Rich India is robbing its poor

As Gordon Brown unveiled his grandiose £50 billion plan to give every child in the world a primary school place by 2015, you could almost hear the cheer go up from the 4x4 dealerships and swimming pool construction companies of Asia and Africa.

For it is in these fleecy pockets that a sizeable percentage of that money will end up. Ten years ago, James Wolfensohn, then president of the World Bank, launched a crackdown on the "cancer of corruption", but over the past decade all available research shows that the overall levels of graft in the developing world have not diminished.

This is why Paul Wolfowitz, the no-nonsense neo-con who took over as World Bank president a year ago, has finally lost patience with protocol. For the past year, "Wolfie" has quite deliberately been rattling cages by freezing or refusing loans to countries whose elites can't keep their snouts out of the trough.

Recent victims include as you might expect Chad, Kenya and Congo, but perhaps more surprisingly also India. The decision to withhold more than £550 million in loans for India's flagship health programmes this year including the eradication of polio and TB vaccinations has posed some uncomfortable questions to India's governing classes.

Wolfowitz has turned off the tap because India's government particularly India's health and pharmaceuticals sector is too venal to spend the money properly. And, in a double-snub, Wolfowitz has refused to accept Indian assurances that the thievery that scarred an earlier package of loans will be addressed. For Wolfowitz, promises of investigations and toothless anti-corruption commissions the standard fig-leaf for such embarrassments are no longer enough. Action is required, not words.

Development shame

Piling on the (un)diplomatic pressure, Michael Carter, the World Bank's India chief, has been highlighting India's development shame in the local press. For all the back-slapping about economic progress and joining the "top table" of nations, India is failing its poorest people.

In India, Carter points out, 63 infants die per 1,000 live births; in war-torn Eritrea, the figure is 45. In Botswana, 100 of 100,000 women die in childbirth; in prosperous, nuclear-capable India, the figure is 408. As Carter puts it in diplo-speak: "It is generally recognised that there is a very poor connect in India between the quantum of public money allocated and the accessibility and quality of services delivered" ie too much of the money goes missing along the way.

What is particularly unforgivable is that it doesn't have to be this way. India has had more than a decade of six per cent economic growth, but the poor have far too little to show for it.

Africa might steal the headlines for kleptocratic excesses, but India in its more insidious way is just as bad. Rajiv Gandhi observed in the 1980s that only about 15 paisa of every rupee earmarked for the poor actually reached its intended target. The rest was leached out of the system by middlemen and bureaucrats.

Not much has changed. A recent report into food disbursement for India's poor found that at least 50 per cent of India's £510 million annual grain subsidy budget was being siphoned off.

So, will the World Bank's stand make a difference? Will it make the bureaucrats think again? Don't hold your breath. Corruption here is treated as a job entitlement, not a crime. While the World Bank can't be expected to keep on pouring money into the bottomless cesspit of Indian governance, it will be waiting a very long time for the murky waters of the Indian development aid sector to clear.

India's problem is a fundamental disconnect between the governing elite and the millions of unwashed poor who sit begging for their legal entitlements as if it were charity. The centuries-old stratification of Indian society helps to legitimise the abject position of the poor. As one bureaucrat casually observed to me recently, "These people don't need toilets."

So has the World Bank done the right thing? Absolutely. Too much of India's elite will never feel ashamed of the condition of their country's poor, but heaping international opprobrium on their heads might make them think again. India is a proud nation and has a visceral dislike of being told what to do by foreigners.

However, India simply cannot hide from this decision by the bank. Being sent to stand in the same corner as pariah development states such as Congo and Chad has driven many in the Indian political establishment half-insane with rage.

Wolfowitz's heavy-handedness has its critics in the development industry not least in Britain's own bloated Department for International Development but at least someone has finally dared to make his point, and then stick to it: stop stealing and start delivering.