India's transition from a foreign aid recipient to a net foreign aid giver was an important symbol. True, foreign aid granted by India isn’t classic development assistance, but the fact remains that 23 countries are recipients. But, substantively speaking, foreign aid is a hyped-up story everywhere. The US has recently made noises about India no longer deserving foreign aid, having become a ‘transforming’ nation. But America offers only 0.15 per cent of its national income as foreign aid and that too is concentrated in a few countries. India isn’t one of them. Indeed, private aid from a single organisation is more than foreign aid from all the OECD countries put together. And not only is foreign aid inefficiently used, as experiences of several African countries demonstrate, it is a pretext for developed countries not to open up markets; gains from free trade are more than those from aid. India’s reforms recognised the superiority of non-debt creating capital inflows (like FDI) over debt in financing current account deficits and the importance of private flows. With foreign exchange reserves of $220 billion, annual aid of two billion dollars is a trickle India can do without. Problems in social sectors or governance don’t result from a paucity of resources, but inefficient expenditure. So, really, there’s little reason to feel happy that Americans have changed their name for us. There is no reason for the US to argue that India deserves different nomenclature while withdrawing aid or considering duty preferences. Aid is something India has willingly forgone of its own accord, since benefits are not commensurate with costs; market access liberalisation (including labour markets) is of course different. As far back as in 1998, we had seen that withdrawal of foreign aid had had no impact on the economy. During the tsunami, India said no to aid. In the last couple of years, the Department of Economic Affairs has implicitly also said no, triggering the withdrawal of several minor donors. The time has come to make this message loud and clear. Why wait for other countries to tell us what we should be saying ourselves?
