NEW DELHI: After keeping its distance for long, India has begun talks with the US government’s youngest foreign aid agency, Millennium Challenge Corporation (MCC), which funds development projects on basis of policy reforms that encourage private investment.
Last month, the CEO of MCC met foreign secretary S Jaishankar during his visit to Washington, which came six months after the MCC board authorised “exploration” of a partnership with India. This move comes in the background of the recent crackdown on foreign funding of NGOs, with, the largest private financier of voluntary groups, Ford Foundation also not escaping scrutiny.
While India has been the largest recipient of aid from US at Rs 4,13,450 crore between 1946 and 2012,it is no longer among the top 10 for last several years with private groups overtaking bilateral assistance. Besides, India has been projecting itself as a part of the Donors Club in recent years and becoming one of the largest aid givers in countries such as Nepal and Bhutan.
India’s total external assistance as listed in the Union budget for 2015-16 is Rs 1,773 crore. In contrast, the amount India has budgeted in 2015-16 as loans and grants to foreign governments is Rs 9,735.82 crore.
As per the budget figures, USAID’s share for the current year will be Rs 8.5 crore. According to USAID figures, India’s aid allocation was $109.25 million in 2014.
New Delhi, traditionally, has a prickly relationship with aid which comes with strings attached. When Scandinavian countries had sought to put conditions, India had dropped them from the bracket of countries from whom foreign aid was acceptable. Therefore, the engagement with MCC is an interesting development.
An MCC spokesperson said that at its quarterly board meeting in December 2014, the MCC board of directors gave its approval to “explore a potential strategic partnership with the Government of India”. “Since then, MCC has had initial conversations with Indian officials, including MCC CEO Dana Hyde’s June 29 meeting with Foreign Secretary Jaishankar in Washington DC,” the spokesperson said, indicating that the talks were positive.
"MCC looks forward to continuing to explore how we can work with the Government of India to achieve our shared goal of reducing poverty through economic growth,” she added. Sources in Delhi confirmed the meeting, but said it was at a preliminary stage.
The MCC’s board of directors is chaired by the Secretary of State, John Kerry, with the Treasury Secretary Jacob Lew as the vice-chair. The other government officials on the nine-member board are the United States Trade Representative, Michael Froman; USAID administrator Rajiv Shah; along with MCC CEO.
The selection of countries is based on indicators which fall into three broad categories of good governance, social investment and economic freedom. Based on the ‘scorecards’, the MCC board then takes up candidates who are eligible for ‘compacts’.
A ‘compact’ is a five-year agreement signed with a government for large-scale grant financing—in which money is given out in phases, with each step looking at whether the state has fulfilled its commitment on reforms. So far, MCC has had 30 compacts with 25 countries, amounting to over $10 billion. The average size of a ‘compact’ is $350 million. A key aspect of these compacts is to introduce policy reforms which will allow for “private sector-led growth”.
A paper by the Washington-based think-tank Center for Global Development (CGDEV) in December, just before the MCC board took its decision, noted that India had passed scorecard to be eligible for last four years, but has never been selected.
“One of the main reasons for this was that shortly after MCC was established India clearly indicated that it was not interested in an MCC compact, consistent with its general view toward bilateral aid,” wrote CGDEV’s Sarah Rose.
In MCC’s scorecard for 2015, India did better than average on governance matters, it was in the ‘red’ for performing badly on indicators of fiscal and trade policies. India did badly in four out of six parameters for social investment—health expenditure, primary education expenditure, natural resource protection and immunization rates.
This year, Nepal became the first country in South Asia to be selected for a ‘compact’. The MCC board stated that one of the reasons for selecting Nepal was that it will “provide a potential entry point for exploration of investments in the region”. The MCC spokesperson also hinted that there could be a regional aspect to partnership with India, when she noted that the conversations with Indian officials covered “opportunities both within India and the broader region”.
Casey Dunning, Senior policy analyst at CGDEV also said that MCC would probably be working in the “triangulation” of US, India and Nepal, which will be its first such regional compact.
MCC: New Donor for India?
Setup in 2004, Millennium Challenge Corporation is an important instrument in US’s foreign aid kit. It selects the best-governed low and lower middle-income countries for large-scale funding. Money is released in phases based on performance of country on commitments made in a ‘compact’ with MCC. The ‘compacts’ aim to spur economic growth, by enacting reforms that improve environment for private sector investment.
NGOs on the backfoot
■ Ford Foundation: put on watchlist
■ Greenpeace: FCRA cancelled
■ Climate Works: Indian funding banned
■ Cordaid: Banned. Look-out circular issued
■ Landlijke India Werkgroep: Banned.
Look-out circular issued
Government on Warpath
■ NGOs asked to publish online details of funds received from a foreign donor within 7 days
■ Banks to disclose entry of foreign funds for NGOs within 48 hours
■ New registration forms
■ NGOs to sign declaration that foreign funds received will not be used for anti-national activities