The test of whether the UK should continue to give aid to India is whether that aid makes a distinctive contribution to poverty reduction. The Government of India has primary responsibility for this and has already made significant progressreducing poverty levels from 60% in 1981 to 42% in 2005. India's economy is growing and it has recently entered the World Bank's middle income group with a per capita income of $1,170. Nevertheless large pockets of poverty remain. Over 400 million people live on less than $1.25 a day and 800 million on less than $2 a day. However, total aid to India amounts to only 0.3% of the country's GNP, and the UK's direct contribution is a tiny proportion of this (0.03% of GDP at PPP rates). Our aid can only have a marginal impact. We are persuaded to support continuing the aid programme in India up to 2015, after which the relationship must change.
DFID will continue to provide aid to India£280 million a year for the period 2011-15. However, it plans to make some changes to its programmefocusing primarily on three of the poorest states, Bihar, Madhya Pradesh and Orissa, changing the sectors it prioritises and putting 50% of its budget through the private sector by 2015.
We support the decision to focus on the poorest states provided this is supported by the Government of India. We recommend that DFID should allocate increased resources to sanitation, malnutrition, maternal and child health, and social exclusion. Sanitation is a first step to improvements in health, yet DFID spends only 1% of its budget on this. Investments in sanitation should be accompanied by a focus on hygiene education. Poor sanitation is linked to poor nutrition which DFID has identified as a focus sector. DFID must ensure these links are acknowledged in its work.
Scheduled castes and tribes continue to be discriminated against in India. This is widespread, and unless it is challenged, these groups will not be able to take advantage of opportunities to improve their lives. DFID should focus more widely on social exclusion.
We support pro-poor private sector development. However, DFID's proposal to fund it needs to be more carefully thought through. DFID should identify specific sectors and projects which the private sector would do best, before committing such a large percentage of the budget to it.
The Government aims to forge a new enhanced partnership with India which we support. There are mutual benefits from cooperation in trade and investment, responses to climate change and education for example. However DFID must ensure UK Government policies help protect the poorest and reduce inequalities. DFID should also establish a "Forum for Development Dialogue" with the Government of India to share best practice.
Assuming, over the next four years, that India continues to grow at current rates, increases its tax revenue and continues to invest in improved public services, it will have increased its capacity to tackle poverty and meet the Millennium Development Goals. DFID should continue to provide technical assistance where requested but the funding mechanism should change by 2015.