For the Sake of Eco­nomic Glory

De­spite the global eco­nomic down­turn, the World Bank re­mains op­ti­mistic about its pro­grams and ef­forts in In­dia.

Southasia - - Cover story - By Huza­ima Bukhari & Dr. Ikra­mul Haq

With a pop­u­la­tion of more than 1.2 bil­lion, In­dia is the world’s largest democ­racy. Over the past decade, the coun­try’s in­te­gra­tion into the global econ­omy has been ac­com­pa­nied by its im­pres­sive eco­nomic growth. Ac­cord­ing to the World Bank’s In­dia Eco­nomic Up­date of March 2012, In­dia has emerged as a global player and the world’s fourth largest econ­omy in terms of pur­chas­ing power par­ity.

In­dia presently re­ceives roughly half of its World Bank (‘the Bank’) loans free from in­ter­est. These are pro­vided by the Bank’s In­ter­na­tional De­vel­op­ment As­so­ci­a­tion (IDA). Re­cently, the Bank in­for­mally told In­dia that its rapidly grow­ing econ­omy may soon make the coun­try in­el­i­gi­ble for soft loans, prompt­ing the gov­ern­ment to lobby for con­ces­sional lend­ing for a few more years. If it fails to do so, it may lose over $2 bil­lion in low-in­ter­est funds for many of its wel­fare schemes be­sides miss­ing out on so­cial ini­tia­tives spear­headed by the Bank over the pre­vi­ous decade. IDA re­cently an­nounced that “we ex­pect In­dia to move into the mid­dle in­come cat­e­gory of coun­tries in the next two years. This means that the fund­ing In­dia got from IDA last year was the last of such fund­ing for the coun­try.”

The World Bank lends to de­vel­op­ing coun­tries un­der two arms — IDA and In­ter­na­tional Bank of Re­con­struc­tion and De­vel­op­ment (IBRD). IDA funds are highly con­ces­sional or in the form of in­ter­est-free loans and grants, aimed at im­prov­ing liv­ing con­di­tions of the poor­est. In­dia is presently a “blend” coun­try (one in tran­si­tion from lower mid­dle in­come to mid­dle in­come). IBRD funds in­fra­struc­ture projects in mid­dle in­come and credit wor­thy low in­come coun­tries at in­ter­est rates higher than those pro­vided by IDA but lower than those of­fered by other com­mer­cial lend­ing agen­cies. In­dia be­ing a blend coun­try is en­ti­tled to lend­ing from both IDA and IBRD.

In 2010, In­dia’s per capita na­tional in­come stood at $1,330, which was higher than the op­er­a­tional el­i­gi­bil­ity cut­off of $1,175 per capita in­come. But the In­dian Min­istry of Fi­nance ar­gued that “though per capita in­come has risen, In­dia has the high­est num­ber of poor and should, there­fore, continue to get IDA sup­port.” Ac­cord­ing to of­fi­cial es­ti­mates, In­dia has more than 350 mil­lion peo­ple be­low the poverty line. Last year, the Bank’s Board ap­proved $1 bil­lion for the Na­tional Ru­ral Liveli­hood Mis­sion (NRLM) - an am­bi­tious liveli­hood guar­an­tee scheme launched in 2011 un­der the ru­ral de­vel­op­ment min­istry. The Bank is help­ing 13 poor­est In­dian states in build­ing in­sti­tu­tional sys­tems be­fore the scheme is scaled up at a na­tional level in the next three to five years.

In­dia has been the ben­e­fi­ciary of more than ten thou­sand ini­tia­tives and projects of the Bank since 1947. The Bank re­cently held con­sul­ta­tions with civic so­ci­ety or­ga­ni­za­tions to seek in­put on its ‘Pro­posed Coun­try Pro­gram Strat­egy’ (CPS) for In­dia for 2013-2016. The CPS is the Bank’s roadmap for en­gage­ment in the coun­try over the next four years. Ori­ented to­wards re­sults, the CPS aims to sup­port In­dia’s de­vel­op­ment agenda of faster, sus­tain­able and more in­clu­sive growth as out­lined in the gov­ern­ment’s up­com­ing 12th Five Year Plan. The CPS iden­ti­fies key ar­eas where the Bank’s as­sis­tance can have the great­est im­pact on poverty re­duc­tion. This, in turn, will de­ter­mine the level and com­po­si­tion of the World Bank Group’s fi­nan­cial, ad­vi­sory and tech­ni­cal sup­port to the coun­try over a four year pe­riod.

CPS is be­ing de­vel­oped in con­sul­ta­tion with the coun­try’s au­thor­i­ties, civil so­ci­ety or­ga­ni­za­tions, de­vel­op­ment part­ners, me­dia, the pri­vate sec­tor and other stake­hold­ers. Ac­cord­ing to the World Bank Group, con­sul­ta­tions pro­vide “a plat­form to tap into the ex­pe­ri­ence and knowl­edge of a broad range

of stake­hold­ers and lis­ten to their ideas about how the Bank can work with them to help meet the coun­try’s de­vel­op­ment chal­lenges.” Dis­cus­sions cover the coun­try’s long-stand­ing de­vel­op­ment agenda and the new chal­lenges con­se­quen­tial to un­prece­dented eco­nomic growth, and the re­cent slow­down.

Ac­cord­ingly, to de­ter­mine its CPS for 2013-2016, the World Bank Group is hold­ing a se­ries of con­sul­ta­tion work­shops in a num­ber of cities across In­dia -- Delhi and four state cap­i­tals - Ban­ga­lore, Raipur, Guwahati and Lucknow. Each cap­i­tal has been spe- cif­i­cally cho­sen to rep­re­sent the broad range of de­vel­op­ment chal­lenges fac­ing the dif­fer­ent re­gions in the coun­try to­day. Feed­back, ideas and com­ments re­ceived as part of these con­sul­ta­tions will be in­te­grated into the Bank’s fi­nal CPS. They will also find echoes in the Bank’s sub­se­quent projects, poli­cies and doc­u­ments.

The fu­ture projects and plans, as hoped by the Bank, will bring more ben­e­fits for the peo­ple as com­pared to ear­lier projects over the last decade. There was an im­pres­sive an­nual growth rate of over 7% to 9% led by strong ad­vances in the ser­vices sec­tor—the most no­table be­ing the dy­namism of In­dia’s world-renowned IT in­dus­try. Ex­ter­nal re­serves were more than four times the short-term ex­ter­nal debt, an ex­cep­tion­ally safe level. Poverty de­clined sub­stan­tially—from over one-half of the In­dian peo­ple liv­ing be­low the of­fi­cial poverty line, back in 1974, to about a third in the early 1990s, fur­ther down to about a quar­ter to­day. So­cial con­di­tions of the peo­ple have also im­proved. In­dian cit­i­zens can ex­pect to live longer to­day—with life ex­pectancy of 63 years, up from 55 years two decades back, and in­fant mor­tal­ity rates down from 108 to 70 per thou­sand live births. Nearly one­half of women and more than two-thirds of men can now read and write whereas not long ago, only 29% of women and 45% of men could do so.

The driv­ing force be­hind In­dia’s so­cio-eco­nomic achieve­ments was the am­bi­tious re­form pro­gram that be­gan in 1991. Of late, how­ever, the mo­men­tum is de­cel­er­at­ing and growth has slowed down. Ac­cord­ing to many ex­perts, “pol­icy slip­pages and weaker growth have nearly wiped out all the hard-earned gains in the na­tion’s fis­cal po­si­tion.” Credit rat­ing agen­cies even down­graded In­dia’s medium-term prospects. De­spite im­pres­sive in­roads, about 350 mil­lion In­di­ans are still trapped be­low the of­fi­cial poverty line. Some 520 mil­lion peo­ple live on less than $2 per day.

In­dia’s eco­nomic growth rate in 2011-12 slipped to a nine year low of 6.5%. The econ­omy had ex­panded by 8.4% in the pre­ced­ing two years. Ac­cord­ing to the Bank, the In­dian econ­omy will grow by 6.9% in fi­nan­cial year (2012-13), not­with­stand­ing prob­lems like pol­icy uncer­tain­ties, fis­cal deficit and in­fla­tion. “In­dia will see growth (mea­sured at fac­tor cost) in­creas­ing to 6.9, 7.2 and 7.4 per cent in fis­cal years 2012-13, 2013-14 and 2014-15, re­spec­tively,” the World Bank an­nounced in a re­cent re­port ti­tled ‘Global Eco­nomic Prospects.’

Ac­cord­ing to Mor­gan Stan­ley’s Rid­ham De­sai, “In­dia’s macro out­look is frag­ile and the coun­try is trapped be­tween in­ad­e­quate pol­icy ac­tions and a weak global econ­omy -- the econ­omy is caught in a vi­cious cy­cle.” De­clin­ing growth is hurt­ing gov­ern­ment rev­enues and the gov­ern­ment is in­flex­i­ble on ex­pen­di­ture; in­ter­est and sub­si­dies ac­count for 90% of the fed­eral deficit, yet the gov­ern­ment is not do­ing much to slash its sub­sidy burden and in­crease sav­ings. Higher fis­cal deficits, the wan­ing global risk ap­petite, de­clin­ing for­eign ex­change re­serves, tight do­mes­tic liq­uid­ity and high in­ter­est rates are be­ing ex­ac­er­bated by the slow­down. De­spite such trends, the World Bank is op­ti­mistic about the pos­i­tive out­come of its projects and plans in In­dia for 2013-2016.

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