Select Committee on International Development Memoranda


Memorandum submitted by the Department for International Development (DFID)

A.   India in the World

India is home to a sixth of the world's population, and has made good development progress over the last two decades. India's economic growth rate of 5.5% since 1980 puts it among the top ten performing economies in the world. Other achievements include a robust democracy, a satisfactory balance of payments, significant increases in life expectancy and literacy, self-sufficiency in food, abundant foreign exchange reserves, and a high growth rate for the export of services, especially information technology.

India plays an important role in regional and global issues, including migration, peacekeeping and trade. It is influential in the UN and G77 and is a key player in the WTO. India worked with coalitions of developing countries to influence the outcome of the WTO 'Development Round' Summit in Cancun in 2003. At least 2 per cent of Indians live outside India and are a growing cultural influence worldwide, as well as a source of investment and remittances for India.

The UK is committed to a mature and modern bilateral relationship with India, a relationship that recognises India's standing as a key international player and an increasingly open society with a vibrant democracy. Emerging areas of cooperation include pro-poor economic growth, trade and international markets, climate change and other global environmental and energy issues.

As India establishes itself as a provider of development assistance, DFID India will seek to exchange information on development practice, and to benefit from India's extensive knowledge of other developing countries through its diplomatic and business networks. DFID India looks forward to continuing to strengthen our working partnership with the Government of India (GoI) to meet the internationally agreed MDG targets for India by 2015.



B.   The case for aid to India

1.   The rationale for, and added value of, aid to India, taking account of its needs and those of other recipients of development assistance.

The Millennium Development Goals (MDGs) will be won or lost in India. India is home to over a quarter of the world's extreme poor, and progress towards poverty reduction in India is essential if the MDGs are to be met globally. The case for aid to India is strong.

DFID aid allocations are informed by a combination of factors, including population, income poverty, and the policy environment/performance. Research (e.g. Collier and Dollar) suggests that aid is most effectively utilised where there are large numbers of poor people, the policy environment is sound and there is scope to influence policy direction.

India stands up well to these criteria: it has around 350 million people living in extreme poverty; the Government of India is committed to poverty reduction; and the policy and institutional environment is relatively good. DFID supports country-owned poverty reduction strategies and country-led development. The Tenth Plan is the Government of India's policy and strategy document for poverty reduction and growth, and forms the basis for development cooperation between GoI and DFID.

India's relatively high economic growth and foreign exchange reserves are sometimes used as arguments against external funding. But the benefits of economic growth have been uneven, with growing disparities and persistent chronic poverty, and the sheer scale of the poverty challenge in India is still immense.

At less than 0.35% of India's GDP, external assistance is relatively small compared to the resources at the disposal of the Indian Government. DFID adds value at the national level by working with other bilateral donors and multilateral agencies to fill knowledge and financial gaps to help accelerate progress towards the MDGs. At the state level, development assistance represents a more substantial percentage of discretionary funds, and DFID is well positioned to work bilaterally with GoI on managing public expenditure for poverty reduction and development. DFID is well placed to respond to Indian decision-makers' requests for support and to strengthen the poverty reduction impact of their choices.

2.   The appropriate level of overall resource transfer, size of DFIDI programme and its distribution between states and the central government.

In the New Delhi Declaration of January 2002, Prime Minister Tony Blair stated the UK's intention to increase development assistance to India to £300 million a year. Even discounting for India's large population, aid allocation models suggest that India could spend increased aid efficiently and effectively.

DFID's 1999 Country Strategy Paper (CSP) was based on state strategies. We selected four focus states, based around the aid allocation criteria summarised above. As a result we have spent over 60 per cent of our resources on state programmes in the last three years. An important lesson which informed the preparation of our new Country Assistance Plan was that while state partnerships are important and need deepening, our national programme also needs strengthening to increase our impact in the majority of states where we have no direct partnership or presence. In addition, a strengthened national programme will provide opportunities to influence policies set by the central government.

  In 2003/04 we developed major new national programme spending plans in   recognition of the fact that faster progress is needed on a   number of off-track   MDGs, including universal primary education and gender equality in education;   maternal, infant and child mortality; HIV/AIDS; and access to basic sanitation. Plans   scheduled for approval and implementation in 2004/05 include: £250m for   reproductive and child health; £190m for universal primary education; and £123m for   HIV/AIDS.

DFID India is refining its methodology for determining the allocation of resources between the National programme and the four state programmes. This will be based on factors including poverty levels in different states, absorptive capacity, and opportunities to maximise the cost-effectiveness of our expenditure on poverty reduction. Actual expenditure will depend not only on the initial allocation methodology, but also on National and the State Governments' response to it and progress achieved against planned commitments.


C.   Partnerships / social inclusion / sector focus

3.   DFIDI role in developing strategic collaboration and coordination with other donors and the Indian Government, including sectoral allocations.

DFIDI recognises that at the national and state levels, our effectiveness depends to a large extent on the strength of our partnerships with others. These partnerships are wide ranging and include government, key multilateral and bilateral development agencies, civil society and academic institutions. We are seeking to be more strategic in our partnerships, recognising the importance of shared objectives, harmonised practice and our respective comparative advantages.

We work closely with the Asian Development Bank (AsDB) and World Bank to enhance the impact of their larger programmes (e.g. GoAP-World Bank-DFID assisted Andhra Pradesh Economic and Public Sector Reform Programme). Our support is used to strengthen poverty analysis and stakeholder involvement in these programmes, which provide three quarters of India's external financing. We also collaborate with a number of UN agencies, recognising the strength of their relationship with GoI (e.g. UNICEF-GoI Child Environment, Sanitation, Hygiene and Water Supply Programme). We maintain regular dialogue with Japan, the largest donor in India with a very substantial programme of loans primarily directed towards economic growth and infrastructure development.

DFIDI's financial resources, while comparatively small in relation to those of the GoI, can make a significant contribution to bilateral and multilateral-funded sectoral programmes. Two clear examples of the strength of such partnerships are the Reproductive and Child Health Programme and Sarva Shiksha Abhiyaan - two large centrally sponsored health and education programmes in which DFID is currently engaged. A further example of sectoral collaboration is in power sector reform, such as the Orissa Power Sector Aid programme, on which we have been working with the World Bank for almost a decade.

The Department of Economic Affairs (DEA) is DFIDI's key central government interlocutor, and is responsible for co-ordinating the development partnership. The DEA has broadly welcomed DFIDI's new Country Assistance Plan. However, the Indian Government's announcement in mid-2003 that it would only agree new bilateral government-to-government aid projects with the EC, Germany, Japan, Russia, the UK and the USA has significantly changed the development co-operation environment. There is also some uncertainty surrounding DEA positions on a range of issues including direct budgetary support and donor support to civil society organisations. We have agreed to hold a Review of our programme with the DEA in early June 2004, at which we will seek clarification on these and other operational issues.

4.   The extent to which DFIDI is focusing its activities on the most vulnerable and marginalized groups, including through engagement with civil society.

Equity is a crosscutting theme for DFID's India programme: in the 2004-2008 CAP we committed ourselves to ensuring that all of our programmes reach the poorest and most excluded groups, including women and scheduled tribes and castes.

DFID's understanding of gender and caste issues and their impact on poverty reduction and development has increased significantly over recent years. Social inclusion and gender issues are now mainstreamed into all our project and programme designs and implementation, and progress will be monitored against our CAP commitments. Our Social Inclusion and Gender Equity approach papers set out how these issues will be addressed across the programme.

Examples of work to reach the most vulnerable include: support for the development of specific strategies to reach the poorest regions and marginalised groups, as part of pooled funding for the central government's national health and elementary education programmes, the Reproductive and Child Health Programme and Sarva Shiksha Abhiyaan; provision of direct benefits to tribal communities - the poorest in India - through the Rural Livelihoods Programmes in Orissa and Madhya Pradesh; and helping women informal labourers overcome their economic vulnerability through support to ILO-SEWA, an initiative that supports negotiations that bring the women higher returns from the market.

Wide-ranging engagement with civil society to promote pro-poor change is a vital part of DFIDI's strategy to reach the most marginalised and vulnerable groups. This includes developing civil society capacity to facilitate poor people's participation in policy-making and implementation, and to hold service providers to account. Initiatives include the Poorest Areas Civil Society Programme, which helps the marginalised demand the services that matter to them, and to claim their entitlements. In Orissa, the Civil Society Poverty Programme supports NGOs to empower representatives from marginalised communities in local bodies.

5.   The threat to achieving the objectives of DFIDI's Country Assistance Plan because of gender and other social discrimination

DFIDI recognises that we will be unable to achieve the objectives set out in our Country Assistance Plan if we fail to take issues of gender inequality and other forms of discrimination into account. Accordingly, our India programme is based on analysis of the political, economic and social forces that have a beneficial impact on poor people, including of gender differences within the household. We are developing our understanding of how patronage and political economy can affect poverty reduction in order to support efforts to tackle inequality and empower the poorest. The 2004-2008 CAP indicates DFID's intention to broaden our engagement with civil society, in particular working to strengthening the links between marginalised groups and decision-makers.

Consideration of incentives and influence are central to development choices in India, as in other developing countries, which aim to tackle obstacles to increasing the effectiveness of service delivery to the poor. At a local level, communal, caste and other types of violence have a significant effect on people's lives. They may also constrain the ability of local communities to take advantage of development opportunities and economic growth.

D.   MDGs and PSAs

6.   Role of the MDGs in shaping DFID's programme of assistance to India

DFID's India programme both supports the Indian Government's development priorities as set out in the GoI's Tenth Plan whilst reflecting the importance of progress in India for global achievement of the MDGs. The two are mutually supportive: in places the Tenth Plan development targets are more ambitious than the MDGs.

While India is on track to achieve the headline MDG on halving income-poverty by 2015, progress towards several other MDGs in India are off-track, including those for maternal and infant mortality and TB detection. We are adjusting our programmes at both the state and national level to assist India in stepping up progress to meet these off-track MDGs.

7.   Importance given to gender equality, SRH and combating HIV/AIDS

As noted in Para 5, DFID recognises that gender inequality and other forms of discrimination must be taken into account in order for our CAP objectives to be met. Improving gender equality is therefore an important cross-cutting theme in all DFIDI programmes. Given the stark differentials in literacy levels, wages, and the falling birth ratio of girls to boys, improving the socio-economic condition of women is essential to achieving the MDGs in India. Across our programmes of support in areas such as universal primary education (Sarva Shiksha Abhiyaan), rural livelihoods, health sector and micro-enterprise, we aim to focus consistently on improving women's access to public services. By supporting the decentralisation process, we are capitalising on the opportunity provided by the huge presence of women in local bodies (e.g. Andhra Pradesh Urban Services Programme and the proposed Strengthening Rural Decentralisation Programme in West Bengal).

We have agreed in principle to contribute to pooled funding for the national family welfare programme 'Reproductive and Child Health II' (RCHII) that will address the challenged maternal and infant mortality MDGs. Our current efforts at the design stage of this programme are focussed on ensuring that the needs of those with the poorest health outcomes are met.

DFID supports the prevention of HIV/AIDS through the National AIDS Control Programme (NACP). This work includes mapping vulnerable groups, improving access to key services and commodities, and raising awareness and reducing stigma. The bulk of our financial assistance is channelled through the National AIDS Control Organisation (NACO) to support targeted interventions to address the needs of vulnerable groups, such as sex workers, in five states (Gujarat, Orissa, Kerala, West Bengal and Andhra Pradesh).

DFIDI is funding UNAIDS under NACPII to strengthen NACO capacity to monitor trends, develop National strategies and activities, promote broad based political and social mobilization and advocate for greater political commitment including adequate resources. We have also funded an innovative HIV awareness raising drama series, which is screened on nationwide television and has won awards as a mainstream programme.

8.   Obstacles to achieving the MDGs in India

Widening inequalities and weak governance threaten India's efforts to achieve both its 10th Plan targets and the MDGs. Indeed, inequality is arguably the most significant obstacle to eliminating poverty as evidenced in the widening differences between states (54% of the poor live in Uttar Pradesh, Bihar, Orissa and Madhya Pradesh); the large gap between rural and urban areas; and the slow pace of change in long-standing social inequalities. While scheduled castes and tribes comprise around 25 per cent of the population they make up 40 per cent of India's poor. Minority (Muslim) communities also have significantly worse social indicators than the population at large. The economic and social well-being of women remains lower than that of men, reflected in differentials in literacy levels, wages, and the falling ratio of girls to boys.

Weak governance is a further obstacle to achievement of the MDGs. The Government of India's 10th Plan emphasises that 'weak governance, manifesting itself in poor service delivery, excessive regulation and uncoordinated and wasteful public expenditure, is seen as one of the key factors impinging on growth and development'.

India's high fiscal deficit also poses a risk to meeting the MDGs. At 10%, India's combined central and state fiscal deficit is amongst the highest in the world.



9.   Progress against relevant DFID PSA targets and the MDGs in India

DFID's PSA targets are a subset of the MDGs. While India is on track to meeting some of the MDGs, renewed efforts are required against others.

India is making great strides in reducing income poverty - over the last 10 years. Income poverty has fallen by 8-10% against both national and international definitions - and on current trends will meet the income poverty MDG target.

In addition, there is a real possibility for India of meeting the target of universal enrolment of primary school age children in schools. Although India treats basic education as a constitutional right, meeting the target will nonetheless require considerable effort. Girls' education is a special priority: currently only two-thirds of girls are enrolled in school.

Other MDG targets (child malnutrition, maternal mortality and sanitation) are highly unlikely to be met at all-India level, let alone across all the social and geographical diversities of the country, and many of the rest (literacy equality, under 5 and infant mortality) will only be met with continued effort.

However, the real challenge lies in going beyond the over-arching MDG and 10th Plan targets to try to address the immense differentials between states and districts, the rural and urban poor, and different social groups. The income poverty MDG will be met nationally in India, but without targeted intervention the chronically poor are unlikely to be touched by the 8 per cent economic growth forecast for the Tenth Plan period. Uttar Pradesh and Bihar alone still contain 87,031,832 million poor people.

DFIDI is adjusting its programme to respond to the need to accelerate progress towards specific off-track MDGs, including maternal mortality, HIV/AIDS and tuberculosis. At the same time, we need to ensure that other challenges in India continue to be tackled, including water quality and distribution, school attendance and quality of education (in addition to enrolment), hunger and malnutrition, and aspects of gender equality.

The table below sets out progress against the MDGs and the relevant DFID PSA targets.

India's likely progress towards meeting the MDGs and relevant DFID PSA targets (as at January 2004)
MDG targetPresent status Comments
Income Poverty to be halved

Likely

Fell from 36% to 26-29% using the national poverty line and from 46% to 35% using international line. Likely to be met at All-India level, but Orissa a challenge. MP and AP could meet the target.
% of under-weight children to be halved

Unlikely

Fell from 64% to 47% from 92/93 to 98/99. Child malnutrition declining slowly overall, though increasing in Orissa. Target very unlikely to be met.
Universal * Primary Education

Possible with effort. Poor data

Net attendance age 6-14 approximately 79%, (83% boys, 74% girls).

About 68% complete primary school (70% boys, 65% girls)

100% net primary enrolment and completion could be met, but a long way to go.
Literacy and Gender Equality

Could be partially met

Overall literacy 65% - women 52% and men 74%

Women in non-agric sector rose from 13% (1990) to 17% (2001)

Equality of primary enrolment may be possible. It may also be possible to equalise youth literacy. India is far from balancing women's representation in government, or in the non-agricultural sector
Reduced Child Mortality *

Possible with effort, but very difficult

1998 levels of Under 5 mortality give 101 per 1000 for All India, but with wide variations - 112 rural, 65 urban; 138 for Madhya Pradesh, 68 for West Bengal - though the trend is largely downwards. Infant mortality fell from 78 per 1000 to 68 per 1000 during the 90s. Infant and child mortality declining overall, but not fast enough. Orissa high but declining well; MP increasing rather than decreasing. Target could be met with a lot more attention. AP and WB may now be on track to meet the IMR target.
Improved Maternal Health

Unlikely to be met

The 1990 level is unknown with any accuracy, but during the 90s the level was between 4 and 5.5 per 1000. Trends are also unknown. The present high level makes it extremely unlikely that the MMR will decline sufficiently to meet the target.
HIV/AIDS, TB * and Malaria reversals of trends

Mixed data quality make monitoring very difficult

3.8-4.2m people live with HIV Aids. TB data is based on DOTS[1] coverage which is incomplete in India. In those areas where DOTS operates, detection is about 56% and cure 85%. Overall rate is 25%.

Malaria rates highly variable.

HIV prevalence is low but increasing a little. GoI claim the epidemic is plateauing. TB definitely seems to be on the increase, and malaria may be, but this is not certain. Higher rural than urban figures, and significant inter-State differences.
Environmental sustainability

Water - yes

Sanitation -no

100% access to safe water met for urban areas, and close to being met in rural areas. Making supplies sustainable is a challenge. Access to sanitation rose from 19% in 1991 to 28% in 2001. The MDG target is 59%. Targets for sanitation almost impossible to meet, but for safe water well on track.

Asterisks * denote items included in the DFID PSA

E.   Aid instruments / nature of engagement / governance and political will

10. The strengths and limitations of the different aid instruments used: poverty reduction budget support, projects, technical assistance and support via civil society.
Aid Instruments Strengths Limitations
1.Project Aid ·  Pilot Innovations

·  Tangible and specific interventions

·  Impact directly assessed

·  Require intensive supervision and monitoring

·  Transfer modest level of resource

·  Good practice may not be replicated

2.Sector-wide approaches (SWAPs):

Support to a specific sector within the context of government policy reform process

·  Enables wider policy dialogue for transformational impact on the whole sector( currently sub sector SWAPS: RCH, SSA being attempted in India)

·  Enhanced impact due to donor partnership

·  Increased scope for sustainability

·  Only possible if acceptable to recipient government

·  Appropriate where development assistance constitutes a significant share of sector expenditure

·  Requires government commitment, a good sector strategy and a sound macro and budget environment

3.Poverty Reduction Budget Support

Series of reforms are negotiated with government, and funds released in tranches as the reforms are carried out (not linked to a specific project)

·  Supports strategic policy reforms and changes at the state level

·  Consistent with partnership as government decides anti poverty strategy and spending pattern

·  Enables larger resource transfers

·  Enhanced impact due to donor partnerships & harmonized approaches.

·  Requires rigorous analysis at State level of fiduciary risks, political economy issues and identification of strategic policy reforms.

·  Large resource transfers vulnerable as dependent on State governments performance against agreed milestones.

·  Fungibility issues as GOI may offset budget support to states through compensating adjustments in other central transfers.

4.Technical Assistance ·  Useful for diagnostic work

·  Develops capacity and aids policy discussions

·  Can fail to support capacity of local institutions
5.Support via Civil Society ·  Broadbases dialogue with development partners, beyond government

·  Helps improve accountability of development programmes

·  Improves demand and access of services to the poor and hard to reach groups

·  Dependent on GOI policies regarding external assistance to CSOs.

·  Limited capacity of CSOs to engage with government on policy issues

·  Weak self regulatory mechanisms amongst Indian CSOs.



11.   The appropriate balance between aid instruments

DFID India does not consider any particular instrument as being intrinsically superior to others. Rather, we seek to match instruments to our objectives and ensure complementarity between different instruments operating in a particular context. The appropriate balance is therefore the mix of instruments that maximises our impact on poverty reduction and development within financial and human resource constraints.

12.   The strengths and weaknesses of the state-focus approach: DFIDI's choice of focus-states; the level of DFIDI's engagement with non-focus states.

The 1999 Country Strategy Paper provided the framework for DFIDI to develop a state focused approach, using poverty levels, policy performance and relationship history (a proxy for comparative advantage) as selection criteria. Andhra Pradesh, Madhya Pradesh, Orissa and West Bengal were selected and remain our partner states. The strength of the state focus is the technical value-added at the state level, depending on the nature of the dialogue with partner government. As stated in Para 1 (Case for aid) effectiveness and additionality are more apparent at the state level.

At the same time, DFIDI recognises there are limitations to the state based approach. The external review of our CSP suggested that state partnerships, rather than being seen as a means to an end, had become an objective in their own right. The review highlighted some of the difficulties our focus on partner states had produced in our relations with the central government.

Taking these lessons into account, the 2004 CAP commits DFIDI to developing an integrated approach to tackling poverty reduction in the four states. DFIDI is also refashioning a strengthened National programme that will transfer high levels of resources through central programmes in key areas. This will allow us to reach the poor in non-focus states, including Bihar and Uttar Pradesh. It will also feature a more focused dialogue on over-arching policies with line ministries and it will develop strategic partnerships with other development agencies and civil society. DFID's National programme will exploit synergies with state level programmes and thus the work at both levels will be mutually reinforcing.

This is considered a better and more feasible option than working directly in more states. Financial and human resource constraints mean that DFIDI is not well placed to develop partnerships with additional states or to continue projects in non-focus states. We are studying ways of working in states with difficult policy environments, which could inform strategy analyses for the next CAP, including 'silent partnerships' with other donors.

13.   The impact of governance and political will on DFIDI programmes and their vulnerability to changes in government.

Both the CAP and individual projects/programmes go through a thorough process of design and approval and are based on available analysis of long-term trends and implications. They are not considered significantly vulnerable to changes in governments.

Despite being a robust democracy, there are concerns about governance and the political will for sustained reforms in India. If public services are to improve, sustained reforms are necessary to reduce excessive regulation, and wasteful expenditures that have led to high fiscal deficits.

DFIDI's approach has been to work with pro-reform constituents within government. Our programme supports GoI and state government efforts to improve governance, in particular service delivery to the poor. By working with civil society to strengthen accountability and the "voice" of the poor, we plan to widen our approach to the promotion of growth and improvement of services.

F.   Economic development

14.   The implications of India's 'modernisation' for poverty reduction: harnessing economic growth.

The marked acceleration of both economic growth and poverty reduction in the 1980s and 1990s has been associated with an increasingly open economy. Market reforms have exposed Indian industry to greater competition and facilitated access to managerial and technical know-how. India has emerged as a global leader with strong comparative advantage in IT and IT-enabled services (particularly Business Process Outsourcing). Some sections of Indian manufacturing have also demonstrated capacity to compete successfully at an international level on both quality and price. These trends are likely to continue, with positive benefits both in terms of growth and poverty reduction.

Major policy challenges remain, however, if India is to successfully accelerate the reform and modernisation of the economy particularly in those sectors with the greatest poverty reducing potential; these sectors include agriculture and labour-intensive manufacturing where many of the poor are concentrated. Following recent changes in the structure of the economy, there has been evidence of a slowdown in the rate of employment generation; a decline in the share of agriculture; stabilisation of the industrial share; and a rise in the share of services. However, the contribution of these key sectors to growth and poverty reduction is currently limited by a range of policy, regulatory and infrastructural constraints, the removal of which should be a high priority.

15.   The role of trade and the private sector.

India's share of world trade remains very low compared to China and USA. However, recent growth rates of exports are amongst the highest in the world, suggesting that India may finally realise its trade potential.

While the links between trade and poverty reduction are debated. But some developmental benefits are likely. Growth of export-oriented sectors that employ unskilled workers will benefit the poor. A recent study also suggests that liberalisation of certain sectors, coupled with reduction in agricultural subsidies and protection measures could have significant poverty reduction effects in India (Cline, to be published).

DFIDI engages on trade issues by working with other agencies that have a comparative advantage in the sector. For example, DFIDI in partnership with UNCTAD (Pro poor Globalisation Support Fund) is financing a major programme to build capacities of government and civil society organisations on trade issues.

The private sector in India is increasingly adopting a more proactive role in addressing issues of urban and rural poverty as well as corporate social responsibility. The opportunities and challenges of globalization, information technology as well as new ways of doing business have opened up areas for innovative partnership approaches to many of India's long-standing development issues. The sector has also begun to recognize the value of engaging with the poor as viable business partners - both in their role as consumers and producers

DFIDI also recognises the role of the private sector as a potential stakeholder in policy change. We will complement other partners in supporting private sector activities that have a positive impact on the poor. Where appropriate, we will also support government in working with the sector to explore new approaches to service provision, and improving regulation.

May 2004


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