India’s quality of mercy

Meanwhile, India’s lack of grace in handling offers of international assistance for the tsunami victims seems bipartisan. The Vajpayee government reacted in the same manner after the earthquake in Gujarat in 2001 by saying “thanks, but no thanks”. This new trend on foreign aid suggests a certain sense of “growing up” on India’s part and a presumed determination to stand on its feet. While the sentiment is welcome, there is no running away from the fact that India will continue to need a lot of external resources, in the form of aid, loans, or investment, for its development.

The political controversy over New Delhi’s refusal to accept aid for immediate disaster relief has masked an important new trend: India’s emergence as an aid donor. Its rapid economic growth since the early ’90s has pushed it into a paradoxical position on international aid. New Delhi will remain doubly blessed when it comes to foreign aid. It will continue to receive aid, albeit in declining annual doses. Meanwhile India’s own aid to other countries will continue to grow.

It is that second trend that deserves some policy attention. At the IMF, India has now become a creditor nation signaling its desire to be taken more seriously in the politics of global finance. India, of course, has given aid from the very early years of the Republic. Bhutan and Nepal have received substantive sums of assistance over the decades from the external affairs ministry. India’s role as an aid giver, however, has gone beyond the traditional responsibility towards Bhutan and Nepal. A couple of years ago, it announced a credit line of US $200 million to the New Partnership for Africa’s Development (NEPAD). Last year, India announced a US$ 500 million credit line for nine West African countries called Team 9. New Delhi has smaller credit lines to many countries in India’s extended neighbourhood in South East Asia, Central Asia, the Persian Gulf and Africa.

After the fall of the Taliban, India has given impressive assistance to the Hamid Karzai government in Kabul. The present exposure of Indian aid to Afghanistan spread over some years is to the tune of US$ 400 million. In the year ’03-’04, India spent nearly US $380 mn on grants and loans to foreign governments. In an important political gesture in 2003, India also wrote off the debt owed to it by seven African countries amounting to nearly US$ 20 million. It has also begun to give substantive defence-related assistance to a few friendly nations and provides significant military assistance to Nepal in fighting the Maoist insurgency.

In short, resource outflow from India, in the form of international assistance has become significant in recent years. But much of that aid is decided and disbursed in an ad hoc manner. Neither is there an articulation of an over-arching set of objectives nor a mechanism to effectively manage India’s aid-giving. An attempt was made in the ’03 budget speech by the then finance minister, Jaswant Singh, to give some coherence to the process, when he unveiled the India Development Initiative (IDI). It was meant to reflect India’s new ability and commitment to advance the development of others. Jaswant Singh promised to reconsider the policy of offering loans and lines of credit and replace it with a scheme to provide grants and project assistance. Barring the debt relief offered to seven African countries, very little came out of the IDI. In ’04, new finance minister P. Chidambaram held back on the IDI pending a review of the concept.

One hopes Chidambaram would remember, when he makes his budget presentation this year, his promise to review the notions behind the IDI and come up with a broad set of guidelines for India’s external aid. In doing so, he will have to resolve some of the contradictions inherent in India’s aid-giving.

At the core of any new approach must be the recognition that external assistance has become an important tool of India’s foreign and commercial policy as well as a broader means to contribute to the economic development of other nations. As India gives more, it will be liable to the same accusations — political motivation and commercial interests — that New Delhi used to level against Western donors in the past. While India rejects tied aid from Western nations, its lines of credit do exactly the same in promoting Indian exports and the interests of Indian companies which are increasingly registering their presence abroad.

Some of this criticism is rooted in the reality of India moving away from a mere third world recipient of aid to a potentially significant donor. But as it seeks to assume a growing international responsibility amidst rapid economic growth, it must increase the component of its untied aid and demonstrate that the IDI is not an export subsidy to the Indian industry. In intent and execution, the IDI must be about facilitating the development of less-fortunate nations.

India’s external aid must now include larger amounts of developmental as well as humanitarian assistance without any strings attached. The Indian private sector, too, could contribute significantly in this effort.

As India begins to draw less from the global aid pool and contributes a little more, there is an urgent need to define the objectives of India’s assistance, locate the geographic priorities of its destination, identify the sectors where the biggest impact can be made, devise competent structures for aid administration at home and find ways to involve the non-governmental organisations.

Indians are ready to give. But India is yet to develop a policy on giving. As it begins to offer more to the world, it must recall the bard’s reference to the greatest quality of mercy: “It is an attribute to God himself; And earthly power doth then show likest God’s; When mercy seasons justice”.