Why Does India Give and Receive Aid? Finance Minister Pranab Mukherjee was in Dhaka recently offering Bangladesh a $1 billion loan package. On arrival, he said, â€œwe (India) are committed to assisting Bangladesh in addressing its priorities for development.â€ The loan is believed to be the largest ever Bangladesh has received in one agreement.The loan is intended for the development of railways and communications infrastructure which would allow the transportation of Indian exports to the Northeast via Bangladesh. Clearly this demonstrates that assisting Bangladesh, our neighbor, is not purely altruistic and India is not alone among countries in mixing benevolence and self-interest in its foreign assistance. By contrast, we gave a paltry sum of $5 million to Haiti after the devastating earthquake that struck the country earlier this year. ((())) Haiti is at least as needy as Bangladesh but obviously peripheral to Indiaâ€™s strategic and economic concerns, unlike Bangladesh and other neighbors. Rewind a few weeks prior to Mr.Mukherjeeâ€™s visit to Bangladesh in the days leading up to David Cameronâ€™s visit to India. The Department for International Development, the U.K.â€™s bilateral aid agency, found itself responding to public criticism concerning the 250 million pounds that India receives annually as aid money from its coffers. This makes India the U.K.â€™s single largest aid recipient. Apart from seeing this as atonement for 200 years of British colonial rule, does it make sense in any other way? As the WSJâ€™s Paul Beckett points out in a recent article this is a paradox of India: â€œA giant country that both dispenses and receives aid, a nation touted as a commercial superpower that has more poor people than any other nation on Earth.â€ There are valid historical reasons why India has received aid and there are important strategic and economic reasons why we give aid. But their coincidence today is surely odd. Itâ€™s similar to receiving a loan from a bank and then giving away that money to charity. The objective for any country including India in providing aid and assistance to other countries has both strategic and economic dimensions. The ongoing crisis caused by the flooding in Pakistan â€“ for which India has announced it will donate $25 million â€” has elicited large pledges of support both from multilateral agencies such as the International Monetary Fund and World Bank and bilateral donors most notably the U.S. As a recent NYT article pointed out, the large U.S. assistance to Pakistan is at least as much about refurbishing the image of the U.S. in a strategically vital region. As for India, in a 2007 report by Canadaâ€™s International Development Research Center points out that we focus the vast bulk of our development assistance in our immediate neighborhood which includes Bhutan, Nepal and Afghanistan. In fact, Bhutan in the 15 years leading up to 2006, accounted for almost 30% of all Indian overseas aid. In addition, India is also a donor to several African countries with which we have long-standing ties. Indiaâ€™s aid programs have become more ambitious recently and are reaching out to regions where India wishes to exert more influence such as Central and Southeast Asia. Indiaâ€™s development assistance to these countries is typically not in the form of cash but is tied to areas such as infrastructure, capacity building, training, education and health. And often the money is used to pay for services and expertise coming from India itself. As to why we receive aid, this is really a hangover of the Cold War. India despite its non-alignment and friendly relations with the former Soviet Union was seen as basically well-disposed towards the West and as a bulwark against Communism in the region. Hence, it received massive amounts of aid from multilateral and bilateral donors. While no one will complain about being given â€œfreeâ€ money, we have to ask ourselves in a country with a thriving economy, booming stock and property markets, a rising number of billionaires, a sophisticated space program that aims to put a probe on the moon in a few years, does it still make sense to receive substantial amounts of foreign assistance? With the exception of major disasters such as Haiti and Pakistan which generate new monies, aid budgets are typically fixed in advance and have to be allocated across countries. Therefore, the allocation of aid dollars is a zero-sum game. Every dollar we receive is a dollar not sent to a country that is truly in need such as in sub-Saharan Africa. As an aspiring superpower and major emerging economy, itâ€™s a strange optic that weâ€™re a large aid recipient. Itâ€™s as if Mukesh Ambani still received pocket money from his mother. In todayâ€™s world, development assistance is primarily a tool of foreign and economic policy. It is certainly used this way by countries such as the U.S., Russia and increasingly China. India, too, is now showing signs of savvy in doing this as well, especially in our region. But how effective can we be at this game if we ourselves are being used as a tool of someoneâ€™s elseâ€™s aid game? â€“ Rupa Subramanya Dehejia is based in Mumbai and writes on the political economy of India. You can follow her on twitter @RupaSD.