Should India hand out economic aid?

Business Standard, September 13, 2011
More than half of India’s children are malnourished
India proposes to dole out $11 billion in economic aid via a new agency under the aegis of the Ministry of External Affairs . Should it?

Charity begins at home, but the compulsions of becoming an emerging superpower means that you need to start spreading the wealth outside of your doorstep. Or, at least such has been the thinking that some people say is the real reason underlying why countries dole out economic aid.

And so, the Ministry of External Affairs recently announced the creation of an Indian Agency for Partnership in Development (IAPD), forged in the image of United States Agency for International Development (USAID) or the UK’s Department for International Development (DFID), and is likely to distribute around $11 billion to the LDCs, particularly African countries, in the next four to five years.

The proposed IAPD would have the foreign secretary, finance secretary and commerce secretary as core members, in addition to another 50 members, who would be selected by the Cabinet Committee of Appointments, officials said. “We are one of the key players in the world economy now and we should offer grants to countries that need them. There is no race in this with any country. We have been doing so for a long time now. The new agency would only subsume all these activities,” says a senior official from the Ministry of External Affairs.

That’s all well and good, but India is still a desperately poor country. About 300 million people here are below the poverty line and we have one of the highest rates of malnourishment in the world—worse than sub-Saharan Africa. One out of every three malnourished children is found in India, according to UNICEF. A staggering 43 per cent of the country’s children under the age of five are underweight and 70 per cent are anaemic, as per the National Family Health Survey data.

Considering these immense hurdles to overcome, does sending money to other countries make sense?

If you view foreign aid as a political and diplomatic tool—in fact, a weapon to wield influence over much needed resources on the world stage—then this makes increasing sense. China, for instance, has become famous for deftly using its ‘soft power’ to gain access to vital trade access routes and raw materials. By this token, India may need to play the game as well. “The reported decision to set up a fund of $11 billion or so is clearly designed to make India a bigger player as an aid giver, commensurate with its rising stature on the global stage. While the nature of aid to be given is still to unfold, it is likely that the aid will be linked to India’s commercial interest,” said Anwarul Hoda, professor, Indian Council for Research on International Economic Relations (ICRIER).

According to Global Humanitarian Assistance, foreign aid from Brazil, Russia, India and China (formerly BRIC) has more than doubled from 2005-2008. China provides aid to resource-rich regions such as African countries mainly for infrastructure development while economic aid from India to other countries is mostly in the form of lines of credit (LoC), grants-in-aid, technical consultancy, development projects, education programs, information technology cooperation, training programs, capacity building and humanitarian aid. India’s aid is diversified in regional terms.

India has more than 140 lines of credit (LoC) to 74 countries. Last year Prime Minister Manmohan Singh announced $5.8 billion worth of LoC to Africa for infrastructure development. India also includes programmes like Indian Technical and Economic Cooperation Program (ITEC), the Special Commonwealth Assistance for Africa Program (SCAAP) and the Technical Cooperation Scheme (TCS) under the Colombo Plan. Main beneficiaries of ITEC were Bhutan, Afghanistan , Nepal, Africa, Sri Lanka, Myanmar, Eurasian Countries, Maldives and Bangladesh on which more than $10 billion have been spent.

The country has come a long way since the 1980s, when India depended heavily on foreign aid. Now it constitutes 0.3 per cent of the gross domestic product (GDP). In 1992, India secured an emergency loan of $2.2 billion from the International Monetary Fund (IMF) as it was reeling under the severity of balance of payment crisis. But since 2003, the tables were turned when India became a net creditor to the IMF. As per certain estimates, India receives £280 million worth of loans per year from DFID, $200 million from Asian Development Bank (ADB) and in 2010-2011, India obtained $5.5 billion from the World Bank for social sector development Today, “India receives loans and not grants. India is not a major recipient of unilateral grant money,” says Commerce Secretary Rahul Khullar.

Some feel that India’s assistance could be very timely and much needed. “Facing domestic resource crunch due to the ongoing financial and economic crisis, the developed countries may be unable to offer substantial economic aid to the developing countries. Emerging donors like India will have to play an important role in this regard. India is transforming from an aid-recipient to an aid-donor,” said Gurpreet Singh Bhatia, associate fellow, Research and Information System for Developing Countries (RIS).

However, post some of the largest financial scams in Indian history, the question that looms over the IAPD, is whether there will be any mechanisms put in place for accountability of aid money. This is especially crucial, since the agency will be involved in a mammoth public procurement process, with billions of dollars worth of goods and services at stake via contracts that range from infrastructure development to public health initiatives. IAPD “would be effective if the proposed body is made autonomous having arms length relationship with the MEA and board members as government nominees,” says Pradeep Mehta, secretary general of Jaipur based nongovernmental organisation CUTS International.

Perhaps, one solution is to bring the entire process under the aegis of the Right to Information Act to ensure transparency. Another idea is to enact a procurement law. Anything else will result in simply handing over taxpayer’s money to corrupt politicians and administrators.

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