Sunday, March 25, 2012

Foreign Aid - The Debate

I am returning from a long hiatus. While I work quite a bit of hours, I can't say that the hiatus resulted from a higher workload. I have traveled for work quite a bit in the past few months, but I can't say this directly contributed to my lack of motivation to blog. I guess I have no real excuse, but I am back and I hope this post will serve to start a discussion.

A few weeks ago, the head of the international development practice of my firm visited from DC. He did a whirlwind tour of Delhi, Mumbai and Chennai. We set up meetings for him with NGOs, diplomats, law firms, and entrepreneurs. When he was in Chennai, we began an interesting debate, which has stayed with me since. Foreign aid and its purpose. Let's face it, funding for foreign aid is one of the first things on the proverbial "chopping block" when a government tries to reduce spending. The debate of governments' responsibilities to their citizens vis a vis foreign citizens inevitably ensues.

Questions of "why should we pay for the building of schools and hospitals in less well off countries, when our own schools and hospitals are struggling with shrinking budgets?" "Why if country X has a perfectly functional government, should we help pay for the poor children of country X to read?" "We have lots of problems at home, why should we support foreigners' whose government is not capable of or does not care to adequately support them?" All are perfectly reasonable questions.

Here are a few other things to consider - poverty alleviation, improving education, and job creation are both domestic and international issues. While we hope and work towards improving the situation at home and abroad the situation not ever be perfect. However, a wealthy country's purchasing power abroad is much higher than at home. The impact of a bit of aid coming from a wealthy country is much higher than at home. If we can help using relatively little funding and make a big difference to multitudes, why not do it? Foreign aid, when administered through cooperation with the beneficiary government is good foreign policy, which results in improved bilateral relations. I know this may be a bit simplistic, bu better relationships between countries lead to trade, which results in job creation jobs and economic growth on both sides of the border.

UK and India

In the past few months, UK and Indian press have been replaying a quote by Pranab Mukerjee, India's Finance Minister saying that British aid is no longer necessary and is "peanuts." The quote fueled controversy in the UK over the role of DFID, British aid agency, in India - the top recipient of British aid. By the way, this quote is actually from 2010 and was taken up by two MPs who are making the argument for a reduction in British foreign aid.

Sure, India's economy has shown robust growth, growing up to 10% a year. Was no one really left behind during this blockbuster economic growth spurt of the past five years? The latest data released by India's Planning Commission indicates that poverty in urban India declined by 20.9%, in rural India by 33.8%, and at all-India poverty level declined to 29.8%  in 2009-2010. While states such as Himachal Pradesh, Madhya Pradesh, Maharashtra, Orissa, Sikkim, Tamil Nadu, Karnataka and Uttarkand saw a decline in the poverty ratio of 10 percentage points, states such as Assam, Meghalaya, Manipur, Mizoram, and Nagaland saw their poverty ratio increase. Bihar, Chhattisgarh and Uttar Pradesh have only seen a marginal decline in the poverty ratio.

However, these census figures do not capture the whole picture. For example, data shows that minorities and marginalized community groups - scheduled castes and scheduled tribes - still predominate the least well to do. Casual or temporary laborers in urban areas - those that come to cities for better opportunities - also have a very high incidence of poverty. According to the data released by the Planning Commission, poverty among casual laborers in Bihar is 86%, Assam is 89%, Orissa is 58%, Punjab is 67.6%, and West Bengal is 53.7%. Data released by the National Sample Survey Office (NSSO), indicates that while 2009-2010 is characterized by significant economic growth, this type of growth generated a rather small number of jobs. Furthermore, while the number of temporary workers grew by 21.9 million, the number of regular or full time workers only grew by 5.8 million, meaning that people have less opportunities to find stable and steady employment.

The last piece of statistic I wish to bring up is the measurement of inequality. Latest data released by the Planning Commission indicates that all-India inequality worsened - the Ginni coefficient (which measures inequality) went from .35 to .37.Inequality worsened in rural areas of ten states and urban areas of 18 states across India. If you want to compare to inequality in the United States', the Ginni coefficient in the US in 2009 was 46.8.

So we can see that while overall poverty declined, a closer look at the data indicates that India is experiencing a widening of the space between the proverbial "haves" and "have-nots." True, India is one of the world's fastest growing economies, with immense yet-to-be-realized potential, is home to the largest number of billionaires, but it also home to a large population in need of home and foreign government assistance.

Sorry, I veered into India-specific statistics, but I feel there a case to be made for foreign aid to the world's most vulnerable. What do you think?


       Gilligan, Andrew “India tells Britain: We don’t want your aid” The Telegraph 4 February 2012 <>

2.       Mehra, Achal “Let them eat cake” Little India 16 March 2012 <>

3.       Mishra, Asit Ranjan “Fewer poor, but still a long way to go” LiveMint 20 March 2012 <>

4.       Padhamanabhan, Anil “Poverty falls, but inequality worsens” LiveMint  20 March 2012 <>