India and the Politics of Aid

Soon after the Indian Air Force rejected the UK’s Eurofighter Typhoon jets in favor of the French Dassault Rafale for its US$20-billion medium multi-role combat aircraft project, considerable rancor surfaced in Britain over sending aid to an increasingly prosperous India.

The decision has kicked off a major discussion in both India and the UK about the nature of aid. Andrew Mitchell, the UK’s Secretary of State for International Development, acknowledged that the focus of the £250 million annual payments included seeking to sell the Typhoon, which is in violation of the stated rationale of British overseas aid “to fight poverty and promote health and education.”

The real reason behind the irritation, analysts say, is not so much the millions of pounds sterling in aid to Delhi but the fact India signed the deal with France for the Rafale fighter jets despite the fact that British aid to New Delhi is nearly 15 times more than Paris’s. Prime Minister David Cameron is vowing to persuade Delhi to reconsider.

The aid debate is fraught with other questions about the very nature of aid. Conservative groups in rich countries have always opposed aid as they see it as an extension of the welfare state. Developing country elites, on the other hand, are inimical to this outreach initiative because as a columnist put it, it smacks of “dependency, neo-colonialism and reminds them of domestic policy failure.”

In other words, the episode has necessitated a reexamination of foreign aid at a time when emerging economies like India, China and Brazil are growing in economic and geopolitical heft, while the developed countries are experiencing economic woes.

“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,” said an editorial in the Hindustan Times.

Does it make any sense, the anti-aid lobby in Britain is arguing, to lavish that kind of annual aid on a burgeoning superpower that is snapping up expensive warplanes, has a defense budget that tops US$30 billion, a figure that has more than tripled since the 1998 nuclear blasts, and is seeking to put the first Indian astronauts into space by 2016?

Besides, the anti-aid crusaders point, India has 153,000 US dollar millionaires — 20 percent up in a year, compared with Britain’s own meager increase of less than one percent. Plus, such is the economic power of India that it now gives out more foreign aid than it receives, and has handed over £ 3.5 billion to cement relations with Africa. So why does it need aid?

There was outrage in India too. The blogosphere erupted with toxic comments over British expectations. “It is a clear case of misplaced expectations. India is not a British colony; it decides its own policy,” commented one blogger. “Its time the British came out of their colonial mindset and stopped behaving like a feudal master.”

France, meanwhile, has been gloating over the sale of the Rafale -- called “the white elephant of French arms manufacturing” -- with embattled President Nicolas Sarkozy, who faces a bitterly contested election later this year, trumpeting it as a “major boost” to the French economy.

To buttress its argument in support of canceling all aid to India, the anti-aid groups in Britain raked up finance minister Pranab Mukherjee’s last August statement in the Rajya Sabha (upper house) where he had mentioned that India did not need British aid as it was “peanuts.” “We do not require the aid. We will voluntarily surrender it (if the UK decides to cut down the aid)… It is peanuts in our total development exercises (expenditure),” Mukherjee had said.

The Sunday Mail quoted a leaked memo which reportedly said the then foreign secretary, Nirupama Rao, proposed not to take any further assistance from the UK’s Department for International Development (DFID) with effect from April 1, 2011, because of the negative publicity generated by the agency regarding Indian poverty. The paper added, quoting official transcripts, that the British government then “begged” India to take the money.

According to India’s aid policy, the nation is not in favor of Overseas Development Assistance or bilateral aid that creates repayment obligations. In 2003, it said it was not keen on tied aid, though bilateral aid is considered kosher from G-8 countries and EU. For non-EU European countries, “aid is acceptable only if it is above US$25 million annually”.

However, with the two-way arguments threatening to snowball into a diplomatic crisis, New Delhi has been trying to downplay it, saying that its decision to buy Rafale jets over Typhoons was made purely on “technical grounds”. For instance, it is being pointed out the "life cycle cost" of operating the Typhoon over a 40-year period, with 6,000 hours of flying, was found to be "higher" than Rafale after extensive calculations of flight costs, spares, maintenance and the like.

However, a section of defense analysts said the choice of the Rafale’ over Typhoon is a “strategic blunder”. “There is a clear disconnect between the MEA and MoD (ministry of defense) on the matter,” said one expert. “Costs appear to have outweighed their final choice and not strategic considerations.”

More than anything else, the arguments and counter arguments over the jet deal underscore the macro debate over the politics of foreign aid, not to mention the unarticulated expectation that the donor’s “favor” will be reciprocated by the receiver in the form of some economic tradeoff.

“The Typhoon episode is strongly reminiscent of the concept of 'tied' aid, or a quid pro quo expected by the donor party,” said NGO activist Sudhakar Bokade formerly with the Indian army. “It is ridiculous of Britain to expect that India would award it an expensive defense contract purely out of obligation. This expectation totally kills the spirit of charity. It is far better to strike the aid off from one’s foreign policy agenda than give in to such sentiments.”

Bokade added that aid should be about poor people and the social transformational potential they embody rather than “blatant commercial tradeoffs”.

There is another pertinent aspect to the aid conundrum as pointed out by The Guardian in a recent article. “Underlying the debate raging over British aid to India,” said the newspaper, “is the myth that the subcontinent's strong, market-driven growth of the past two decades has pulled hundreds of millions out of poverty…In reality, since 1991, during which time India has experienced the highest growth in recent history, there has been no significant reduction in poverty or hunger. Two in every five children remain malnourished.”

The paper argues further that “the neo-liberal policies unleashed by Prime Minister Dr Manmohan Singh, when he was finance minister in the early 90s, have widened class disparities obscenely”.

In other words, Bokhade said, it would be morally wrong of the UK to terminate aid to India as it hosts the largest number of the world's poor.

“London should fulfill its obligations to set right the gross structural imbalances that continue to plague the world despite tectonic shifts in power between the so-called rich and poor nations,” the activist concluded.