India to accept aid from G-8 countries

The United  Progressive Alliance (UPA) government has partially reversed the 'no bilateral foreign aid' policy of the previous National Democratic Alliance (NDA) government.

The finance ministry today announced that it would now accept bilateral development assistance, from all G-8 countries (the US, the UK, Japan, Germany, France, Italy, Canada and Russian Federation) as well as the European Commission.

In a release, it said it would also "welcome" official aid from other countries of the European Union, outside the G-8, provided their package was worth at least $ 25 million per annum. The move was based on "a review of the existing policy of bilateral development co-operation to affirm the liberalisation and reform orientation in India's economic policy,"  the finence ministry release said.

Other countries, not covered by the above policy could consider providing bilateral aid directly to autonomous institutions, universities, and non-government organisations (NGOs) as before. A simplified policy to facilitate the flow of bilateral assistance to NGOs and autonomous institutions would be announced shortly, it added.

In May 2003, Finance Minister Jaswant Singh had announced in his Budget speech that as India had, from being an aid taker, become an aid giver, it no longer wanted development aid.

This announcement was qualified by a list of six countries ""the US, the UK, Germany, Japan, Russia and the European Union"" from whom the aid would be accepted by India. This was further qualified ""no government-to-government development was needed, thank you but if the governments in these countries wanted, they could give development aid to non-government organisations (NGOs).

"Our strength lies not in raising walls but in raising standards," Jaswant Singh said.

But in the absence of clear enabling guidelines on how this aid was to come in, several aid givers were reduced to pleading with the government not to wind up projects that had been going on and in many cases had done a lot of good.

This was followed by a circular from the finance ministry on the sectors and areas in which NGOs could accept development aid. This meant the winding up of several projects funded by foreign aid that the bureaucracy was heading.

The government's position was that of the development aid from 22 donor countries prior to 2003, the total aid from 16 added up to $450 million. The cost of administering the aid was so large that it defeated the purpose.

Besides this, the universal prescription""even offered by multilateral lending agencies"" as that aid in the social sector must be used for capacity building.

It was also important not to give a political colour to the aid. If a foreign government gave aid and directed the government that it must only be used for a specific sector in a specified part of India, this could not be acceptable to the government.

Given the wooliness in policy, several foreign governments, including Germany and France, sought clarity. Finance Minister P Chidambaram had meetings with delegations from a number of western countries on this issue last week.

"Now that there is a signal that the government is going to accept development aid from us, we are planning partnerships with India in third countries for a modern outlook to aid giving," said an exultant western diplomat.