For the Sake of Economic Glory
Despite the global economic downturn, the World Bank remains optimistic about its programs and efforts in India.
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.