India – Aid Recipient or Donor?

According to the World Food Programme (WFP), India was its 15th largest donor in 2006, donating $52 million, much of it for Iraq and Afghanistan.

First came the criticism that India should not be spending money to feed others, when its own citizens are starving or malnourished. Then came the counter-arguments explaining why malnourishment would not be solved even if India did not give food away. Both miss the real point.

Endemic malnourishment in India as a criticism of India’s donations is no criticism at all. And to respond to it is to respond to the wrong criticism. Before I explain, some numbers on India’s economic aid program.

Each year India accepts about $5 billion in economic aid, mostly from 6 major bilateral donors, as well as the World Bank, IMF and other multilateral donors. In 2000 India was a net recipient of WFP money. However, India also runs a small but long-established aid program of its own.

In 2003, it became a creditor to the IMF (remember the 1992 balance of payments crises?). Early this year, India committed $50 million to Afghanistan, bringing total aid provided to over $600 million. In summer, India promised Nepal $218 million in economic aid, in addition to waiver of loans made for military supplies. Longer-term loans included $110 million to finance Indian exports in Africa, $500 million to West African nations, and help to Tajikistan to upgrade and operate the Farkhor Air Force base.

Food aid distributed through the WFP is part of a larger economic aid program, and must be viewed as such. It comes from the Foreign Ministry, so it would only be spent on economic aid. The question therefore is not whether this money would be better spent on India’s hungry or on Iraq’s. Rather, it is whether this money would be better spent through the WFP or through bilateral aid programs. Put another way, is India’s aid allocation substantially sound?

To answer that question, one must be clear on what economic aid achieves. Beyond the merely philanthropic, economic aid generates direct benefits, often through conditionalities such as political or economic favors. This is best done through bilateral aid. Second, indirect benefits include goodwill and greater legitimacy and power, particularly in multilateral fora such as the UN and WFP.

Returning to the $52 million donation to the WFP, there are few conditions attached to food aid so no direct benefits acrue. Since India does not distribute the food, and the biscuits do not seem to bear any Indian markings, we receive scant recognition and minimal goodwill.

Does the gift then have secondary benefits of greater power within the UN system? Unlikely, because the WFP is a largely independent organization that does not have a voting system similar to the UN security council or the IMF. The two things India gets are recognition that it is a donor country and a presumed commitment to the multi-lateral system.

This money may get us greater leverage in strategically important places – Sudan, Chad, or a gas rich Central Asian republic. However, given the small amounts involved ($52 million out of approximately $1 billion in economic aid), continued engagement in the UN seems sufficient to justify the WFP donation, or at least to not criticize it outright.

India has been eager to present its best face to the world – a self-reliant, powerful nation able to help itself and willing to help others. For this reason, when the Asian Tsunami struck, India first refused then placed conditions on offers for economic aid. And after Hurrican Katarina, India sent aid to the USA. In this game of economic aid, India may be somewhat premature in thinking it can play with the big boys, but it is important, nevertheless, to play the game.

In closing, I cannot deny that this money would be better spent on India’s hungry. I will be the first to admit to the dismal expenditure on food security, health and education in India. But as a well-off and well-fed middle class Indian I can safely (and hypocritically) say that foreign policy is important too, enough to justify a $52 million bill. Economic aid, to borrow a phrase, is politics by other means.

Some Notes

For those unfamiliar with the economic aid paradigm, the following may prove interesting.

  • The reason India accepts aid only from a few countries is that it does not like conditionalities, that economic aid usually comes with. Dependence of such conditionalities is perceived as a sign of weakness, something not fit for a powerful state. On the other hand, the status of aid donor is something fit for a powerful nation.
  • It may come as a surprise to many, but the United Nations hires employees through a quota system. Each country receives representation in the organization based on the proportion of the organization’s budget contributed by that country. As a result, US citizens have a 25% quota. More directly, the IMF gives each country’s vote (for example, in decision making on loans) weightage based on their budgetary contributions. For this reason, the major donors essentially control IMF’s decision making.
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    5 thoughts on “India – Aid Recipient or Donor?”

    1. I completely agree with your analysis that aid is a foreign policy tool. The broader public still does not seem to understand this, as is shown in the media’s discussion of aid policies towards countries such as India and China. Aid is a component of foreign policy of comparable importance to trade, diplomacy and the military. And in the same way, it can establish economic and political relationships between nations.

      China is a classic counter-example for India’s case. It is also both a recipient and donor. China however is arguably more willing to receive aid, and effectively uses it, to import technologies and establish trade relations. In Germany the question of whether aid should still be given to China is still hotly debated. But given the strategic and economic importance of China (as indeed is the case for India) surely no country can afford to shut down its aid programmes, as little as it can afford to shut down its embassies.


    2. As a delegate of the Model UN team at my high school researching the WFP programmes of India, I completely understand your point of view. However, it is my personal opinion that while India feels it needs to “play the game,” as you say, and prove itself as a word power, it houses half of the worlds hungry, and clearly needs to focus on its own malnutritioned populace before it decides to look charitable to the world community. Almost all of my research has led me to come to the overriding conclusion that a majority of the programmes employed through the WFP New Country Programme in India are for its own sake, as they should be. Though I would never criticize India for helping Afghanistan and Iraq in the combat against malnutrition, I would much sooner applaude the recognition of a fundamental need to nourish its own republic first.

    3. Hannah,
      Thanks for your comment. You’re absolutely right that India needs to tackle domestic problems, and the ‘intellectuals’ and policymakers here do understand the need to address health and food security. I too would be happy to see those solved.

      However, as a model UN delegate I’m sure you know better than I that addressing domestic priorities and acting like a power are not mutually exclusive. The two are about tradeoffs, and India – like all countries – makes resource allocation decisions based on those tradeoffs. As I point out, the choice is not ‘either-or’. Foreign aid is a tool of foreign policy, providing e.g. energy security when directed to Sudan, and therefore, will exist regardless of the domestic situation.

      I should have a post up soon with numbers on what India gives and where – will appreciate any India specific insights you have.

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