Development aid to India, about £280m annually, is becoming increasingly controversial. Concern began when Indian billionaires started to buy British companies and India embarked on a space programme. But Pranab Mukherjee, India’s finance minister, really set the cat amongst the pigeons. He recently declared “we do not require the aid. It is a peanut in our total development expenditure”.
Following on from this bombshell it emerged that Nirupama Rao, India’s (then) foreign minister, had suggested in 2010 that India shouldn’t accept any more DFID aid because of the “negative publicity of Indian poverty promoted by DFID”. But British ministers had apparently responded by saying they had spent so much political capital justifying the aid to their electorate, that it would be embarrassing if India just “pulled the plug”. So India is apparently accepting our aid, regarded by many Indians as patronising, unnecessary and counter-productive, in order to help DFID to save face.
Mr Mukherjee’s comments came to light when the Indian Government appeared to be opting for French fighter-planes rather than British, as if to add insult to injury. There have been howls of outrage. But we really should be listening to India’s politicians.
DFID shows uncanny similarities to Mrs Jellyby in Dickens' Bleak House. She was obsessed with her African project to the considerable detriment of her long-suffering family. DFID wants to be a leader against global poverty, irrespective of whether others follow or, more amazingly still, whether the recipients want our charity or whether the British people wish to pay for it.
India, just in case DFID hasn’t noticed, is an important and sizeable economy. It is now the fourth biggest economy in the world (in purchasing power parity terms), growing at 7-8% annually. Its domestic resources are expanding rapidly and are increasingly adequate to help the many still desperately poor Indians. Growth has not yet pulled all India’s citizens out of abject poverty. But surely the primary responsibility for providing the poor with a social safety net and equality of opportunity must now lie with the Indian state, not with foreign aid. Given the rapidly rising inequalities and the increasing number of billionaires and millionaires, India’s government has the scope to help the very poor.
The recent controversy about aid to India inevitably raises the bigger issue of the efficacy of development aid. (Humanitarian aid, which I unreservedly support, is a very different matter.) The developmental economist Peter Bauer claimed that such aid principally served to increase the power of governments, leading to corruption, misallocated resources and the erosion of civil society. He is well known for saying aid was “…an excellent method for transferring money from poor people in rich countries to rich people in poor countries”.
And in this context it is worth noting that Rajiv Gandhi (India’s Prime Minister 1984-89) estimated in the 1980s that only 15% of development aid reached the poor. If this is still the case, then just over £40m of our annual aid budget to India may reach the poor – the remaining £240m may not.
The Zambian economist Dambisa Moyo, one of Bauer’s intellectual disciples, has argued that the very substantial development assistance to African governments has fostered dependency, encouraged corruption and ultimately perpetuated poor governance and poverty.2 Foreign aid has therefore helped perpetuate the cycle of poverty, hindering economic growth in Africa, rather than helping. Foreign aid is therefore counter-productive and African governments would be better advised to foster law-abiding and business-friendly environments in order to stimulate growth. Growth, coupled with supportive trading relationships, could indeed “make poverty history”. “Trade not aid” has proved to be extraordinarily successful in doing just this in much of Asia, especially in East Asia.
DFID is, of course, aware of all these criticisms and it would be comforting to feel that it had a grip on the potential for fraud and corruption in its rapidly expanding aid budget. But as I wrote recently, this is far from the case. In that article I mentioned the Public Accounts Committee (PAC)’s highly critical report on DFID’s financial management. The report said that DFID “…does not quantify the likely level of leakage through fraud and corruption” and DFID “… still has insufficient data to make informed investment decisions based on value for money.” Moreover, the Independent Commission for Aid Impact (ICAI), the body responsible for scrutinising UK aid, commented that DFID showed a lack of a “coherent and strategic” response when dealing with countries which have a high risk of corruption.
Astonishingly Mark Lowcock, DFID’s Permanent Secretary, conceded that he did not know how much aid money had been lost to fraud and corruption when giving evidence to the PAC in July 2011. Clearly DFID is not “fit for purpose”. It should be reincorporated into the FCO, which included the aid programme before 1997, and the aid programme should be fundamentally reassessed.
In the meantime the trajectory of DFID’s budget is driven by the commitment to spend at least 0.7% of Gross National Income (GNI) on development aid from 2013 onwards. Reflecting the OBR’s downgrades to GDP growth last November, the projected budgets were revised downwards then. But they still show the aid budget will reach £11bn in FY2014, compared with less than £8bn in FY2010. Whatever view you take about the efficacy of aid, it clearly makes no sense to ring-fence a budget which is vulnerable to fraud and corruption and which some of the recipients don’t want. This is all the more the case when, with the exception of the NHS budget, all other departmental spending budgets have been cut.
In a time of fiscal austerity, a struggling economy and rising unemployment the generosity afforded to DFID is wholly misplaced. It’s quite simply bad politics. And remember that Mrs Jellyby, eyes fixed on Africa, didn’t seem to care when one of her children fell down the stairs and another got his head stuck in the railings.
* Dambisa Moyo, Dead Aid: Why Aid Is Not Working and How There is Another Way for Africa, Penguin books, 2010.