UK-India: Trade, ditch the politics of aid



Two years after then finance minister Pranab Mukherjee dismissed British aid as “a peanut” in the overall Indian budget, Britain is cutting its development assistance to India – an assistance that became controversial for political reasons.

Britain’s minister heading the department for international development (DfID), Justine Greening, was in India last week to break the news. But the decision to cut aid, currently around £280 million a year (compared to India’s poverty alleviation budget of £70 billion, hence Pranab’s ‘peanuts’ taunt) could not have been wholly unexpected.

Overseas aid is so unpopular among some British politicians that former foreign secretary Nirupama Rao once urged the Manmohan Singh government “not to avail any further DFID assistance with effect from 1st April 2011″ rather than live with the negative publicity. But British officials are said to have pleaded with Singh to continue the aid relationship during Prime Minister David Cameron’s visit to India in 2010.

The reason they were so insistent is mainly political, as this blog has reported before. Foreign aid is an article of faith with the British Left, including those from the Liberal Democrats – one-half of the coalition government that is led by Cameron’s Conservative party. To take up the governance mantle from Labour in 2010, the Conservatives had to project themselves as a caring party that could carry all of Britain.

As a result, the coalition manifesto promised to take British aid spending to 0.7% of gross national product. Aid to India – once the largest recipient – was crucial to meeting this target. So, when Britain’s finance minister announced a massive £81 billion public spending cut in 2010 (over five years) in a bid to reduce the country’s budget deficit, he made it a point to protect aid to India.

There were grumblings of disapproval from Conservative MPs. These turned into howls of protests (with some Labour MPs and union bosses joining in) in January this year, when India announced that it had picked the French firm Dassault as the preferred bidder for a $10bn (at the very least) contract to supply India jet fighters – among the world’s largest defence deals. In the process, New Delhi rejected the Eurofighter Typhoon, which is built by the German and Spanish branches of European aerospace giant EADS, Britain’s BAE Systems and Italy’s Finmeccanica.

The standard argument of British politicians is that a country rich enough to afford its own space and nuclear programmes can also afford to look after its poor, seemingly unmindful of the fact that India also pledged $10 billion to the IMF’s Eurozone bailout fund.

Now Britain is on course to achieving the 0.7% aid target next year, Greening told experts at global development agenda meeting in London last week. And Cameron, by announcing a cut in the Indian aid programme, is killing not two but three birds with one stone.

First, it appeases the restive and rebellious right wing of the Conservative party. Secondly, the amount saved from the Indian aid budget will probably go to poorer and, arguably, needier countries, which no one the Left can possibly quibble with. Third, it may also prove to be popular with ordinary Britons. It certainly won’t be unpopular – on the day the Guardian opened an online poll this week last week, 67% said they wanted to see an end to the Indian aid programme. And the Guardian leans to the left.

In any case, aid to India, for all its poverty, was rapidly becoming an anachronism in the British public mind, fed by daily reports of India’s growing economic clout. But ending this relationship, expected in 2015 when the current aid budget runs its course, will create a policy and resource vacuum that cannot possibly be in the interests of India’s poor. Indeed, leading experts are opposed to the idea altogether.

It’s not clear exactly how much the overall aid will come down by in the short-run or when the cut will be enforced. What do we know is that Greening is presenting the case for replacing aid with trade. However, trade alone – without an overarching development framework – is a poor substitute for well-thought out and tightly targeted poverty alleviation programmes.

Greening needs to do more than just talk trade – there are many in New Delhi and London who are far more capable of doing that. Rather, as the minister in charge of aid, she needs to present Britain once again as a friend and strong ally who would like to engage in India’s poverty-alleviation programme – not for political or business reasons, and never mind the grumblings MPs back home.

This has to be a true partnership between the two countries – and it will need to be scaled up rigorously to match their burgeoning strategic partnership.

British aid, in recent years, has become more focused than it used to be, and is therefore thought to be more effective. But India does not need “support” or even a “transition package” to move from aid to trade. Rather, the two countries need to reinvigorate their development partnership so that India (in the first instance) can help the world community meet the unmet targets of the Millennium Development Goals more energetically.

The existing partnership is working well. It has lifted 2.3 million Indians out of poverty in rural areas in the last five years, sent 1.2 million children to school and helped remove India from the UN’s list of polio-endemic countries. But (according to DfID) India still is home to a third of the world’s population living in absolute poverty – i.e. on incomes below $1.25 (80 pence) a day – and the average income is a third of China’s.

The India-Britain development relationship has been showcased as a long-term affair. Over time, it is expected to transition to a “mutual, two-way partnership on critical global issues, including trade, global growth, climate change, and food security.” That time is now. Indian officials and Greening have discussed their development partnership in New Delhi. Let’s hope that that doesn’t end this particular conversation – rather, that this is the start of something good. A quantum leap in development partnership must focus their minds. And minus the politics, please.

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