Begging the Question: Foreign Aid and India

15 04 2008


Last week India announced a line of credit of US $ 5.4 billion to African countries for developing their infrastructure and meeting other development goals as well as duty free import scheme for 50 Least Developed Countries, of which 34 are in Africa. Apart from this the Government also announced a grant of US $ 500 million to African countries and doubled the number of fellowships given to students from African and Asian countries.

This was startling news for a country which has for long being among the largest recipients of foreign aid in the world. From the time of its independence till the early years of this century, billions of dollars have been sent to India by global development agencies and NGOs to finance a range of development work. From the large donors like USAID to small donors like the Swiss and Swedish agencies, India has for long remained the largest aid recipient in their annual budgets. Even in 2006-07, the Government of India received US $ 1.83 billion in net external aid, not counting the amount received by non-governmental bodies in assistance. But according to some estimates, India’s annual aid to other countries equals US $ 1 billion. These figures include loans and other credit instruments. Even if one considers only grants (which have no repayment), the Government of India receives about US $ 654 million from the world and gives out something in the range of US $ 150-200 million to other developing countries.

It is not that India has solved its problems with regard to poverty, malnutrition, health, shelter, education and public infrastructure. In fact, with a third of the world’s extreme poor and 40 per cent of the world’s malnourished children India ranks a lowly 128 in the UNDP’s Human Development Index. Looked at in absolute numbers, the figures are even more startling. India has about 700 million people who earn less than US $ 2 a day and close to 300 million earn less than one dollar! Eighty five million children in India are chronically malnourished and about 400 million of its citizens cannot read or write. Four out of five Indians do not have access to safe drinking water and sanitation too is beyond the reach of a vast majority.

Given India’s large population size, it has been referred to as a “swing State” by an international aid worker who said that the ability of India to achieve the Millennium Development Goals would decide whether the entire world achieves them. It is the massive size of absolute and relative under-development which marks out India from all the 188 countries of this world. It is this large development challenge which gets most donor agencies, developed country governments and international NGOs to invest money and energy in India to help it overcome its under-development. Whether this foreign aid really helps in ending poverty and underdevelopment is another story and we need not concern ourselves here with that.

So what is going on here? Why is the Government of India investing serious money in providing aid to other countries while itself being an aid receipient and with so many of its own citizens deprived of the basic rights of life?

To understand this seeming contradiction, it is necessary to move away from an understanding of the State and the Government as a representative of all its citizens working for the benefit of all. The State, any State, represents the concentration of political and armed power in the territory it controls. This power of the State is not derived from the institutions of the State (like police, army, bureaucracy, judiciary, etc) but from the social and economic power of the dominant classes in that society. In India, the dominant classes have been the industrial capitalists and the landed interests, in an alliance with the professional middle classes. The policies of the State represent the interests of this class alliance and to understand the growing appetite of the Indian State for effecting charity in Africa and Central Asia, it is necessary to understand the interests of these ruling classes.

The economic liberalisation which started in 1991 was an attempt by the State to free the industrial capitalists, sections of the landed interests which wanted to enter commercial agriculture and the urban professionals who wanted to get more for their management skills, from the limitations which had been imposed on them in an attempt to redistribute income. This is not to say that the earlier attempts at redistribution of income from the rich towards the poor (what was termed “socialistic pattern of development” by the Congress Governments and what is today called the “licence-quota raj”) was either effective or efficient. It constrained the productive forces hidden in capital and did not live up to its welfare promises due to the massive corruption in the entire State structures.

With the collapse of the Socialist State systems and the growing political power of the Indian elites, it was possible to do away with the fetters on capital that had hitherto existed. While this took away the already insufficient safety net of minor income redistribution for the poor, it unshackled capital to maximise its profits. Indian manufacturing and service sectors have grown phenomenally and Indian capitalists today are within touching distance of their global counterparts. The success of the economic liberalisation policy (for the capitalists) is evident in the massive concentration of capital that has taken place in their hands. Today, four of the ten richest men in the world are Indians, three of them based in India.

This growth of Indian capital and capitalist cannot be confined to within the country. To grow in the manner they have been and to sustain this growth, Indian capital needs to reach out to global resources and sell in global markets. It needs to invest its capital wherever the highest rates of return are promised. It has also to compete with European, American and Japanese capital(ists) who have been entrenched for much longer in all the nooks and crannies of the world, exploiting its resources and selling its wares. It is in this context that foreign aid comes handy. Foreign aid has for long been a preferred tool of expanding capital(ists) and their State(s) to enter new markets and protect old markets from competition. In this sense, foreign aid has the same function as discount sales and free gifts for retail customers. It has less to do with actual efforts to end poverty and more to do with capturing markets and resources.

India (and China) are slowly transforming from the old condition of aid receivers to aid givers. While China is already a net aid giver, India is still a net aid receiver. But the trend is clear. Almost all major donor governments and agencies have announced a reduction in the aid package to India while India is continually ramping up its annual aid programme.

This is but one indicator of the changing structure of the Indian economy, its State and the nature of its ruling classes. It is not for nothing that India is among the very few countries being seriously considered for full membership of the G-8 – the premier club of the world’s dominant economies.

~ ~ ~

This article was published in my weekly column in The Post on 16th April, 2008.




6 responses

15 04 2008
Allen Taylor

Nice writing. You are on my RSS reader now so I can read more from you down the road.

Allen Taylor

15 04 2008
Annual Credit Report on Credit Speak » Blog Archive » Begging the Question: Foreign Aid and India

[…] Begging the Question: Foreign Aid and India But according to some estimates, India’s annual aid to other countries equals US $ 1 billion. These figures include loans and other credit instruments. Even if one considers only grants (which have no repayment), the Government of India … […]

11 09 2008

Great post. As an Indian, It was really amazing to read all this.

8 01 2009

Good post. I was already aware of this seeming contradiction but it’s always nice to seem some more stats explaining the dire situation of most Indians. Keep up the good work.


9 02 2009
Foreign Aid or Foreign Investment | Reason for Liberty

[…] poor countries and hence reducing poverty of whole Indian Sub-Continent. Footnotes:India providing Foreign Aid to poor nations [↩]Wasting $50 Billion on Major Irrigation, Times of India [↩]World […]

21 04 2012

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