India Emerges as an Aid Donor

October 05, 2010
This is a joint post with Julie Walz. Last month, the Indian Express reported that India might not accept aid from the United Kingdom after April 2011.  India has been the largest single recipient of British aid, receiving more than €800m (about $1.25b) since 2008. This announcement is perhaps symbolic of the fine line that India is walking between being a “developed” and “developing” country.  It is the eleventh largest economy in the world, growing 8-9% annually.  But it is also home to one-third of the world’s poor—there are more poor people in India than in all of Sub-Saharan Africa. Nonetheless, over the past decade, India has quietly transitioned to a donor country, emerging on the world stage as a significant provider of development assistance.  In the mid-1980s, India was the world’s largest recipient of foreign aid.  Today foreign aid is less than 0.3% of GDP.  Seven years ago India announced that it would only accept bilateral development assistance from five countries (Germany, Japan, Russia, the UK, and the United States) in addition to the EU.  Now it appears that the list is dwindling.  India also declined international assistance after both the 2004 tsunami and the 2005 earthquake in Kashmir. Although there are no consolidated figures on the total foreign assistance that India provides, the estimates are rising.  India allocated approximately $547 million to aid-related activities in 2008. It is now the fifth largest donor to Afghanistan (with commitments over $1 billion since 2001) and is increasingly seeking out new recipients – India’s aid to Africa has grown at a compound annual growth rate of 22% over the past ten years.  India’s aid programs are increasingly including countries outside the immediate neighborhood of Afghanistan, Bhutan, and Nepal. These changes seem to reflect fresh attention to aid as an instrument of foreign policy.  India’s flagship aid initiative has been the Indian Technical and Economic Cooperation (ITEC), which provides training and education to scholars and leaders from developing countries.  There are more than 40,000 alumni of the ITEC program around the world; the hope is they have a friendly disposition to India that will be reflected in policies and bilateral relationships.  However, India is no longer containing itself to “soft power” influences.  Driven by competition with China and its own unprecedented growth, India has begun to focus on not only diplomatic influence but also on oil reserves and markets for goods, especially in Africa.  During the April 2008 India-Africa Forum Summit, India pledged $500 million in concessional credit facilities to eight resource rich West-African nations. Some observers argue that India would do best not to completely abandon its “soft power” approach. Much of India’s success in its relations with the developing world has been built through its traditional aid program and a shared colonial history with countries in Africa and elsewhere.   India should think twice before sacrificing this goodwill for mineral or other resources. More problematically, like China, India lacks an official definition of what counts as development assistance. No official records of aid disbursements are kept, either by the Ministry of External Affairs or the Ministry of Finance.  Aid flows through various channels and various agencies in an ad hoc manner.  And India has yet to join the OECD’s Development Assistance Committee (DAC), which would require better record keeping and compliance with international standard definitions.  India’s foreign aid program will likely be more successful if it engages with other donors, provides clear and transparent records of its activities, and participates as a full-fledged member of the global aid system, including joining the OECD-DAC.  Public information and records will not only allow India to receive due credit as an emerging player, but will also facilitate cooperation with other donors.  If India’s goal is to be recognized as a significant donor, it must start acting like one.


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