Foreign Aid: India Moves From ‘Aid’ To ‘Trade’ With Its Donors

Foreign Aid: India Moves From ‘Aid’ To ‘Trade’ With Its DonorsIt is now beyond doubt that India is emerging as a strong economy. The traditional approach of market-based economic reforms adopted by India since 1991 has stood the country in good stead in recent times when most of the developed nations such as the US and the UK have found it tough to tide over the global economic crises. According to a PwC report, India may well overtake the US in terms of India’s GDP in purchasing power parity by 2045.

But it is not the time yet to send out invites for the gala event. India may well be on the path to self-reliance, but its two biggest threats – in some way intertwined – are the changing political equations and international debt.

Then there’s another factor we cannot ignore. Indian population is about to reach 1.27 billion this year and will soon overtake China that happens to be the country with the highest number of mouths to feed. India, with an economy of $1.842 trillion and a GDP of $2.55 trillion, carries a national debt of 78%. Even a novice can pinpoint this as a ‘danger’ zone. However, India’s debt is just 129% of its GDP (if that’s any solace) while China’s stands at 158%. Overtaking India on this front are Greece and Ireland.

But overall, India, which has been enjoying the status of the IT superpower across the world with the highest number of software companies in the country and trained professionals spread across the globe, is on the path of recovery and growth, much to the surprise of all economists and financial soothsayers.

Despite the fact that every Indian citizen carries a debt of about Rs 50,000 (approx $808) while poverty and hunger still remain the key issues that must be tackled more efficiently, India was brave enough to tell the UK that it didn’t require any foreign aid from Great Britain. This became a raging discussion among British politicians and policy makers who said India was turning down £280 million in foreign aid at its own peril.


What caused this uproar from Britons and what led to such candid attitude shown by India? Simply put, when a country receives foreign aid, it is supposed to use the aid to meet the basics. For instance, the country has to build the basic infrastructure, provide basic education to its citizens, put systems in place that can ensure safety and food security, and create windows for other countries to participate in the progress of the receiving country. The United Nations has urged the developed countries to spend nearly 0.7% of their national income on aid to nations that live on lesser fortunes and need help with these problems.

In India’s case, all the above was true till about a few years ago when the country was only at the ‘receiving’ end. Historians can argue on who said it first, but the UK was forced to take a stand on stopping foreign aid to India after the latter launched its own space mission to Mars last year.

Even the US aid to India has consistently dropped in the recent years – from around $127 million in 2010 to $98.3 million in 2013. Adopting a more diplomatic approach, the US strategically turned India into its potential ally and said that the progress India had achieved ‘creates an opportunity to evolve the traditional donor-recipient model of development into a true partnership.’ India’s rapid growth is, indeed, phenomenal in view of the fact that it is the same country that used up nearly $55 billion in aid during 1951-1992. For a country that struggled to execute its progress charters into the second Five-Year Plan in 1958, the UK had offered some $40 million in foreign aid. But today, the Indian economy has turned so robust that the country has had the confidence to say ‘No, thanks’ to British aid, which will be completely stopped from 2015.

The criticism from the British side came in the wake of India turning into a ‘donor’ to countries that have been on the brink of poverty and social crises, such as Afghanistan. India has approved developmental projects in Afghanistan to the tune of $100 million as part of India’s $2 billion aid package to the war-torn nation. In 2010, India extended an aid package of $1 billion in the form of credit to neighbouring Bangladesh while offering a credit of $5 billion to the African nations.

In the recent years, India has significantly ramped up its spending on social welfare schemes and rural development projects, with an objective to achieve comprehensive development. “Aid is past, trade is future,” one of the Indian ministers said, and that seems to be the way ahead. Powered by its newfound economic growth, modern India is surely looking beyond aid.