A 2010 study by economist Andy Sumner at the Institute of Development Studies titled "The New Bottom Billion" found that two decades ago, 93 percent of the world's poorest lived in low-income countries. Now, nearly three-quarters of them, or one billion people, live in middle-income economies.
Economists at the Asian Development Bank, too, speak of a "middle income trap," where rapid growth in short periods of time is followed by economic stagnation. While India is growing fast, said RanaHasan, ADB's principal economist in India, "historical record tells us this is not the time to disengage."
In recent years, ADB, which focuses primarily on infrastructure projects in India, has moved its focus from large nationwide projects such as highways and power grids to development projects in "lagging" states, like Bihar, Chattisgarh and Assam.
British aid in India, said Ms. Seery of Oxfam, has a "real and significant impact," and its withdrawal could have significant negative repercussions for its poorest. It has played a major role, she said, in India's successful drive to eliminate polio, and it continues to help children attend primary schools and to give women and children access to good health care. "The decision to unaid," Ms. Seery said, "was too hasty from a development perspective."
Some Indian analysts argue that the decision has less to do with India's development than Britain's own political and economic compulsions. In recent years, Britain has become home to a strong anti-aid sentiment, with a section of the political class arguing that India, which has its own space program, no longer needs aid from Britain, itself in the throes of an economic slowdown.
In a poll by The Guardian newspaper, which asked if Britain should stop granting aid to India "in response to its former colony's 'rapid growth and development progress' over the past decade," 89 percent responded in the affirmative.
Others say Britain's new approach stems from the absence of quid pro quo. Last year, India's decision to select a French company over its British rival for a multi-billion dollar contract to supply fighter planes caused great furor in London, with several British politicians saying India ought to have favored the British company on account of the millions it receives in aid from Britain.
"They believe that British aid must get a bang for its buck, which means it must spread British influence," said JayatiGhosh, a professor of economics at Jawaharlal National University in New Delhi. "The aid is just not doing that anymore."
A Global Shift in Foreign Aid, Starting in India - NYTimes.com
http://india.blogs.nytimes.com/2012...=true&_type=blogs&_php=true&_type=blogs&_r=1&
http://india.blogs.nytimes.com/2012...=true&_type=blogs&_php=true&_type=blogs&_r=1&
