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Re-thinking the foreign aid debate

Debraj Bhattacharya

Updated: February 25, 2013, 11:54 AM IST
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The recent debate as to whether the United Kingdom should withdraw aid from India has generated strong emotions in both India and the UK (See end of this paragraph for the link). Indeed the recent economic growth of India and the global recession have generated a debate in first world countries as to whether there is any need for development aid to India. There is already enough wealth in India, the argument goes which can be shared internally and international aid should therefore focus on poor countries such as those in Africa. Several small bilateral donor agencies have left India and several UN bodies have already cut their budget for India. Those who are staying are thinking about cutting down operations and focussing on certain poor states of the country.

The link mentioned above:

The likely impact:

There is no doubt that if donor agencies leave India, the Government of India will not have much difficulty. It already has enough financial resources to support its development programmes. This shift in aid thinking is however having and will continue to have in the coming years a significant negative impact on the not-for-profit organisations of the country, popularly known as NGOs or CSOs. They will become more and more dependent either on the government or the CSR wings of corporate entities for their sustenance. If an organisation becomes dependent on the government for funding, then it is most likely to be extremely cautious about criticising the government which is one of the central roles of an NGO or a Civil Society Organisation (CSO). It will then become an extended arm of the government and will get funds to implement what the government wants it to implement. But it will think thrice before criticising a government policy. This trend is already visible in different parts of the country.

On the other hand, if the NGOs/CSOs turn towards the corporate sector for financial support, they would have to do what the CSR wing of the corporate sector wants them to do through their aid policy. The general trend of CSR funding in India is to fund non-controversial aspects of development like basic health and education that works as a supplement to the existing government initiatives. CSR funding for research, evaluation, in-depth critical analysis of policy is rare. And to make matters worse, most corporate entities still think of CSR as a publicity opportunity for their company rather than a genuine effort at development work. There are some exceptions but they are exceptions.

In short, if international aid to the NGOs/CSOs stops, the voice of constructive criticism of the government policies is likely to be stifled further. Many organisations will fail to survive, and employees will lose their jobs.

Why can't CSOs make profit?

Yet, it is also true that aid cannot continue forever and some alternatives have to be thought of. In my view, finding an alternative is possible, provided certain rules of the game are changed. The most important problem facing any not-for-profit organisation involved in development work is that it is permanently dependent on aid which not only means that it cannot do many things which it wants to do but also a huge amount of staff time is wasted applying for funds.

Therefore we need to question and alter the basic idea of "not-for-profit". If you are registered under the Societies Registration Act, you cannot make any profit. If you cannot make any profit from the work that you do, then you cannot have any money of your own and if you cannot make money of your own then you can never become self-sufficient. Thus your organisation will forever remain dependent on aid of some kind or the other. This is built in within the structure of the not-for-profit sector. It is almost as if "profit" is a dirty word that should not be associated with development work. But on the other hand, development sector is expected to be professionally run, expected to be efficient and also expected to produce high quality work.

This has resulted in a paradoxical situation today. Compare the IT sector with the development sector. Indian IT companies mostly work by applying for projects from foreign companies. Through a competitive process, they have to get projects and implement them. The same is true for most of the not-for-profit organisations in the country except that foreign companies are replaced by international donors. They also apply for various projects and have to get the funds through a competitive process. However, the difference is that IT companies can make profits and increase their income over time and can create a growth path towards full sustainability. On the other hand, organisations working in the development sector cannot make profit and have to keep applying for new projects in order to meet their expenses. Most development organisations cannot therefore recruit staff at good salaries or give them permanent contracts. This reduces their chance of attracting quality human resource and increasing efficiency. Some work out a way of making small profits and showing it under "administrative expenses" to create a small pool of funds for the rainy day. However, that does not solve the basic problem. Therefore, the not-for-profit organisation remains permanently insecure and fails to take up projects of their own with their own funds or take loan from banks or borrow from the market. The employees of the development sector get one-fifth of the salaries in the IT sector but are required to pay exactly the same price for groceries, rent, electricity and food.

All this can change if we think that "profit" is not a dirty word for the development sector. If development organisations are allowed to make a profit from the projects that they implement then they can become self-sufficient over a period of time. This will then allow the organisations to run like any other company. It will allow them to recruit quality human resource, pay them good salaries and, in fact, make development work a viable profession. At the moment, barring perhaps one per cent of the employees who work in international organisations, employees in the development sector are poorly paid and have to live a life of insecurity as their jobs are mostly project dependent and projects are usually of short duration. Many bright young students do not dare to come to the sector because of poor salaries even though they wish to do something for their country.

The situation can change if the not-for-profit organisations are transformed into for-profit organisations and profit in the development sector is not considered a bad word. However, even if laws are changed to allow CSOs to make profit, it will take at least ten years for them to become self-sufficient. Till then, aid agencies need to stay in India.

One final word. I disagree with Professor Jayati Ghosh (see report in The Guardian above) that UK aid helps British Government to arm-twist India's trade relations. Since India receives a very small amount of aid from UK, it is unlikely that UK would be able to arm-twist India on the basis of aid money. The Government of India can always say "no" if such a situation arises. It is also somewhat simplistic to see development aid as just a PR exercise of the UK government. This argument is dangerous because it only helps the right wing in Britain to argue against aid to India. What we need to be concerned about is whether aid money is getting wasted in badly designed/implemented projects and whether the money is going to organisations that can successfully utilise the money to help the poor people of India.
First Published: February 25, 2013, 11:54 AM IST