British aid to India will come to an end in 2015, International Development Secretary Justine Greening has announced.
The change in policy is said to reflect India's "rapid growth and development progress" - with 7 per cent growth its economy is expected to overtake Britain's within a decade.
The move will please Conservative MPs who have been critical of David Cameron for committing to spend 0.7 per cent of national income on overseas aid.
Justine Greening is reported to have shouted "I didn't come into politics to distribute money to people in the Third World" when David Cameron put her in charge of overseas aid in September's reshuffle.
"From now, all new development co-operation programmes will be either technical assistance programmes focused on sharing skills and expertise, or investments in private sector projects focused on helping the poor," Mrs Greening explained.
"We will finish existing financial grant projects responsibly, so that they all complete as planned by 2015."
"The growing two-way trade and investment between our two countries means that our development partnership should increasingly be about trade not aid."
India gives over £3.5bn in aid to Africa, and is developing its own space projects, but there are also 600m indians living on less than $2 a day - nearly one third of the world's poor.
We believe that the poorest children will need our ongoing help, and to cut bilateral aid in 2015 is premature
Kitty Arie, Save The Children
Pranab Mukherjee, Indian finance minister, has said the country no longer wants or needs the British aid, which he described "a peanut in our total development expenditure".
British funding to India was cut last year but we currently give £280m a year, our largest bilateral aid programme, with £1.1bn previously approved to be paid over the next four years.
However, under the new arrangements Britain will be spending £200 million less in the period 2013-2015, and after 2015 the relationship will change to focus on "technical co-operation".
A hub of British development experts will work with Delhi and a programme of private sector investment will assist the poorest parts of India. The UK's technical assistance is expected to be about a tenth of the current programme of support.
Save the Children's Director of Advocacy Kitty Arie has called on the government to find new ways to support Indian NGOs working to tackle poverty. She emphasised the plight of the 1.6m children who died in India last year, a quarter of all global child deaths:
"We believe that the poorest children will need our ongoing help, and to cut bilateral aid in 2015 is premature," she stated.
"The UK should explore ways to support Indian non-governmental groups that address the needs of the poorest and their work tackling the tough issues that are the obstacles to wider progress."
The group has highlighted exclusion of children from health and education because of gender or caste, as well as child mortality as important issues to address.
UK aid is now expected to focus on "fragile states" with emphasis on nation and peace building to prevent the development of potential threats to security.