Working in my full time job at a small retail store in Norwich I have come across many people complaining in general ”Why do we waste our taxes on giving money to other countries?” This question has also been posed to me from some of my colleagues at the store who know I have been studying development economics. However at the time I found the question relatively hard to answer. Why do we give aid to a middle income country such as India, which has its own space program and more billionaires in its country than the UK and Canada combined? This question has reemerged recently with the declaration by the UK government that it will halt aid to India by 2015. Below I hope to outline some of the points why we should continue giving aid to such a country.
Firstly it should be recognized that India is far from a wealthy country, as many advocates of aid abolishment to the country would have us believe. Most of the wealth in India is controlled by a tiny elite. This is most evident from the fact that one third of the world’s total poor (below the World Bank’s poverty line $1.25 a day) are from India and one half of Indian children are reported to be malnourished. Moreover their are more poor people living in India than the combined total of those living in the 26 poorest African economies. (http://www.bbc.co.uk/news/10609407).
Secondly whilst the British media plows on about Indian billionaires and space programs the truth is that India has limited capacity for redistribution of wealth to fight poverty. A 2009 World Bank Report suggests it would be impossible for the country to fill its poverty gap via redistribution. Even with a marginal tax rate of 100% on the richest individuals (those about the national american poverty line) the revenue generated ‘could fill only 20% of the poverty gap” (Ravallion, 2009:14). This supports the case for continuing aid to the region.
Lastly it is important to look at what has already been achieved with the aid sent to the region. A 2012 DFID report (http://www.dfid.gov.uk/documents/publications1/op/india-2011.pdf) reports that the money sent to India in 2011/12 put an extra 835,000 children into primary education. Between the years 2011-2015 the aid donated from the UK is projected to have provided 3.6 million people with access to low carbon energy such as cooking stoves and solar lanterns. Furthermore it projects 2.8 million more people will have access to improved sanitation over the same period as a direct result of British aid money.
Unfortunately this just seems like a cheap political tactic to gain votes at the expense of combating poverty and possibly saving lives. More importantly, policies of altruism should not be abandoned in favor of misguided national self interest just because our economy is facing difficulties. The recession has affected us all, however we are very fortunate to have social safety nets which cushion us from absolute poverty, in India this is not always the case.
Martin Ravallion, 2009, “Do Poorer Countries Have Less Capacity for Redistribution?” available at http://elibrary.worldbank.org/docserver/download/5046.pdf?expires=1360679240&id=id&accname=guest&checksum=4A71C28DD2F3336B1E014BC7EBC050A7