2 Should the DFID India aid programme
continue?
The scale of the poverty is immense in India.
The scale of the challenge is immense. That is why we walk this
last mile with them. I think that what India is doing, in terms
of its pro-poor policies, is extraordinary, and highly effective.
We were able to reach the conclusion that now would not be the
time to end our programme.[48]
It is the scale of the poverty in India that
is so very striking. There are seven-and-a-half times the total
population of the United Kingdom, who are living in India on under
80 pence a day. [...]It does underline the extent to which, if
you are seeking to tackle poverty around the world, India is central
to that. If you want to achieve the MDGs, India is absolutely
central to getting anywhere near doing so.[49]
17. Few doubt the extent of poverty in India described
by the Secretary of State and in the last chapter, or that the
MDGs will not be met globally if they are not met in India. The
poverty statistics in some states are comparable with many developing
countries. For example the state of Bihar with a population of
around 100 million has a per capita income of $321 a year; in
comparison, Ethiopia, which is likely to be the biggest recipient
of UK aid in 2011, has a population of just over 80 million and
a per capita income of about $330 per head.[50]
What makes Bihar different from Ethiopia however, is that
it is part of a much larger country with an average per capita
income of $1,170, or more than three times as much as Bihar's.
The Government of India might redistribute more income from richer
to poorer states, to help development in places like Bihar. This
is not an option for Ethiopia.
18. The evident poverty in many parts of India is
not considered a sufficient justification for the aid programme
by everyone. A range of arguments have been made for ending UK
aid, namely:
- India is a middle income country with a prosperous
middle class who could afford to pay for programmes to alleviate
poverty;
- India is spending large sums of money on a range
of projects such as its space and aid programmes which ought to
be spent on pro-poor policies for its own people;
- The level of corruption is such that little money
gets through to the poor;
- UK aid to India is so small in comparison to
Government of India and state spending that it cannot make a significant
difference; and,
- The money would be better spent in other countries.
TAXATION
19. We questioned the Secretary of State about these
points. He argued that the Indian people were paying substantial
taxes:
I think that, as India has become wealthier,
the extent to which they have sought to use their own resources
in tackling poverty is awesome. While income tax has increased
[...], they are now putting 30% of their budget into health and
education and rural development. [51]
The amount collected of revenue from direct taxes
(income plus corporation) increased on an average by over 25%
(between 2004-05 and 2007-08) until the global crisis hit India
in 2008-9. The revenue from direct taxes increased from £22.5
billion in 2005-06 to £42 billion in 2007-08 and are estimated
to go up to £75 billion in 2011-12.[52]
20. Although only 3% of the population (35 million)
earns enough to pay income tax—chargeable on incomes over
£2000 per year—income tax was 16.5% of total government
revenue in 2009-10. Total tax (income, corporation and other taxes)
was 17.7% of GDP. [53]
The comparable figure for the UK is around 39% of GDP. However
India's tax to GDP ratio is similar to that of China, and higher
than that in its neighbours Bangladesh (8.5%) and Pakistan (10.2%).
DFID told us a person earning £10,000 in the UK would pay
approximately £352 in tax per year. The same income in India
would incur a tax bill of approximately £1,558.[54]
21. Andy Sumner, of the Institute of Development
Studies, explained that in large middle income countries such
as India with huge pockets of poverty it would be difficult to
raise sufficient funds to end poverty through taxation alone.
He discussed research by the World Bank which asked:
What kind of marginal tax rate would you need
on the rich [...]to end poverty in developing countries? Two interesting
things come out of that. First of all, there are some large middle-income
countries with very large pockets of poverty: India, Nigeria,
Pakistan, China. These would need marginal tax rates that are
far too high to even conceive of going down that route, let alone
taxation systems in developing countries and the various issues
it raises about the capacity to collect that revenue. There were
a number of smaller middle-income countries that nevertheless
have poor people and could raise taxes. Indonesia was listed:
it only needed a marginal tax rate of about 8% in order to end
poverty in Indonesia.[55]
GOVERNMENT OF INDIA SPENDING PRIORITIES
22. Government of India spending has led to real
improvements in public services as demonstrated by the significant
increase in the number of children enrolled in school. The Secretary
of State stressed the scale of expenditure by the Government of
India and Indian states:
Their spend on health and education has doubled
in the last six years. The statistic that I find most striking
is that over the last six years, India has got 60 million children
into school. It is an absolutely remarkable achievement.[56]
23. The cumulative cost of the space programme is
$6 billion since it began in 1962.[57]
It does fulfil a defence purpose. However it also delivers important
socio-economic benefits including the provision of satellites,
mapping, weather patterns and flooding patterns.[58]
In response to questions about the space programme we were told
about its practical advantages for Government:
How does the Minister for Education identify
whether a school has been built for which he is about to pay?
The answer is that the satellite programme assists him in that.[59]
Moreover it is not unreasonable, given its geopolitical
situation, for India to have a credible defence programme which
includes investing in a space programme.
24. On the subject of India's aid programme it was
argued that there were situations in which India had particular
expertise, which were valuable to other developing countries,
for example irrigation techniques.[60]
India's assistance is mainly in the form of technical cooperation
to its neighbours.
CORRUPTION
25. There is corruption in India, as many senior
figures in India recognised. In Bihar we visited a scheme run
by the World Bank where a women's empowerment scheme had led local
women to take over the Government food distribution scheme in
their village because of corrupt management. The new Bihar Government
readily admits the existence of corruption and acknowledges that
it was endemic under the previous administration.[61]
DFID is funding consultants who are drafting a law for the Bihar
Government to ensure that public services, such as the issuing
of driving licences, are provided within a certain time—delaying
the issuing of such documents is a traditional way that public
officials demand a bribe. Text message systems have been established
so that the state Government can receive instant reports from
remote areas about public services such as the attendance of teachers
at school. The Secretary of State claimed that DFID was rigorous
in ensuring UK aid was not lost through corruption, stating that
it had a 'zero-tolerance' policy.[62]
DOES AID MAKE A DIFFERENCE?
26. The key questions about UK aid are whether the
money makes a difference and whether it would be better spent
elsewhere? In this Report we have focused on the first question
and whether DFID spending has directly contributed to poverty
reduction and the achievement of the MDGs. We quickly realised
that one of DFID's most useful contributions was demonstrating
successful approaches which could be replicated. The Bihar Government
informed us that proposals arose for excellent projects, but the
Government of India schemes were not sufficiently flexible to
provide the funds for them. This is where DFID stepped in. DFID
also provided technical support to state Governments. In Bihar
we were told that this technical assistance was a valuable additional
resource for the state. The Secretary of State emphasised DFID's
important catalytic role:
Above all, we hope that British expertise and
technical assistance, the power of demonstration, the work of
piloting, demonstrates on the ground something that really works
and can then be significantly scaled up by Indian taxpayers.[63]
27. India has a large and growing economy and
its spending on pro-poor policies has increased. The Government
of India is increasing its tax revenues and this will enable it
to do more to end poverty there. Its middle class, though small,
is paying taxes. Although India has a space programme, this has
important socio-economic benefits including mapping weather patterns
and flooding, both of which can assist development. Moreover India
needs a credible defence programme and satellites may be part
of this. India suffers from corruption, but in parts of India
where DFID has focused its work, for example Bihar, the state
Government has made a serious effort to reduce corruption. DFID
is also assisting this. Despite corruption, money does get through
to services, as the increase in school attendance rates demonstrates.
28. Given current high levels of poverty in India
we agree with the Government's decision to maintain an aid programme
in India until 2015 provided it can make a difference. Not every
DFID project currently does this and DFID must be more rigorous
in its choices over the next four years, funding only projects
which have a clear development benefit and which national or state
governments would not otherwise fund. DFID rightly focuses on
catalytic, demonstration projects which can be replicated and
scaled up. This approach should continue. However, some aspects
of the programme should change and we now consider what these
changes should be.
48 Q 206 [The Secretary of State] Back
49
Q 207 [The Secretary of State] Back
50
World Bank 2009. Back
51
Q 207 Back
52
Information from DFID Back
53
DFID, Income tax: comparing India and UK, March 2010 Back
54
The purchasing power parity (PPP)equivalent would be an income
of £35,000 in India incurring a tax bill of around £5454.
Back
55
Q 5 Back
56
Q 210 Back
57
Information from DFID Back
58
Q 207 Back
59
Q 207 Back
60
Q 155 Back
61
The Government in Bihar took power in 2005 Back
62
Q 235 Back
63
Q 258 Back
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