Should raise investment from 0.5% of GDP to 2-3%
Asian Development Bank (ADB), established in 1966 in Manila, is dedicated to reducing poverty in the Asia-Pacific region through inclusive economic growth, environmentally sustainable development and regional integration. ADB is owned by 67 members - 48 from the region. It assists its members and partners by providing loans, technical assistance, grants, and equity investments to promote social and economic development. In 2017, ADB financing totaled $32.2 billion, including $11.9 billion in co-financing.
INDIA NEEDS $230 BN
Although India has improved its global ranking in the quality of infrastructure index from 87 to 68 during 2014-16, infrastructure continues to be a major bottleneck for the country. Urban areas are the growth engines for the country’s economy and contribute about 63% of the country’s GDP, which will potentially rise to 75% by 2030. However, India’s fast expanding towns and cities face infrastructure deficiencies, weak service delivery mechanisms, inadequate finances and poor local governance.
It is estimated that India would need to invest 2-3% of its GDP annually to strengthen its urban infrastructure to meet the requirements of its growing urban population, while the current investment level remains at 0.5%. Kenichi Yokoyama, country director in India for ADB points out to an ADB study, ‘Meeting Asia’s Infrastructure Needs’ and says India requires $230 billion per year to address its infrastructure deficit. Yokoyama quotes from the study: “Some of these challenges pertain to lack of capacity at lower levels of government institutions to implement and sustain quality infrastructure in a timely and efficient manner; and delays in statutory approvals such as environment, forestry and land acquisition. These investments would be needed to improve water supply, sanitation, housing and urban transport as well as to strengthen service delivery. Also, urban local bodies would need to ultimately become self-sustaining and not merely be dependent on grants to finance projects, and to ensure quality service delivery.”
INDIA LARGEST BORROWER
India is a founding member of ADB. It is ADB’s 4th largest shareholder and has been the largest borrower of sovereign lending since 2010. Says Yokoyama: “Since commencing operations in India in 1986, up to the end of 2017, ADB has committed 209 sovereign loans totaling $35.9 billion. This portfolio includes 79 sovereign loans amounting to $13.1 billion, of which $10 billion has been awarded and $5.9 billion disbursed.”
ADB’s country partnership strategy 2018-22 for India, approved in 2017, aims to support the country’s efforts to accelerate inclusive economic transformation. It focuses on boosting economic competitiveness and creating good jobs, building inclusive infrastructure and services in low-income states, and addressing challenges related to climate change and environmental degradation.
Says Yokoyama: “In this context, ADB also fosters regional cooperation and integration, private sector development, and social and gender inclusion. Institutional capacity building and knowledge sharing such as of best practices are also embedded in ADB operations.”
ADB was the first multilateral development bank in 2015 to commit to expanding its own annual climate finance to $6 billion by 2020. It has reached a milestone high of $4.5 billion in climate investments for 2017 ($3.6 billion in mitigation and $930 million in adaptation), a 21% increase from the $3.7 billion reached in 2016. ADB’s climate finance reached a record $5.2 billion in 2017. Yokoyama says about 85% of ADB’s lending program in India is devoted to transport, energy, and urban infrastructure and services. For APAC as a whole, commitments for energy projects in 2017 reached $6.2 billion in 2017 (31% of operations), compared to $2.9 billion in 2016 and $3.2 billion in 2015, he adds.
ADB is of the view that to meet the accessibility and mobility requirements of the growing economy, the road infrastructure needs massive investments - to widen roads, pave surfaces, improve road safety, and maintain assets. Power generation capacity needs to keep pace with rapid economic growth, but it is constrained by financial difficulties of power utilities. About 25% of households
remain unelectrified, and many more suffer from intermittent power supply.
Says Yokoyama: “ADB will assist the government in implementing its Intended Nationally Determined Contributions commitment to increase the proportion of renewable energy consumption. The assistance will cover solar photovoltaic and wind power generation.”
ADB will also focus on green corridors or high voltage transmission lines to evacuate renewable power to load centers through sovereign and non-sovereign lending modalities, including financial intermediation. It will support energy storage solutions such as pump storage hydropower to improve the demand-supply balance. ADB will also support methane capture from wastewater and solid waste management facilities, as well as the development of non-motorized and lowcarbon mass transit in cities.
TECH EXPERTISE TO PPP
According to the study quoted earlier, infrastructure needs in developing APAC countries exceed $26 trillion, or $1.7 trillion per year, when climate change mitigation and adaptation costs are incorporated. The region invests an estimated $881 billion in infrastructure a year, demonstrating a large financing gap that needs to be bridged. While some Asian economies have been spending 5-8% of GDP on infrastructure, several others have been spending considerably less.
Assistance by ADB and other multilateral development banks makes up a modest 2.5% of the total infrastructure investment needs of developing member countries in the region. But excluding the People’s Republic of China and India, that share rises to about 10%. Yokoyama explains that in order to help countries meet their infrastructure needs, ADB is working closely with the private sector to deliver more projects and is lending its technical expertise to public-private partnership projects. ADB has also signed MOUs with newer players such as the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank to cooperate in both co-financing and joint analytical work.
ADB has been making the utmost efforts to maximize efficiency gains. Besides boosting budget efficiency, it continues to decentralize and strengthen its presence in its developing member countries by providing greater authority and mandate to its resident missions. “For example, the staffing optimization and efficiency gains contributed to savings of 2.8% of the 2018 budget growth. In line with the policy, there is increased delegation of projects and allocation of more staff resources to the resident missions. This has facilitated increased interaction of ADB staff with the executing and implementing agencies resulting in quick decision-making and resolution of implementation issues,” says Yokoyama.
To improve operational efficiencies and for better project implementation, ADB is also reforming and rationalizing its business processes. For example, it approved a new procurement policy in 2017 that allows the use of alternative procurement arrangements, including the use of country procurement systems. “The new policy adopts a risk-based procurement support and oversight to enhance quality and improve delivery systems while reducing total procurement time,” says Yokoyama.
Kenichi Yokoyama highlights ADB plans to support development of non-motorized and low-carbon mass transit systems in cities
ADB has approved a $375 million loan in May 2018 for a project that will contribute to doubling farming incomes in Madhya Pradesh by expanding irrigation networks and systems