On 9th November 2012 the United Kingdom (UK) announced that it will end its financial aid to India by the year 2015. New “programmes will take the form of technical assistance,” while “investments in private sector projects” will be expected “to generate a return,” according to its Department of International Development. The UK government goes on to note that the “shift reflects India’s successful transition to become a key part of the global economy.”
This policy shift has also to be contextualized within the current economic situation in the UK, in particular, and Europe more broadly, viz creeping economic downturn and the implementation of sweeping austerity measures.
At first glance, and for those with knowledge of the history of the two countries, this mutually agreed decision marks both the end of an era, and to some degree, the culmination of a complex relationship which spans trade (1600s), colonialism (1858-1947), and aid (post 1948). According to the UK government, the period marking the end of aid to India will entail a focus on trade and technical assistance.
In laying out its rational for ending aid to India, the UK government highlights that in “2010, bilateral trade between the UK and India grew by 20%”, with a “total to £13 billion.” It is important to note that UK goods exported to India grew by 37% while goods imported from India increased by 27%. In addition, Indian investment to the UK is also growing, with several notable deals, including the purchase of Jaguar Land Rover by Tata for £1.15 billion in March 2008. These recent deals, as well as the decision to end aid, are concrete examples of India and the UK’s economic transitions and a larger geopolitical shift, with implications for trade, international relations and global governance.
Specifically within the context of development finance, India, as a member of the BRICS, is involved in talks to establish a development bank. To date, with the exception of Russia, a majority of financing is focused on infrastructure development, for mutual benefit in the spirit of South-South cooperation. It remains to be seen, given their differing positions on conditionalities and tied aid, and their national economic interests, the extent to which the proposed bank’s policies and approach will diverge from the ideology of the Washington Concenses.
The UK’s efforts to embrace “trade not aid” by 2015 in India, which many development advocates and activists have been promoting can be encouraging if there is a level playing field. However, the extent to which this shift will result in a departure from protectionist measures by the UK, such as agricultural subsidies and intellectual property, must be evaluated in part against its bilateral and regional trade policies with India.
In addition, much touted and linked to India’s increasing economic success, albeit uneven geographically and in terms of distribution within its population, specifically along caste and gender lines, is that India’s development efforts have resulted in approximately 60 million people moving out of extreme poverty in the last years. However, even the Indian government acknowledges that inequality and poverty remain challenges to its development, which makes the following question pertinent: will the current Indian development model and increasing neoliberal approach to economic growth result in sustained reductions in poverty and inequality?
2 Brazil, Russia, India, China and South Africa