West should bail out India if it runs out of cash

Some of the billions poured in to saving the West’s banking systems should be diverted, say global bodies, to prevent as many as 400 million people sinking into poverty across Asia alone. The plan is needed, say The United Nations and the World Bank, to prevent severe social unrest in more than 40 impoverished countries, especially among the tens of millions of migrant workers being forced back to their villages as jobs dry up in Asia’s cities.

The World Bank, calculated earlier this month that unless action is taken, as many as three million children will die because of the economic crisis in poor countries by 2015. Both groups are lobbying for a “Vulnerability Fund” to which each developed country would contribute 0.7% of its stimulus package. That would make about $5billion from the US Financial Stability Plan alone - less than five per cent of the sum given to the defunct insurance giant American International Group. This would be spent on social safety nets, infrastructure development and loans to small businesses.

The argument is that this plan is in the developed world’s own interest — rich countries will ultimately pay a bigger price if poor countries go to the wall, not least through security threats from failed states. But using taxpayers’ money to bail out developing nations is likely to be highly unpopular among those in developed countries themselves feeling the squeeze. Old objections — such as the argument that corruption will eat up most aid before it reaches the needy — will be raised. On top of that, a number of influential voices are arguing that large numbers of the world’s poorest are likely to escape unscathed from the global downturn. For instance, of India’s 800million rural consumers, most may be dirt poor and without bank accounts. But because the banks seldom gave them credit, the impact of the global downturn has been muted, the bank said in a recent report. But India is well experienced in seeing state - led handouts benefit the needy.

The Government’s Building India programme will see about $7billion spent on countryside roads, telephone connections, irrigation, power and low-cost housing this year. Another scheme guarantees poor rural families 100 days of employment a year has handed out $6billion so far — money that quickly finds its way into the wider economy. “If you want to get good value from government intervention, you target the poor,” economist Dr Subir Gokarn told The Times newspaper. “And India has a lot of poor people.”

Written by Hayley Jarvis for SOS Children