House of Commons - International Development

Select Committee on International Development Third Report

2 The case for development assistance to India

15. The primary case for development assistance to India derives from the scale and persistence of poverty in the country. Since Independence, India has had some success in reducing income poverty, success which has accelerated in recent years.[9] India looks likely to succeed in halving the proportion of its population living in extreme poverty by 2015, in line with the first MDG. Yet India is home to over a quarter of the world's extremely poor people; around 350m. of India's citizens currently live below the International Poverty Line of one US dollar a day.[10] Furthermore, it is not clear that the cuts in income poverty levels which have been achieved can be attributed to the numerous anti-poverty schemes that have been implemented in India since the 1970s.[11] These cuts may be more directly credited to state support for agriculture (the so-called 'Green Revolution') and comparatively high recent rates of GDP growth.

16. Dr Michael Lipton told us that in his assessment, donor assistance had impacted on poverty reduction in India, although perhaps not to the extent that might have been possible.[12] In any context it is difficult to measure the impact of donor assistance on poverty reduction. In India particularly, the insignificance of donor contributions in relation to the GoI's overall budget makes it difficult to attribute outcomes to specific donor inputs. Such evaluation is comparatively easier (although still difficult) in African countries, where donors may fund the majority of activities in specific sectors. This reality makes it hard to assess whether DFID resources currently allocated to India might be better spent in other contexts, such as sub-Saharan Africa.

17. Despite India's success in reducing income poverty, it has made less headway in terms of other human development indicators. Global success in meeting the MDGs depends upon India achieving its targets,[13] but the country's progress towards non-income MDG targets has been slow, particularly in the fields of health and education (see table 2).[14] There seems to be a lack of political commitment to reaching these 'off-track' MDGs at both state and national level.[15] Successive Indian governments have found it politically acceptable to promote poverty reduction as a benefit of broader policies designed to promote economic growth. Implementing policies to address indicators of human development beyond income (health, education, sanitation and so on), and to tackle the issues of inequality and social exclusion, has proved harder. This is because the constituencies that such policies would benefit most are those with the least political influence, the poor and dispossessed. Although the GoI's policies discuss the importance of reaching the poorest and most socially excluded groups, we heard during our inquiry that in practice such goals are rarely achieved.

18. From what we saw during our inquiry, DFID has, to date, largely replicated the GoI's concentration on income poverty, by focusing mainly on the pro-poor implications of economic growth and reform. Although we agree that reducing income poverty is vital, we were surprised by how little we heard from DFID about work to address India's 'off-track' MDGs. DFID did tell us that among their eleven priorities in India for 2004/5 they intend to "significantly increase resources to tackle off-track MDGs, particularly health (including HIV/AIDS), and education."[16] This is a positive sign as we think that DFID should prioritise work on India's 'off-track' MDG goals. Table 2: India's likely progress towards meeting selected Millennium Development Goal targets

MDG target Likely progress

Halve, between 1990 and 2015, the proportion of people living on less than $1 a day (Target 1) Likely at All-India level. Certain states less likely to succeed (eg. Orissa).

Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling (Target 3) Possible. But only with much more attention. 25% of Indian girls are still not in school. Poor data available.

Eliminate gender disparity in primary and secondary education by 2005 and in all levels of education no later than 2015 (Target 4) Possible. India is far from achieving balanced gender representation in other sectors however.

Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate (Target 5) Possible. But only with much more attention.

Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio (Target 6) Very unlikely. Poor data available.

Have halted by 2015 and begun to reverse the spread of HIV/AIDS (Target 7), and the incidence of malaria and other major diseases (Target 8) Very unlikely. Poor data available but all three appear to be on the increase.

Halve, by 2015, the proportion of people without sustainable access to safe drinking water (Target 10) Already met in urban areas. Likely in rural areas.

Halve, by 2015, the proportion of people without sustainable access to basic sanitation (Target 10) Very unlikely.

Source: Ev 59 [DFID memo].

19. India's development situation continues to be characterised by social and spatial inequality. Spatially, there are growing disparities in economic development within and between different States. Socially, the nature and extent of exclusion led one commentator - during an informal discussion with the Committee — to describe India's as the most callous society he had encountered.[17] During the course of our inquiry our attention was drawn to the social exclusion suffered by a number of different groups in India. These include:

scheduled castes (SCs/Dalits);
scheduled tribes (STs/Adivasis);
disabled individuals;
Muslims;
the urban poor;
young people; and,
women.

20. We received a number of written submissions from organisations representing socially excluded groups. Voice of Dalit International and the Dalit Solidarity Network UK told us about the social exclusion suffered by members of scheduled castes in India.[18] Although untouchability was outlawed in the Constitution of India (promulgated in 1950), SCs and STs, which together make up a quarter of India's population (260m.), continue to face discrimination. The GoI has established a system of positive discrimination or 'reservation', which allocates government and public sector jobs to these groups in proportion to the size of their population. Nevertheless, SCs and STs continue to have worse income, health and education indicators than India's general population. We were alarmed by the complacency of many of those we met during our visit, who argued that the reservation system has dealt adequately with the India's problems of caste and ethnic discrimination. The remainder of the evidence we received contrasted sharply with such assertions.[19] Although reservations may have helped at the margins, by raising the 'voice' of SCs and STs in political processes, as far as we can see they have done little to challenge the structural inequalities built into Indian society.

21. The memorandum which VSO submitted to our inquiry focused on the marginalisation of disabled people and people living with HIV/AIDS (PLHAs) in India.[20] Estimates of the number of disabled people living in India range from 18.5m.[21] to 70m.[22], while the official number of PLHAs currently stands at 5.1m. (although the inadequacy of infectious disease surveillance systems in India makes this figure unreliable). A WHO study found that less than 5% of disabled people in India have access to any kind of rehabilitation service. The lack of basic mitigation (for example, spectacles, crutches, wheelchairs) intensifies experiences of disability.[23] Disabled people, and their households, are more likely to be poor, due to their higher dependency ratios and processes of stigma and exclusion.[24] Y Care International told us of their concerns regarding the "high levels of poverty amongst marginalized and vulnerable young people in India, in particular young people of scheduled tribes and young people living with a disability."[25] They argued that "young people represent a marginalized group that should be mainstreamed in India's strategy to tackle poverty." N.C. Saxena, a former Secretary of the India Planning Commission and Secretary, Rural Development, made us aware of the social exclusion suffered by the urban poor in India. Many people living in urban areas are compelled by their poverty to inhabit 'informal settlements' or slums. They consequently live their lives on the border of legality, and are inevitably brought into conflict with the police.

22. Many women in India face extreme levels of social exclusion. This is reflected by the ratio of women to men in India's population, which, alarmingly, has declined over the last 100 years from 972/1000 to 933/1000. The disparity between the sexes is mainly due to female infanticide and the neglect of girl children.[26] Women's social exclusion is further demonstrated by their poor human development indicators: female illiteracy stands at 62%, (compared to 34% for men); 60% of women are anaemic; and, every fourth woman who dies in childbirth in the world is an Indian.[27] Women face the issues of dowry pressures and sexual violence, and it is becoming evident that in India, as in Africa, HIV/AIDS is disproportionately affecting women. We examine DFID's work to address gender issues and social exclusion in Chapter 3.

DFID's rationale for working in India

23. Following the publication of the World Banks report Assessing aid in 1998,[28] the argument that aid is most effectively utilised where there are large numbers of poor people and a conducive policy setting became widely-accepted wisdom amongst donors. DFID also gives credence to this argument, using 'high poverty' and 'good governance' criteria to justify their provision of assistance to India.[29]According to their rationale, India's relatively sound institutional environment enhances the case for assistance to the country. While the scale of poverty in the countries of sub-Saharan Africa is roughly comparable to that in India - with around half the population of these countries (320 m. people), living on less than a dollar a day,[30] India scores better than most sub-Saharan African countries on governance grounds. Despite significant problems of governance (which are discussed further in Chapter 3), the country has a functioning civil service and is well able to handle significant flows of aid. India also has significant stocks of human capital: a dense and vibrant civil society; an extensive free press; and a sophisticated academic community with a substantial capacity to generate and absorb ideas. Charlotte Seymour-Smith, the Head of DFID India, told us that as India is not aid-dependent, and its political and bureaucratic institutions are relatively mature "there are significant opportunities for donor assistance to be used to reduce poverty."[31]

24. We are convinced that, at present, India qualifies easily for DFID's assistance, on both high poverty and good governance grounds. As several witnesses pointed out, given the number of poor people living in India, the country could currently be considered under-aided.[32] Yet over the last few years the 'high poverty/ good governance' model of aid effectiveness has been disputed. As we noted in a previous report on 'Financing for Development', critics of the World Bank's approach to aid allocation have questioned the relative importance of the right policy environment in determining the effectiveness of aid. They have suggested that aid can be effective across a range of policy environments.[33] Such arguments underline the importance, for donors, of continuously re-examining their models of aid and aid effectiveness. In referring to the existence of such debates over aid effectiveness we do not mean to challenge DFID's allocation of aid to India as a whole. As we discuss later in this report however, we do think there are questions about how DFID has allocated its assistance within its India programme. In selecting the Indian states in which it would develop focus state programmes, DFID prioritised the criterion of good governance. To date, such prioritisation has limited DFID's engagement with some of India's poorest states (including UP and Bihar), which are affected by conflict, crisis and lack of good governance.[34]

25. DFID India staff told the Committee that at its current rate of economic growth, India was expected to graduate from being a low-income country (LIC) to being a middle-income country (MIC) in approximately 2013/15. Although India's shift to MIC status is "some way off"[35] we think that DFID should already be considering its likely implications. The significance of India's projected move between the (otherwise arbitrary) categories of LIC and MIC derives from one of DFID's commitments under its 'Value for Money' objective. DFID has undertaken to provide 90% of its country programme resources to LICs by 2005/6. This commitment, which excludes humanitarian assistance, has led to reductions in planned bilateral spending in MICs.[36] These reductions are based on the assumption that although MICs are often characterised by high levels of inequality, they ought to have the capacity to redistribute their resources internally and thereby alleviate the poverty of their poorest citizens.[37] India is already typical of an MIC in terms of its high levels of inequality.[38] The fact that these inequalities are growing suggests that redistributive policies implemented by the GoI have not been effective, to date.

26. Under DFID's current policy, India's elevation to MIC status would necessitate a drastic reduction in the volume of DFID's bilateral assistance to the country. A significant reduction in DFID's assistance to India would be problematic if it led to the curtailment of programmes in India's poorest states. Many of these states are characterised by levels of poverty and indebtedness which, if they were independent countries, would qualify them for Least Developed Country (LDC) and Highly Indebted Poor Country (HIPC) status.[39] Hilary Benn acknowledged this when he told us "If UP and Bihar were countries in their own right, we would be in there."[40] Given India's geographical size and huge population of poor people, we believe it could be considered an exception to existing rules regarding the distribution of DFID assistance between MICs and LICs. One possibility might be for DFID to continue engaging with individual states even if it decided to scale back its programme to India as a whole. From what we heard about the GoI's evolving attitude to the receipt of development assistance however (see paragraphs 32-38), it seems unlikely that the GoI would allow DFID to pursue a policy of engaging only with individual states. Nonetheless, we think that DFID ought to be developing its work in India's poorest states. We would be very concerned if the future success of India in reducing levels of income poverty (and thereby attaining MIC status), led DFID to significantly reduce its work with India's remaining hundreds of millions of poor and socially excluded people.

Value for money

27. Total overseas development assistance to India amounts to less than 0.35% of India's GDP (or 1.3% of the GoI's discretionary expenditure), and DFID's assistance represents under 0.06% of India's GDP.[41] In comparison to certain countries in sub-Saharan Africa, where DFID assistance can make up 10-20% of GDP, DFID's financial contribution to poverty reduction in India is a drop in the ocean. As one witness commented to us however "capital clearly is not the point"[42] of DFID's involvement in India. Our inquiry led us to concur with Hilary Benn's view, that it is for DFID's "ideas and its flexibility"[43] that many in India welcome its presence. It is nonetheless the case, as the Secretary of State also told us, that DFID's financial contribution "enhance[s] the conversation"[44] which the Department is able to have with the GoI.[45] Many of those we spoke to in India saw the value of DFID's programme in terms of its technical assistance, good practice and scrutiny of programme governance, rather than in terms of its absolute monetary value. We agree with this analysis. Given the extent of poverty in the country, we do not see the limited scale of DFID's programme as counting against the case for assistance to India. As we discuss further in Chapter 5, we think DFID should build on the existing strengths of its India programme by devoting a greater proportion of its resources towards research, technical assistance and the development and dissemination of good practice.

28. Aid conditionality has always been relatively ineffective at the central level in India.[46] Mark Robinson considered that this ineffectiveness has largely been due to the insignificance of donor funds in comparison to the considerable volume of GoI spending.[47] To some extent, the ineffectiveness of aid conditionality can also be attributed to the determined independence of the GoI. The decision by some donors to impose sanctions on India following the country's first testing of its nuclear capabilities in 1998[48] made it even more difficult than it had previously been for donors to apply conditionalities at the central government level. According to Dyson and Vira:

Given the independence of the GoI, DFID has realised that it must focus on "policy discussion… based on ideas changing minds,"[50] rather than seeking to apply conditionalities. This is in line with recent shifts in DFID's thinking on aid 'conditionality',[51] which we welcome. We endorse the assertion of DFID, the FCO and HM Treasury in their September 2004 consultation paper on aid conditionality that "developing countries must have room to determine their own policies for meeting the Millennium Development Goals" and applaud the UK government's renewed emphasis on building partnerships for poverty reduction with developing country governments.[52],[53] We look forward to seeing how the shift in DFID's thinking set out in the consultation paper impacts on DFID's work in practice.

29. At state-level, DFID's financial assistance is of greater significance than at the centre; in Orissa for example, it is projected that DFID assistance will make up 7.8% of the State's discretionary expenditure between 2002 and 2005.[54] The larger significance of DFID's assistance at state-level means that its influence on policy formation can be potentially greater.[55] Recent events in AP have illustrated however, that even at state-level, donor policy influence is limited. In June 2004 the World Bank suspended its budget support lending to AP after the State's newly elected government decided to provide free electricity to farmers, going back on previous pricing agreements they had made with the Bank (see paragraphs 57-60).

30. Although donors can require their aid to be spent on a particular sector, they cannot prevent a recipient government responding by cutting its own resource allocation to that sector, thereby leaving the total spend the same. This is known as the 'fungibility' of aid. As the World Bank has observed, in most countries the majority of aid is likely to be highly fungible, and consequently "the safest assumption for donors is that they are, more or less, financing whatever the government chooses to do."[56] In light of this, DFID's assessment of the policy priorities of the GoI and individual state governments is crucial to ensuring that its resources will be spent on poverty reduction. Furthermore, DFID must assess the success with which pro-poor policies are translated into pro-poor practices.

31. India is capable of funding the development of thermonuclear devices, and is in the process of expanding its own overseas aid programme (see paragraphs 32 to 38). We were therefore concerned, over the course of our inquiry, to establish that the resources which DFID allocates to India really provide additional development assistance. As Dr. Michael Lipton put it, "The key question is whether extra aid will actually mean extra resources going to the poor… or whether it will simply displace government money which would otherwise have gone to those ends."[57] He went on to say:

Most of those who we spoke to during the course of our inquiry concurred with Dr. Lipton's point of view.[59] We were convinced by their arguments that DFID's assistance does provide additional benefit. As we discuss later in this report however, questions remain over how this assistance is being distributed and deployed.

India's attitude to aid

32. In recent years, India seems to have become increasingly tired of being cast in the role of aid recipient.[60] In June 2003 the then Deputy Prime Minister, L.K. Advani asserted that "By 2020 we should become a developed country"[61] and the NDA government announced a series of changes to India's aid policy. The main changes were:

GoI would no longer accept any tied aid;
GoI would accept bilateral aid from only six sources (Japan, Germany, Russia, the UK, the USA and the European Union). The other 22 bilateral donors operating in India were requested to channel assistance through civil society or multilateral organisations;
GoI would pre-pay all outstanding debt owed to bilateral donors (except Japan, Germany, France and the US), having already pre-paid $2.8 bn. of debt to the World Bank and ADB earlier in 2003; and,
GoI would cancel debt to seven Highly Indebted Poor Countries and provide grant or project assistance to developing countries in Africa, South Asia and elsewhere through the 'India Development Initiative'.[62]

33. These changes in aid policy can be seen as a reflection of India's changing self-image. They seem to have been primarily intended to bolster Indian economic and political interests. Some commentators have suggested that the changes in aid policy were motivated by the GoI's concern about donors' attempts to use their aid packages as instruments of foreign policy, to force changes in Indian domestic policy. A further explanation offered for the move was that India felt its global ambitions, not least its desire to secure a permanent seat on the UN Security Council, were being hindered by its position as a recipient of aid from countries with less strategic ambitions. The GoI itself justified its policy changes on efficiency grounds, as lowering the transactions costs involved in dealing with multiple donors. Whatever their motivation, the changes demonstrate how GoI decisions regarding development assistance may pre-empt any future plans which DFID makes in respect of its India programme. As DFID acknowledged in its submissions to the Committee, those seeking to provide development assistance to India must take account of this reality.[63] The policy shifts reflect India's vibrant democratic system, but also highlight the rapidly changing nature of its aid environment. In India, in contrast to the majority of DFID's country programmes, the parameters of the aid relationship are heavily shaped by the partner, rather than the donor. Hilary Benn acknowledged this when he told us "We have to adapt to the framework that the Government of India, as its policy evolves and changes, sets, and respond accordingly, but continue to bring what we can."[64] We were encouraged to hear that DFID has undertaken analysis of the risks to development assistance in India in the course of creating its new CAP for the country, and encourage the Department to repeat such analysis on an ongoing basis.

34. Since the Lok Sabha election in May 2004, there has been uncertainty over whether the new Congress-led UPA government would adopt, adapt or discard the NDA's modifications to India's aid policy.[65] There has been some indication that the UPA will reverse the policy, accepting aid from all G8 countries and from non-G8 EU members provided they contribute at least $25m. a year.[66] Representatives of withdrawing bilateral donors told us that in practice this modification would affect only the Netherlands, who have given no indication of reversing their plans to withdraw. Some commentators have suggested that the UPA may demonstrate a greater commitment to social issues than the NDA did, basing their arguments on the Congress party's manifesto commitments to generating employment for poor rural households. As in most countries, however, it is common for Indian governments to fail to implement their electoral promises, so Congress's manifesto commitments are no guarantee of UPA policy.[67] The lack of effective grassroots pressure for the fulfilment of electoral commitments in India seems bound to limit the pro-poor outcomes of government policy-making, and the GoI has yet to engage with this issue.

35. Both the New Delhi Declaration, signed in January 2002,[68] and the Prime Ministers' Initiative, signed by Tony Blair and Manmohan Singh in September 2004, demonstrate the value which the UK and Indian governments accord to their countries' ongoing relationship. Other bilateral donors told us that their relationships with India have evolved in recent years. Mr. Wolfhard Behrens, the Head of Economic Co-operation and Development at the German Embassy in Delhi, told us that the GoI now prefers to discuss economic co-operation, because discussions of development assistance are an unwelcome reminder of India's poverty and problems. The EU's programme in India also focuses on economic cooperation rather than development assistance.[69] Naturally, we attach great importance to the continued maintenance of the UK's cordial and productive relationship with India. We believe that DFID's relationship with the GoI should be seen as a relationship between two partners rather than in terms of a donor and recipient.

36. One important aspect of this changing relationship is DFID's engagement with India's own international aid programme. Perhaps surprisingly, India has been a long-standing provider of aid to other countries, primarily through the provision of training and manpower assets. India has also provided significant amounts of assistance to its neighbours, during the 1980s to Bangladesh and Vietnam, and more recently to Afghanistan, Nepal and Bhutan. According to the Ministry of External Affairs, Indian assistance since 1964 has totalled around $2bn.[70] The policy changes introduced by the NDA in 2003 expanded India's existing aid programme through the creation of a new 'India Development Initiative'. We support DFID's stated intention to support India's emerging role as a donor, and to expose India to global best practice and harmonisation. In light of this we were pleased to hear, for example, that DFID has encouraged its partner agency UNICEF India to facilitate lesson-learning between India and Nigeria around social mobilisation & communication for polio eradication.

37. Following the tsunami earthquake disaster which hit South Asia on 26 December 2004, the GoI announced assistance totalling $22.5m. to Sri Lanka, the Maldives, Indonesia and Thailand.[71] India itself is thought to have suffered over 10,000 fatalities and widespread destruction, with the states of Tamil Nadu, Pondicherry, AP, and the Andaman and Nicobar islands, worst affected. The GoI has received both criticism and praise from domestic and international sources for its decision to refuse overseas aid for relief from the disaster. Oxfam and Médecins Sans Frontières have expressed concern that this may have delayed the delivery of essential food and medicine to those affected.[72] An editorial in the Times of India described the GoI as "churlish" for refusing to accept well-meant offers from around the world.[73] Others have accepted that the GoI may have valid reasons for its decision: pledges of assistance may not represent new money; aid may consist of inappropriate offers 'in kind'; disaster assistance is often supplied for political reasons; and, as a regional power, India has a responsibility to respond to such crises.

38. As a commentary in the International Herald Tribune observed "by rejecting foreign assistance, the Indian government has willingly invited greater scrutiny on its relief efforts. One can, therefore, expect a better-than-usual response from the bureaucracy."[74] We hope this is the case. The tsunami earthquake disaster occurred after we had concluded taking evidence for our inquiry and we have no wish to rush to ill-considered judgements about the nature of the relief effort so soon after the event. We think the disaster has raised two more general points, however. First, the tsunami's widespread impact has highlighted the need for DFID to retain the capacity and adaptability to respond quickly and appropriately to disasters occurring in the countries where it works. Lower income countries have limited financial, human, technological, institutional and natural resources, and therefore suffer disproportionately when disasters occur; between 1992 and 2001, poor countries accounted for one fifth of the total number of disasters but over half of all the disaster fatalities which occurred.[75] Second, the tsunami has reinforced the relevance of many of the recommendations we made in our 2002 report 'Global climate change and sustainable development.'[76] The tsunami was a geo-physical event, and not caused by climate change. Experts agree however, that the frequency and impacts of natural disasters are likely to be increasingly exacerbated by climate change. We therefore wish to reiterate some of the recommendations of our previous report, including: the importance of disaster mitigation efforts, including international standards for early warning, response and recovery; the need for DFID to sponsor vulnerability assessments to enable adaption work to be targeted at the most vulnerable communities; and, the need for urgent action to build the capacity of developing countries to understand and respond to climate change. We were alarmed by a recent World Economic Forum report which found that progress towards the environmental MDGs had been the slowest towards any of the Goals (rating it at just 3/10).[77] HMG needs to re-assess its progress on environmental MDGS.