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India has improved real per capita income, so deserves aid, says WB

India is a good policy country for aid and compared to many other nations it has done well in improving real per capita income and reducing poverty, the World Bank says.

These comments were made by Dr Lant Pritchett, co-author of a study entitled Assessing Aid: What Works, What Doesn't and Why, which was released today. Dr Pritchett was speaking on a video-conferencing facility with journalists in New Delhi.

The study says foreign aid has been highly successful in reducing poverty in countries with sound economic management and robust government institutions.

The list of countries meeting the criteria for making good use of the aid has increased dramatically in the 1990s.

Yet aid has fallen to its lowest point in more than 50 years, at a time when it could be helping hundreds of millions of people escape a hand-to-mouth existence, it said.

The report says India did well doubling real per capita income between 1966 and 1990 and reducing poverty to 53 per cent of the population. But over the same period, Thailand did very well, tripling per capita income and cutting poverty to just two per cent.

The report says growth matters not for its own sake, but because it raises living standards. Out of every 1,000 babies born in 1967 in Thailand, 84 did not survive the first year of life. By 1994 that figure had been cut by nearly two thirds. India and Ethiopia also made progress, but not as much. In India, infant mortality fell by a half over this period.

The report, however, ranks India as among the slow growers, the others being Bangladesh and Pakistan. They have not been falling behind, but they are not catching up either.

In 1990, per capita income in the United States was 18 times India's, about the same as in 1966. But since per capita income roughly doubled for each country, the absolute gap is now much wider.

The report says more than half the world's poor live in India and China: in 1990-93 they received two dollars and one dollar per capita in aid, yet small countries often receive 50 dollars per capita or more. This discrimination against large countries is one reason the relationship between aid allocation and income is not strong.

To maximise poverty reduction, financial aid should favour countries that are poor and have good policies. It says because of worlwide trend toward economic reform in the 1990s, there are many countries who fall in this category. There are 32 countries with poverty rates above 50 per cent and above average policy. Nearly 75 per cent of the world's poor live in countries in this quadrant -- such as India, Ethiopia and Uganda.

Donors in 1996 gave less assistance to countries with very poor policies than to ones with mediocre policies. However, they also tended to give small amounts of assistance to countries with truly good policies.

The report says the gains from focussing aid on poor countries with good policies would be very large. In good policy environments, aid is high-return investment that permanently raises income and reduces poverty.

In contrast to aid overall, the World Bank's IDA resources are allocated in favour of good policies and governance.

One of the important findings of the report is that aid does not have any measurable effect on poverty reduction in countries with weak management.

The reason is that the government in countries are not helping the poor. The report suggests a number of useful approaches in these difficult environments, channelling aid through non-government organisations, trying to identify and support reformers at the country level or in particular communities. ''Our point is that these activities will generally require less finance, so more financial aid can be channelled to poor countries that have reformed,'' the report says.

UNI

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