Why the End of British Aid to India Won’t Matter

The British international development secretary, Justine Greening, recently announced that all assistance from the UK to India will end by 2015. The withdrawal of foreign assistance from India’s largest donor affords an opportunity to reflect on the role British aid (indeed, all foreign assistance) has played in Indian economic development, and on how Indian anti-poverty programs will evolve in the absence of foreign aid.

The Indian beneficiaries of UK aid programs will inevitably feel the loss of the experimentation and risk-taking that characterized UK aid. On the other hand, India has also been moving away from more fragmented anti-poverty programs traditionally supported by donors towards more centralized, universal schemes. But these reforms require increasingly sophisticated management and accountability mechanisms — something donors have had limited success in supporting. While the absence of British aid may leave a small hole, it will not affect India’s anti-poverty efforts.

To put the aid stoppage in context, consider that UK assistance comprises about 15 per cent of all foreign aid received by India. The UK gives slightly less than 10 per cent of its foreign aid to India. This makes India the largest beneficiary of UK aid and the UK the largest donor to India. Given the current state of the British economy, it is only natural the UK would be forced to reconsider its assistance to fast-growing countries such as India. Indeed, other donors may soon follow suit, forced by fiscal constraints. In the U.S. foreign aid may be cut due to “budget sequestration”, under which all government programs will be subject to across-the-board cuts.

More than half of official aid from Britain to India went to programs focused on education, health, nutritional programs, and water and sanitation access. In relative terms, these are not large amounts (the $450 mission in total annual British aid was about 0.04 per cent of India’s GDP). Despite some prevailing views that the Department for International Development was merely a source of British “soft power” or that British aid simply supported British strategic and commercial interests, the evidence suggests that Britain has been one of the better-behaved donors. According to a joint assessment of the Washington-based Brookings Institution and the Centre for Global Development, DFID performs quite well when ranked against other donor agencies on measures of efficiency, institution-building in recipient countries, keeping administrative burdens to a minimum and ensuring transparency.

British aid was also an invaluable source of piloting, access to knowledge and risk-taking. The Business Innovation Facility funded by DFID is a decent example of this—a programme that supported companies as they developed and implemented “inclusive” businesses that expanded opportunities for the poor. This was an example of foreign aid at its best: a gateway to current information, a clearinghouse for insights on good practice, a resource for businesses, and of course, targeted financial support.

On the other hand, British aid—and most foreign aid—has achieved only modest success in helping countries such as India make the transition from a multiplicity of narrowly targeted interventions, transfers and subsidies to a comprehensive welfare system. Both bilateral and multilateral aid to India may be rightly criticized for placing too much faith in these narrower instruments.

Many observers have long pushed for more comprehensive social policies based on universal provision of essential services in India, and for less reliance on narrower social programs. The latter have not served India well. In the past two decades, for example, India has grown much richer than Bangladesh and Nepal. But during the same period, both countries have overtaken India in terms of life expectancy, infant mortality, fertility rates, immunization rates, and female literacy. India’s expansion has been characterized by Jean Dreze and Amartya Sen as “growth without development”. In recent years, the Indian government has moved to consolidate social policy through nationwide multi-sector programs such as NREGA. But the local bodies largely responsible for administering them continue to suffer from capacity weaknesses. It is in governance and institutional capacity-building at the local level that foreign aid has had less impact.

While few in India may shed tears over the end of British official aid in India, the occasion should also provide an opportunity to double efforts to reform the public institutions that govern social policy and poverty alleviation.