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Inside Story
Moving from aid to trade
As the world's major aid donors face economic problems, can wealthier nations still afford to fund the poor?
Last Modified: 10 Nov 2012 19:57

Britain plans to scrap development aid to India by 2015 as critics argue the fast-developing nation no longer needs the money - and the UK can no longer afford it.

"It's obviously terrific that India is now growing fast and that is improving the lives of many of the people - both the wealth and some of the burgeoning middle class …. But the fact is that there is still a very large number of very poor people in India and on average it's still a country with very modest incomes. So although we're aware of the growing inequality and the very large number of wealthy people - there’s an enormous number of very poor people who are being reached with British aid at the moment."

- Owen Barder, Center for Global Development in Europe

But some aid organisations have already voiced their concerns that India's poorest will miss out.

Oxfam says the decision to completely withdraw funding is "too hasty" and World Vision criticised the decision, warning that it was “no easy task for any government to lift so many out of poverty in the short term”.

Britain is instead pledging a new approach to foreign aid that will not include India with a greater focus on helping the world's poorest.

The UK says the relationship will move from aid towards trade as its granting of foreign aid becomes increasingly controversial at home.

In a statement Justine Greening, the UK's development minister, said: "Having visited India I have seen first-hand the tremendous progress being made. India is successfully developing and our own bilateral relationship has to keep up with 21st Century India. It's time to recognise India's changing place in the world.''

Critics of foreign aid also argue that pouring millions into relatively wealthy countries devalues the concept of aid.

The UK is among the world's top foreign aid donors and is committed to increasing expenditure in line with United Nations targets, which for the world's wealthiest nations, is to increase foreign aid expenditure to 0.7 per cent of GDP by 2013.

"This cannot be an ego issue; this is not something that has been channelised to the Indian economy per se. I don't think we should look at aid as help, we should look at it as a contribution – that's a positive term .... Instead of using the words "aid versus trade" we've got to look at it as "aid versus trade-off" it has to be a win-win situation … Let it continue the way it is but try and ensure there is a reverse contribution from that state that benefits Britain."

- Chetan Sharma, a financial analyst

But as the world's major donors face economic problems of their own, some argue that foreign handouts would be better spent at home. The UK is itself currently spending $70bn in interest payments on its debts.

Meeting those UN targets means getting UK taxpayers to foot a $20bn foreign aid bill - which is an estimated quarter of its entire defense budget.

Meanwhile, India, a former British colony, is one of the fastest growing economies in the world and its manufacturing industry has helped make it a major global player. But while the rewards for some have been huge - for millions poverty remains a brutal reality.

Yet, there have been signs that foreign aid has become unpopular among some Indians. Earlier this year, P. Chidambaram, India's finance minister, told the parliament it was "perfectly acceptable" for the UK to reduce the assistance.

"We don’t really need the aid ... We have accepted it in the past but I think both countries have agreed that we can emphasise on trade, rather than aid," he said.

So, with billions of dollars being sent to relatively well-off countries, can the world's wealthier countries still afford to fund the poor? And is foreign aid getting to those countries that really need it?

To discuss this, Inside Story presenter Stephen Cole speaks to guests: Owen Barder, a senior fellow and director of the Center for Global Development in Europe. He was a former senior official at the British department for international development; Chetan Sharma, a senior financial analyst and columnist; and Alex Scrivener, the policy officer for the World Development Movement and a specialist on aid.

"We spend just 0.6 per cent of our gross national income on overseas aid and if you compare it to the amount of money [spent on] the UK foreign policy and trade policy through the World Bank and the IMF we are actually sucking out of developing countries through unfair trade, it's actually not very much money at all.

What we must remember is that India is a country full of very, very poor people - it is one of the most unequal societies in the world. Half a billion people live in conditions of extreme poverty. So when we talk about giving aid from rich countries to poor countries, that's an outdated way of looking at things we should be thinking about it as rich people and poor people - and there are a lot more poor people in India than there are in the UK." 

Alex Scrivener, a policy officer for the World Development Movement


DONORS AND RECEIVERS OF AID:

The five biggest aid donors in the world, as of last year are:

  • The United States, committing $30.7bn a year 
  • Germany, which gives some $14.5bn annually, followed by the UK, France and Japan

The biggest recipients of aid are:

  • Afghanistan, which receives about $5.3bn a year
  • Indonesia, which gets more than $2.9bn
  • India, which receives about the same - $2.9bn
  • China, which gets $2.4bn
  • Iraq, which receives $2.3bn

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