The Future of DFID’s Programme in India

Written evidence submitted by Lawrence Haddad

Amidst all the reports about whether the UK will end aid to India and whether the Indian Government will end its request for aid, it is worth stepping back to think about the reasons for UK aid to India.

These are the poverty-related arguments that feel strong to me.

1. DFID works in 3-4 of the poorest Indian states. These are the size of medium countries with populations in the 50-60 million range and if ranked as countries, they would have some of the highest poverty numbers in the world. But this argument only goes so far. These states are not countries, they are part of India. The central government may not be a terribly effective donor to the states, but it is one, nevertheless.

2. But often it is difficult for States to get money from the donor centre. States need to have very strong administrative systems and capacities to do so effectively. The poorest states have the weakest tax base and hence the weakest administrative systems. DFID helps these states to access these central resources to boost investments in child health, nutrition and education where they are most needed.

3. DFID can help state governments take risks and innovate. There is a great demand for innovati ve programming but a sense that the political risks are high and prohibitive. DFID can act as a support and a lightning rod for risk-taking.

4. DFID has to back up this work by programming resources. They have to be seen to be willing to invest in innovative ideas they support. These investments leverage much larger state investments in areas such as nutrition that have benefit cost ratios of up to 17:1.

5. India contains approx 400m people living in poverty, about the same as in Sub-Saharan Africa. DFID’s rationale for focusing on sub Saharan Africa is that many of its countries are poorer than India but, more importantly from DFID’s perspective, the people living in them are trapped in poverty. But we do not know if the poorest living in India are more or less trapped than the poor living in governance traps or conflict traps or resource curse traps in the countries of Sub-Saharan Africa. We need evidence that ODA is more effective at eradicating persistent poverty in sub Saharan Africa than it is in India if ODA to India is to cease.

6. It is easy to be seduced by the hype of "Incredible!ndia". But despite the rapid growth, GDP per capita is still just over $1000. This is 6 times lower than its frequent comparator, Brazil and 3.5 times lower than China.

7. India is still a poor country with the lion’s share of the world’s poor . DFID still has a key role to play.

November 2010