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Trade alone cannot replace aid

Britain and India must reinvigorate their partnership to meet the unmet millennium development goals. Dipankar De Sarkar writes.

india Updated: Nov 07, 2012 23:34 IST
Dipankar De Sarkar

Two years after then finance minister Pranab Mukherjee dismissed British aid as "a peanut" in the budget, Britain is apparently 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, is in India this week to break the news. But the decision to cut aid (£280 million a year, compared to India's poverty alleviation budget of £70 billion) could not have been 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 April 1, 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 2010 India visit.

The reason they were so insistent is mainly political. 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 cuts in a bid to reduce the country's budget deficit in 2010, he made it a point to protect aid to India.

But the murmurs of disgruntled Conservatives turned into howls of protest in January, when India announced that it had picked the French firm Dassault as the preferred bidder for a $10bn contract to supply jet fighters - among the world's largest defence deals. In the process, New Delhi rejected three other bids including Britain's BAE Systems.

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

Politically, it appeases the right-wing in the Conservative party, while the amount saved from the Indian aid budget will probably go to poorer and, arguably, needier countries, which no one the Left can quibble with. It may also prove to be popular with ordinary Britons - on the day The Guardian opened an online poll, 67% said they wanted to see an end to the Indian aid programme.

Ending this relationship, expected in 2015 when the current aid budget runs its course, will create a policy vacuum that cannot possibly be in the interests of India's poor.

It's not clear exactly how much the aid will come down by in the short-run or when the cut will be enforced, but apparently Greening will present the case for replacing 'aid with trade'. However, trade alone is a poor substitute for 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 - never mind grumbling MPs back home.

British aid, in recent years, has become more focused than was the case previously, 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 can help the world community meet the unmet targets of the Millennium Development Goals more energetically.