Ranjani Iyer Mohanty's Blog

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MARCH 12, 2012 5:13AM

The Fanciful World of Foreign Aid

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The recent revelation of India's finance minister Pranab Mukherjee’s comments that India doesn’t need British aid has raised some shackles in Britain and led to some proud strutting in India. And that’s very understandable. Why should Britain continue giving aid to India? And why should India want it? Because the whole concept of aid is changing.


Robert Zoellick, President of the World Bank, recently said, “The flow of knowledge is no longer North to South, West to East, rich to poor”. The same is true of aid.


Foreign aid is no longer a transaction of rich countries giving to the poor. The categories of donor and recipient have blurred. A donor one moment may be a recipient the next. Like Brazil, Russia, and China, India both receives and gives aid. For example, India gives aid to Bangladesh, Sri Lanka, and Afghanistan. In fact, India is in the process of setting up its own aid agency (the Indian Agency for Partnership in Development) to oversee a spending of over $11 billion over the next 5-7 years.


Foreign aid is no longer (if it ever was) given solely for the objective of alleviating poverty. It’s more a case of people giving each other presents. The giver rarely gives a present because the receiver desperately needs it and cannot afford to buy it himself. He does it to establish a relationship, to stay in the other’s good books, to have an ally in time of need, and to have influence in time of crisis. So perhaps the term to use is not ‘aid’ anymore, but rather we need to coin a new term that combines the meaning and objectives of aid, investment, and gift.


These changes in fundamental constructs in the realm of foreign aid seem to be the result of a deeper underlying shift that was highlighted by Andy Sumner of the Institute of Development Studies. In his paper Global Poverty and the New Bottom Billion, he explains that, whereas in 1990 the vast majority of the poor people (93%) lived in poor countries, now most of the world’s poor people (75%) live in middle-income countries. He makes this insightful remark: “… poverty is increasingly turning from an international to a national distribution problem, and that governance and domestic taxation and redistribution policies become of more importance than ODA (official donor assistance).”  This is a telling indictment on India.


In actuality, India no longer needs foreign aid. In 2009, India moved from what the World Bank classifies as a low-income country to a middle-income country. It has a thriving space program and healthy foreign exchange reserves. Its economy is growing at 7% and it has more billionaires than the UK.


On the other hand, even if we accept the Tendulkar Report’s low-ball figure of 37% of Indians living below the poverty line, that is still over 400 million poor people. The Prime Minister himself released a report last month saying that 42% of children under the age of five are undernourished. The vast number of India’s poor is not a result of India being a poor country – because it no longer is. It is the result of inequality. To alleviate poverty, India doesn’t need foreign aid. It just needs to redistribute its wealth internally. However, so far, for whatever reason – apathy, inefficiency, corruption – it has failed in this.


So while Pranab Mukherjee’s arrogantly phrased comments of not needing British aid – nor any other aid – may well be true, he may be better advised to aim his arrogance and energies at improving the workings of his government to alleviate the poverty within his own country. Until then, India may actually need foreign aid. Alan Duncan, UK’s Minister of State for International Development, said that cancelling their aid program to India “would mean that hundreds of thousands, if not millions, of people will die who otherwise could live”. Shamefully, that may be partly true as well.


From Britain’s point of view, aid (or at least not in such quantity) was never given just because India was poor. So why should it stop giving aid just because India is no longer ‘poor’? Of course, to maximize the impact for both sides, it may wish to give the aid in a more focused manner, demand more accountability, as well as put in a clause about specific jets. From India’s point of view, until we can help our vast and growing number of poor people, perhaps we need to practice some humility. In spite of what the underlying motives of foreign aid may be – trade, security, friendship – and until our own government gets its act together, at least that money can feed some hungry mouths.

(This article was original published in 'India Ink', at NYTimes.com)


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Thank you for sharing this thoughtful post. What a difference since 1990; it sounds like many countries are facing a similar challenge of how to redistribute their resources to help their own people in need.
India's economy is growing faster than Britain's. It's an economic powerhouse like China and should be able to take care of its own. Wouldn't you assume most of that money likely gets swallowed up by corruption and bureaucracy? Countries with space and defense programs don't need help and the whole concept is laughable; foreign aid isn't about helping anyone, it's about influence. Then again, why would you look a gift horse in the mouth, even a lame old one like Great Britain.
You may want to check out this project (the last one listed on the page) and its related publications:

You're exactly correct.
Thank you for your comments Everyone.

And Razzle Dazzle, many thanks for the link. A real treasure house of fascinating information!
well written! I have wonderful memories of the time i helped setting up a hi-tech design center in New Delhi...as for the brits a not so small numbers of your top people are still showing to be "shackled" to them :)
Thank you Roberto.

By the way, I love the view from your Tuscan home and also the name of your blog, 'Dubito Ergo Sum'; it seems to describe me so well :)
Hi i m reyesknox. I m very to happy to be a participant of this community. You are making a wonderful post about "power of the word".
Hi, this is James Jantz
Thank you for writing about this, and "the lady" has certainly been an example to all politicians that they should aspire to.
I read your most of the blogs..You are rocking always...Keep on your blogging..Waiting for your next step...
Kurt Penberg