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General Who, What, Why: Why Does The UK Give Aid To India?


Cleverness is not wisdom
May 2, 2010

The government is expected to freeze the level of assistance given to India at £295m ($480m) a year. But why does a nuclear power with its own space programme need British aid?

In a widely-signalled move, it is anticipated that International Development Secretary Andrew Mitchell will announce the amount of aid given to India will be maintained at 2009/10 levels.

But the decision has attracted criticism from newspapers and politicians who say the UK taxpayer does not need to donate to a state that is itself a foreign aid donor, which is classified by the World Bank as a middle income country (MIC) and whose economy is growing at nearly 10% a year.

However, advocates of aid say a third of the planet's population who are below the World Bank's extreme poverty line live in India. They also argue half of all children in the country are malnourished and it does not have the tax base to eliminate poverty though internal wealth redistribution.

Andy Sumner of the Institute of Development Studies says: "If UK aid was reduced, there is no guarantee that the funding to the poorest states where most of India's chronically poor live would be topped up by the Indian government."

Although the Department for International Development's budget has been unaffected by the government's spending cuts programme, the UK is expected to stop direct aid to 16 countries, including Russia, China, Vietnam, Serbia and Iraq.

The decision to exclude India from this list has provoked attacks from those sceptical about whether this increasingly important economic power is really a worthy recipient of development cash.

Indeed, there is little doubt the nation is experiencing a boom. Its economy is expected to grow by 9% in 2012, social spending funds are also set to increase by 17% and in 2009 it was upgraded by the World Bank from "poor" to an MIC.

The Indian military has conducted nuclear tests, the country operates its own space programme and, according to Forbes magazine, it has more billionaires than the UK.

Moreover, India is itself a foreign aid donor, providing more than £300m ($500m) to poorer countries in 2008.

Conservative MP Philip Davies argues the decision to continue funding the country is indefensible at a time when the British taxpayers are experiencing a spending squeeze of their own.

Massive inequalities

"India spends £36bn a year on defence and £750m a year on its space programme," he says. "What's more, India is one of the fastest-growing economies in the world. It's completely unjustifiable, especially at this time."
However, supporters of the continued aid insist this argument ignores India's massive inequalities.

Its middle-income status, they say, is irrelevant, given that 72% of world's poorest people - defined by the World Bank as those earning less than $1.25 (77p) a day - live in MICs.

Indeed, India has more people in poverty than the whole of sub-Saharan Africa. Its per capita gross national income in 2009 was £725 ($1,180) compared with £25,509 ($41,520) in the UK.

Additionally, the sheer number of people in poverty in India means that it is crucial to achieving the UK's international poverty reduction targets, ministers say.

Mr Mitchell told the BBC's Politics Show that if the government were to meet its eight Millennium development goals - including eradicating extreme hunger and reduce child mortality - it would have to "operate where poverty is greatest".

Moreover, although the country may have a small super-rich elite and a growing middle class, its capacity for wealth redistribution remains limited according to a 2009 World Bank report. It found that even a 100% marginal tax rate on Indian earnings would only plug 20% of its aggregate poverty gap.

"The case for continued UK aid to India is about a third of all the world's poor who live there," says Dr Sumner. "These 450 million poor people are often lower caste and very marginalised."

The debate is sure to continue. But given that the Indian government has debated whether it wants to continue receiving UK aid, the final word on the matter may not come from British shores.


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