A small debate has broken out in Britain as to whether it makes sense to be paying a quarter-million pounds a year in aid to India when the latter is buying £15 billion worth of warplanes and non-British ones at that. This is a storm in a teacup compared to Egypt where the US has warned that if Cairo goes ahead with plans to try some American NGO activists, roughly $1.5 billion in annual aid would be endangered. The Britain-India debate is a caricature of a debate over foreign aid that is decades old. Conservative groups in rich countries have always opposed aid as they see it as an extension of the welfare State. Developing country elites dislike aid because it smells of dependency, neo-colonialism and reminds them of domestic policy failure.
Nonetheless, foreign aid deserves to be re-examined at a time when emerging economies like India, China and Brazil are seeing their incomes rise dramatically and the developed countries are experiencing economic stagnation. First, it is not untrue that foreign aid is the equivalent of peanuts in the larger global financial system. The world’s total foreign aid came to about $150 billion in 2010, easily dwarfed by other North-South capital flows like investment, trade and remittances. Second, it is nonetheless nonsensical to argue, as it seems the Indian foreign ministry once did, that India should reject foreign aid because it feeds an image of poverty. Such poverty exists in India and Potemkin villages should not be built around it. In the 21st century, development assistance in countries like India is not about numbers. It is about helping plug niche areas where market-driven capital does not percolate. It is also about empowering marginal groups — though this treads on sovereignty concerns — with regard to the resources they should be getting from their own governments. Finally, it is about adding new ideas in development to a general pool. New ideas merged with small aid funds can have dramatic impacts: remember the Green Revolution.
Aid, in the present global context, should be about poor people rather than poor countries. That pockets of wealth should co-exist with swathes of poverty is increasingly common in the developing world. The provision of aid is politically trickier because it must walk a tightrope between elite narratives and continuing deprivation. Concepts like 'tied' aid are increasingly disappearing from the scene, as is aid linked to supposed reciprocal economic activity. If the spirit of charity or a recognition that "a rising tide raises all boats" is not enough for a government to convince its people why it should provide aid, it makes sense to strike it from its foreign policy agenda and find some other means to make a contribution to the general good.