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Development Secretary Justine Greening's decision to stop aid to India by 2015 was not based on Indian economic realities, according to a new report from the think tank IPPR. The report argues that the decision to withdraw aid has been taken for political rather than economic reasons and that India still needs UK aid in the short term. The report argues that DfID should continue to provide aid to India until there has been further progress in reaching development objectives, and that DfID should shift its focus towards a more holistic approach to development in the longer term by working with the Indian diaspora in the UK and with UK-based investment funds.

Justine Greening announced in November 2012 that due to the "tremendous progress being made" in India no new British financial aid grants will be made to India, although programmes already underway will be completed by the end of 2015 as planned and some forms of aid, including technical assistance, will continue after that.

The new IPPR report argues that despite India's rapid GDP growth, it still has more people living in poverty than all of the Sub-Saharan African countries combined. Rather than suddenly withdrawing aid, the government should target the areas which need it most, including health, HIV and good governance in the poorest Indian states.

As well as being one of the largest bilateral donors to India, the report shows that the UK is the fourth largest sender of remittances to India and sent a total of US$4.1 billion in 2010. This is around 10 times the size of DfID's annual budget for India and should become a greater focus of strategic thinking in DfID in the longer term. If just 10% of remittances were channelled through mutual funds for development purposes it could offset the termination of the DfID programme.

Will Straw, Associate Director for Globalisation and Climate Change, said:

"The UK should not give aid to India forever. But withdrawing now is premature given India's significant development challenges; a tactic for winning votes at home rather than tackling poverty abroad. DfID should instead focus on areas which are not benefiting from India's growth and focus on key issues like health, HIV and good governance in the poorest states.

"Justine Greening's announcement missed an opportunity to reshape the debate on aid and engage the public in how the UK can help countries 'graduate' from aid over time. Given the volume of remittances and FDI from the UK to India, the decision to withdraw aid should have considered the totality of British financial flows. There is much more that Britain can do to guide non-resident Indians and investors who are sending funds back to India or looking to invest."

The report also recommends that:
o The UK should reduce spending on the actual implementation of development projects in India.
o Rather than focusing on wealth creation, DFID should focus on Millenium Development Goals , in particular those concerning health, HIV and good governance in the poorest states.
o The UK should develop an exit strategy for India based on the realisation of key development objectives and better communicate with the UK public on the need and purpose of aid.
o The UK government should engage with non-resident Indians based in the UK on the issue of remittances and revive the UK Remittances Task Force in order to help the Indian diaspora to send money to India more cheaply and effectively.
o The UK government should convene a new taskforce to examine why British investors are not investing enough in India, with a particular focus on the pensions industry.
o DFID should continue to refine the role of the CDC group as a vehicle for government capital to flow to India to boost private sector projects.

Notes to editors:

IPPR's new report - In Aid of India? Defining a positive role for the UK - will be published and available from Sunday 10th of February

Contacts:

Tessa Evans, 07875727298, t.evans@ippr.org