India tells UK to turn off the aid tap already

Reported yesterday in the English language daily newspaper the Indian Express*:

The External Affairs Ministry has instructed the Finance Ministry to inform London that India will not accept further aid from next April...

“…[I]t would be better if our decision not to avail any further DFID assistance with effect from 1st April 2011 could be conveyed to the British side in an appropriate manner at the earliest,” [Foreign Secretary Nirupama Rao] wrote to Finance Secretary Ashok Chawla.

Ahead of Cameron’s visit, India had considered rejecting DFID offer in view of the “negative publicity of Indian poverty promoted by DFID”.

Welcome to the paradox of aid to India. On the one hand, the World Bank still classifies India as a “lower middle income” country. With a per capita GNI hovering around $1000, it is home to one-third of the world’s poor, and 75 percent of its population lives on less that $2 per day.

On the other hand, India is the world’s 11th largest economy. It has a space program, a nuclear weapons program, and it is projected to grow by 9 percent this year and 8 percent the next.

At the same time that India is telegraphing its readiness to lessen its dependence on official aid, it is also positioning itself as a donor, using its aid money just as traditional donors do, to gain friends and influence among its neighbors. Though no one knows exactly how much aid India gives out (it does not have one central development agency, nor does it report aid statistics to the OECD) India recently offered a $1 billion loan package to Bangladesh and announced $25 million to aid Pakistan’s flooded areas.

Over the last decade, India has consistently been the largest recipient of the UK’s aid, receiving some $3.3 billion since 2001. But last month, we learned of a major change in Britain’s criteria to allocate aid, requiring that aid projects make “the maximum possible contribution to national security.” The UK development secretary has basically admitted that this means places of current military-strategic interest, like Afghanistan, are in, while holdovers from colonial- and Cold War eras, like India, are out.

Apparently, India got this memo as well and has decided to preempt UK cuts by announcing that India no longer needs the aid anyway, thank you very much.

*Thanks to reader Luke Seidl for the tip.