How to subcontract your foreign aid budget

More UK aid to India debate this week (see earlier posts here and here).

India has pledged $5bn in aid to help African countries meet the MDGs and got berated by the FT for being behind the (Chinese) curve.

Hold on… Didn’t UK aid agency, DFID just pledge £1bn ($1.5bn) to India for the same next 3 years in the run up to the 2015 MDG deadline? (because a third of the world’s poor live in India – largely in the poorer states).

So $1.5bn goes in as UK foreign aid to India and $5bn goes out as Indian foreign aid to Africa?

However, maybe that’s not as strange as it sounds. Transactions costs aside, why might India be better at doing aid in Africa?

Here’s 3 thoughts based on an underlying theme of knowledge/expertise transfer –

First, India certainly knows how to unleash growth so perhaps the technical expertise can be transfered.

Second, India is starting to get an enviable record on social policy architecture with a 20% increase in social spending this year (on last year), a national rural employment programme, and a new cash transfer programmes for the poor, amongst other new policy measures.

Third, one could speculate that it is easier to support domestically-driven positive change via aid without colonial baggage? (policy expertise and advice might be better received?).

India’s of course has various historical and continuing trade and business links with many parts of Africa, East Africa for example. Maybe supporting the expansion of these give it a comparative advantage in aid to Africa.

The question comes down to not only how the aid will be used but also down to scale. The pledge $5bn of Indian aid to Africa is large – not only because it is the size of India’s annual health care budget but also relative to the size of African economies. However, it’s still only half the size of the $11bn (£6.8bn) UK aid to Africa over the same period 2012/3-2014/5 by our quick estimate using the data DFID released in the UK aid review earlier this year (I guess one could of course work it out as proportion of GDP too and how far India is from the 0.7 global aid pledge).