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The UK bilateral aid to India will be frozen at its current level of £280 million a year up until 2015, with an increasing emphasis on private enterprise.
Full details will be revealed in a report on UK bilateral aid in March, though the decision by the Department for International Development to maintain aid to India has already been taken following extensive discussions between the two governments and aid agencies.
“We concluded that maintaining aid at its current level was the right thing to do,” said a spokesman for DFID. However, DFID will re-jig its approach, focusing on projects that target the poorest communities to ensure a better use of money.
The aid will be focused on Bihar, Madhya Pradesh and Orissa instead of the previous list of four, which had also included Andhra Pradesh. Over time projects will steadily shift towards work with private businesses, with funding channelled through CDC Group, Britain's state-controlled development finance institution.
The International Development Secretary, Mr Andrew Mitchell, MP, is expected to set out further details of the plan for the India aid programme in a speech on Tuesday.
The value of the aid package will fall in real terms, with Ethiopia overtaking India to become the largest recipient of British aid in the next financial year. Last year, India accounted for around 7.5 per cent of DFID's annual spending on bilateral aid.
Last June, the Conservative-Liberal Democrat coalition government pledged a review of Britain's bilateral aid programmes, worth around £2.9 billion a year. While the government is committed to increasing its international development budget to 0.7 per cent of Gross national Income from 2013, it wants to focus on fewer “priority countries” and said it would be reviewing the funding to around 90 countries.
Among the aid programmes that have already been suspended and described as “unjustifiable” are those to China and Russia. Work in Serbia, Cambodia, Moldova and Vietnam will also end over time, along with a number of other countries.
The decision over aid to India became a point of contention both in India and the UK “with several British papers railing over the funds given to rapidly growing India while Britain itself was barely out of a recession and in the midst of a drastic government austerity drive.”
The decision to maintain aid has so far received a welcome from MPs across the parties. “This has been a very important decision for Mr Andrew Mitchell, he has struck the right balance,” said Mr Jo Johnson MP, former South Asia bureau chief for the Financial Times who now sits on the House of Commons committee that scrutinises government spending, the PAC.
“It's a tough question about whether India is a natural aid recipient given how fast its growing, but they rightly concluded that going cold turkey was not the right way to proceed.”
Mr Barry Gardiner MP, who founded the Labour Friends of India group also welcomed the decision, “While we may feel the burden of the spending cuts I am clear that the UK should continue to maintain its bilateral aid programme to India.”
He added, “There is an increased cross party consensus not always on how it is done but certainly in terms of the amount of aid that is given.”
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