Trade is better than Aid!
I think its not such a bad thing that the the U.S. has decided to call India a “transforming country” instead of developing one and as a result is going to cut aid. I think its a matter of pride.
Basically, I am glad that the US has not clubbed India with countries such as Iraq, Afghanistan, Pakistan or even Israel, which receive dollops of aid. It says here (about U.S. aid):
Iraq’s aid has been boosted fivefold for 2008, while Afghanistan and Pakistan together will receive more than 85% of the $2.2 billion aid budget for 12 countries in South and Central Asia. This is besides the hundreds of millions of dollars Washington provides these countries in budgeted military aid and loosely accounted money for the war on terrorism…some estimates put US economic and military assistance to Pakistan at $ 2 billion a year now.
The bulk of the $23 billion in annual US foreign aid goes to a handful of key countries, leaving about 120 nations to battle over the remaining $3 billion…. Overall US aid to India is slated to be cut to $81 million in 2008, a 35% cut from the previous fiscal, on the theory that it has one of the best-performing economies in the world.
This same article goes on to say ‘Trade rather aid.’ Now, that’s music to my ears.
Another thing to feel proud about – India which has been a donor country for some time now and in fact recently gave almost $1 billion to Afghanistan.
What I do feel sorry about is that aid to some ongoing projects in India will be cut, but really, I believe that in the long run they will be able to sort out their funding problems. Its not as if there are no other sources of aid. We have our rich corporates…
Looking at it from on overall point of view, the US anyway was not a big lender to India – Japan is. But I feel that this message from the U.S. is a reminder to us that we are capable of managing on our own, we have to slowly free ourselves from the shackles of foreign aid.
Why did I say shackles? Well, I believe the economists who say that foreign aid does not always help:
Kenya and Tanzania were both recipients of large amounts of aid from 1970-1996. Both countries pursued flawed economic policies, such as price controls, marketing boards and import substitution. Their extreme poverty was entirely due to those policies, and reforms have not been forthcoming in recent years because of entrenched economic interests.
In contrast, millions of the poorest people in the world live in China and India, whose economies are growing rapidly despite receiving trivial amounts of aid.
An example of a country that has received aid and pursued the right policies is Uganda, which liberalised trade, opened its economy to foreign investors and privatised state-owned enterprises. In this case, aid helped to lock in reforms that were already in place, and donors have not interfered with Uganda’s domestic political agenda. Although this is positive, Uganda’s economy is fragile because it is far too dependent on aid and its production is unsustainable.
The study concludes that economic growth depends not on the level of foreign aid given to a country, but on underlying, qualitative factors…
A country is poor because of the kind of government it has…once the government gets it’s hand on the money (foreign aid) it will invariably misuse the funds. How can you trust a government which has already messed up the country?? And poor countries are usually poor because the government usually plays a large role in the economy (this was the case in India before liberalisation) and usually wastes aid funds. Not just that – “…aid is spent on projects that benefit the political leaders at the expense of the citizens.”
As for India, we still receive aid (in the form of loans for developmental projects) from other countries besides the US (Japan is a big lender) as well as the World Bank. US aid has always been a small slice of the pie.
I cannot help but see this reduction of US aid as the beginning of a new era for India. We have been officially recognised as a “transforming” economy and I look forward to a time when India will be a giver rather than a taker.
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