J Shivakumar/Inder Sud
Aid agencies should fall in line with India’s policy priorities, which lie in infrastructure
The relevance of foreign aid for India is open to debate. Thirty years back, India topped the list of foreign aid recipients. But foreign aid as a share of GDP has since been shrinking and today, it accounts for less than 0.3 per cent of India’s GDP. Indeed, India now gives more in foreign aid than it receives; 2014-15 indicates aid outflows at $1.3 billion while net foreign aid receipts are $665 million.
There are also questions about the effectiveness of foreign aid. There is an over-emphasis on volume and insufficient emphasis on concrete, measurable outcomes. There are also questions about alignment of donor priorities with those of the country.
Increasingly, in response to pressure from their developed country masters, donors promote difficult social agendas, ignoring the reality that social change can only happen if it is home-grown and not imposed from the outside.
Not surprisingly, a number of middle-income and rapidly developing countries are shying away from foreign aid. Only in a handful of poor countries — generally small, and mostly in Africa — does foreign aid remain a significant player in development.
On the other hand, some successful developing countries — Korea, Malaysia, Thailand, Chile from the years past, and China more recently — have been able to prime examples of effective utilisation of available aid.
A strategy for aid
The Modi government, with its ambitious development agenda, can follow a similar strategy. Free-standing analytical, advisory and technical activities should support only India’s development agenda, not the donor’s. The bulk of their investment support should be shifted to large infrastructure development.
There are only three aid entities of major significance for India: Japan, the World Bank and the Asian Development Bank. Their investment funding should be focused on infrastructure; they should not spread themselves thin in every field of development.
Infrastructure is an area in which all three have significant expertise. The three among them can commit at least $10 billion per annum for the next five years, with potentially an equal amount of private financing.
However, consistent with Modi’s vision, India should ask for commitments from these institutions around outcomes instead of volumes. In 10 years, help us complete the Golden Triangle Network to at least six lanes; sewerage treatment systems for all towns around the Ganga; complete the industrial corridor; build high speed rail between Kolkata, Delhi, and Mumbai; ensure uninterrupted power supply in at least ten states.
They should be asked to think in terms of at least a 10-year commitment instead of their conventional 3- to 5-year commitment cycles.
Push for education
Most of the other donors are either small in size or limited in what they can offer. They should be asked to coalesce around higher education and research.
All industrialised countries have a significant number of reputable universities and research institutions. They should be asked to tap the expertise of these to help existing or new Indian institutions.
As in the case of infrastructure, we should aim at concrete outcomes. Can a donor establish at least two world-class universities in 10 years? Can we have at least one top-notch university in each State and Union Territory?
A realignment of aid utilisation will require a mindset change among the finance ministry mandarins.
The Prime Minister has already shown that he is capable of galvanising the mindsets of civil servants. This bodes well for the development of an implementation and results culture in India.
Aid managers in the finance ministry can surely bring together aid donors, articulate India’s priorities and, yes, even insist on them. They should be willing to turn down any offer that does not fit within the Government’s priorities.
The truth is that donors need India more than India needs donors.
The writers have served as directors of the World Bank
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