India blurring the policy lines on international aid

When India’s new government announced last week that it would accept aid from Group of Eight countries and other European donors, it to...

When India’s new government announced last week that it would accept aid from Group of Eight countries and other European donors, it took many donors by surprise. The previous government had restricted bilateral aid to six donors — UK, US, Russia, Germany, Japan and the EU — in a bid to style itself a donor rather than a recipient of aid. But last week New Delhi reinstated donors such as Canada, France, Italy and the Scandinavian countries.

India receives about $5bn a year in aid, mainly from the World Bank, the Asian Development Bank and Japan. Although it has increased the number of donors and invited aid packages of more than $25m a year, the new government led my prime minister Manmohan Singh has signalled it has not wavered from India’s aim to ‘‘graduate’’ from needing aid to giving it. But it has so far failed to clarify the direction of its aid policy — an uncertainty that could damage India’s efforts to be ranked as a permanent UN Security Council member.

India’s policy involves reducing dependence on foreign aid while extending soft loans to poorer countries, particularly in Africa. But the approach has been criticised. A report by the London-based Royal Institute of International Affairs describes it as ‘‘muddled, if not hypocritical’’.

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India’s aid policy, it says, is a ‘‘blurring of the distinction between the various new economic, political and developmental objectives — reinforced by a lack of transparency over what is actually being done.’’ Many countries’ foreign aid schemes mix benevolence and self-interest.

And aid campaigners criticise donors for tying assistance closely to the purchase of goods and services. But the RIIA warns that while India has banned tied aid from donors, its own development assistance, while not strictly tied aid is linked to the purchases of Indian goods and services.

New Delhi has offered several African countries discount loans to finance Indian exports. Indian commercial loans to Africa, channelled through its Exim bank, totalled about $110m last year. But investment has not been far behind the aid.

In one of India’s largest in Africa, ONGC Videsh, the Indian state-owned oil producer, acquired crude oil assets in Sudan worth $750m last year. ‘‘Oil is emerging as an instrument of determining frontiers in international relations and for India to have taken equity in a Sudan oilfield shows great foresight,’’ says Abdal Mahmood Abdalhaleem Mohammmad, Sudan’s ambassador to India.

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Through several other state-owned banks, India in March offered lines of credit worth $200m to the 23-nation New Partnership for Africa’s Development and $500m to eight west African countries.

These finance schemes, several offered at half a percentage point above Libor, could explain the 16 per cent increase in Indian exports to Africa during 2003-4. The exports include a $19m World Bank contract won last year by Tata Motors to supply 500 buses to Senegal.

Many of these export finance schemes were grouped under the India Development Initiative, a policy launched by the NDA government. But there is uncertainty about whether that initiative was meant to attract investment to India or channel Indian assistance to other countries.

But P. Chidambaram, India’s finance minister, has put the India Development Initiative under ‘‘review’’.

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Whatever the outcome of that review, foreign donors say India’s aid policy risks being shaped by a belief among New Delhi’s political elite that dependence on foreign aid weakens the country’s rising economic and diplomatic clout.

— NYT