India says it has turned its back on aid — but is this true?

When foreign aid poured into India during its catastrophic second wave of COVID-19, critics decried it as a reversal of the country’s long-standing policy against accepting humanitarian assistance from abroad. But it is an oversimplification to say that India doesn’t accept aid — or that economic growth in the country means that it is no longer needed. Once dependent on aid to mitigate the impacts of disasters, famines, and persistent rural poverty, India has in recent years transitioned from being a recipient to a net donor of foreign aid. A turning point was marked after the 2004 Indian Ocean tsunami, when former Prime Minister Manmohan Singh turned down humanitarian aid, stating that “we feel that we can cope with the situation on our own.” Over the next two decades, India repeatedly made a point of declining international assistance. In reality, however, India never stopped accepting foreign aid. In fact, according to the Organisation for Economic Co-operation and Development data, in 2020-2021 it was the highest recipient of Official Development Assistance in the world. What changed in the early 2000s was the terms on which aid was received, with India announcing an end to bilateral aid from all but five countries and the European Union. Other donors were requested to direct money via multilateral institutions such as the World Bank. The focus also transitioned away from funding traditional poverty-focused aid projects, with India instead encouraging investments that would spur economic growth. Japan, for example, India’s largest bilateral aid donor, is currently funding several infrastructure projects — including a new metro system and freight corridor — through its development assistance agency JICA, according to India’s Receipt Budget for the current fiscal year. “The quantum of aid has not reduced, but the nature of aid has changed. So from agriculture and food, now the focus is more on infrastructure,” said Himanshu Jha, an associate professor at the University of Petroleum and Energy Studies in India, whose research focuses on public policy and development. In short, India has increasingly rejected aid earmarked for projects working directly on poverty reduction, instead prioritizing a policy of development cooperation to boost economic growth across the country. “Instead of one-off interventions, India has a long-term ambition for aid,” said Jha. Despite the rapid economic growth achieved so far — the country’s economy is now the fifth largest in the world — the gains have failed to trickle down to India’s lowest-income citizens, said Jha. “Inequality is something which is challenging India,” he said. Even though absolute poverty has declined, the World Inequality Report 2022 found India to be among the most unequal countries in the world, ranking 123 out of 161 countries. As a result, India still underperforms on a number of key development metrics. The 2018 Annual Status of Education Report, or ASER, report, a nationwide citizen-led survey, found that 50% of Class 5 students — typically aged around 10 — could not read a Class 2 level book, aimed at 7-year-olds. In healthcare too, India lags behind other countries of a similar economic standing: It has just 1.7 trained nurses per 1,000 people, short of WHO’s recommended three, and a report published in 2018 by the medical journal The Lancet found that 1.6 million Indians die every year due to poor quality healthcare. So why has economic growth not helped India to address inequality? Part of the problem lies in India’s low tax-to-GDP ratio, believes Avani Kapur, a senior fellow at Delhi-based think-tank Centre for Policy Research, or CPR. In low-income states in particular, the inability of the government to raise revenue, coupled with weak state capacity, limits the effective delivery of welfare services, she said. Government data show that public healthcare expenditure touched 2.1% of GDP in the current fiscal year, for example — an increase from the average of 1.4% before the pandemic, but still far lower than other countries with an equivalent GDP. “A large number of states still remain highly dependent on the union government for financing,” said Kapur — an inequality that became particularly apparent during COVID-19. “You saw such differences across states and their ability to respond to the pandemic,” she said. “I think the recognition of [individual] states’ role in the social sector definitely came to light.” In the absence of state capacity building and high-quality public provision, there has been an increasing overreliance on the private sector to plug the funding gap in recent years. Nearly 50% of India’s primary school-going children are educated privately, with a lack of public trust in the quality of services driving demand, according to survey data gathered by CPR. And of the 1.9 million hospital beds in India, almost two-thirds are in the private sector. Not only does this trend toward privatization increase inequitable access to services, said Kapur, but outcomes often aren’t much better in the private sector, which suffers from a “lack of adequate regulatory and accountability mechanisms.” “When it comes to scale, governance and equity, the state is and should be the primary actor, and building that capacity will be critical instead of outsourcing it,” she said. While foreign aid is a drop in the ocean compared to government social sector spending — ODA to India reached $2.8 billion in 2019, compared to the $70 billion spent on welfare by the government — it can help to address extreme poverty, through grassroots partners on the ground, in areas where state capacity is low, said Jha. “Wherever the reach of the State is negligible, the NGOs and civil society will come in to fill that gap in the delivery mechanism,” he said. For India however, maintaining a narrative of self-sufficiency is of such geopolitical importance that this source of funding has been seen as increasingly problematic, said Jha. As India started bidding for a bigger role in global affairs, it began “weaving a political discourse where our government cannot be seen as a government which is completely dependent on foreign aid,” he said. This vocal rejection of aid, coupled with its role as a donor to other developing nations, shows the country’s increasing tendency to use aid as a tool of foreign policy, helping to project an image where “India is portrayed as this global power,” said Jha. While India welcomes aid which can be viewed through the lens of investment, accepting assistance for humanitarian crises contradicts this narrative of self-reliance; particularly when it comes to bilateral aid, which often came with conditionalities. Ending tied aid in favor of multilateral investment demonstrated India’s increasing intolerance for external influence on policy, and allowed the government more control over where funds were spent. The impact has been felt particularly in areas that might portray India in an unfavorable light, such as poverty reduction and human rights. India has not only rejected official development assistance to address poverty. NGOs working within India have also been hampered, as their work highlighting on-the-ground realities often directly contracts the narrative of the government. In 2020, the government introduced an amendment to the Foreign Contribution — Regulation — Act, or FCRA, legislation that regulates foreign funding, both tightening restrictions on how funds could be spent and prohibiting the transfer of foreign funds between organizations. Following what Jha describes as “a lack of trust on both sides,” over 20,000 NGOs have lost their FCRA licenses since 2011. With much of foreign aid now routed through multilateral organizations, this has created huge barriers in distributing funds to many smaller or rural nonprofits. “Earlier the civil society, or NGOs were seen as partners in development,” said Jha. Now, he said, they are seen as “actually working against the state.” What happens next? Until economic growth can address gaps in state capacity, said Jha, what is needed is more engagement between the government and the global aid regime: “embedded in what your country needs, where the gaps are, what kind of agencies the money needs to be given to." From all sides, “there needs to be a transparent and accountable system that the aid regime in India needs to move into,” he said. “Rather than having these positions which are motivated politically.”