The UK will continue to provide India over 1 billion pounds until 2015 despite political pressure to reduce aid to the booming Asian giant, amid deep cuts in public spending at home.
British aid to India would remain at 280 million pounds a year until 2015, but will shift to more investment in private enterprise, UK's international development secretary Andrew Mitchell was quoted as saying by the Financial Times.
Mitchell's comment, which came a day before formal announcement, is likely to infuriate some MPs who see no justification for the aid, while slashing defence or anti-poverty spending at home.
There were demands to cut aid to India due to the country's booming economic growth and reports of corruption in the use of British funds. A review of UK's overseas aid policy was launched after the David Cameron government took office.
The report questioned financial assistance to India, saying it is growing at 8.5 per cent a year, gives aid to Africa, boasts more than 126,000 US dollar millionaires and is one of only six nations with satellite launch capability.
However, Mitchell describes a "development paradox", in which poverty remains rife and India has a third of the world's malnourished children.
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He said: "Some people in both the UK and India have been asking whether the time has come to end British aid to India. In my view we are not there yet. India has more poor people in it than the whole of sub-Saharan Africa. If you’re going to achieve the (UN) millennium development goals, you have to make big progress in India."
Mitchell will withdraw development assistance from some "emerging economies", including Serbia, Moldova, Cambodia and Vietnam.
As aid to India falls in real terms while assistance to other nations rises sharply, it will be overtaken by Ethiopia as Britain's biggest bilateral aid programme, the report said.
By 2015 about half of direct grant aid to India will be replaced by "pro-poor" private investment including through CDC, the state-owned development finance group.
The bulk of the programme will be targeted on three poor states: Bihar, Madhya Pradesh and Orissa, it added.