INDIA AND THE WORLD BANK GROUP

Background World Bank support to state reform in India

Background

India joined the World Bank in 1944 and is among its oldest members. It is the World Bank's largest single borrower, with cumulative lending of more than US$47 billion as of June 2000 in market-based loans from the International Bank for Reconstruction and Development (IBRD) and development credits from the International Development Association (IDA), the World Bank affiliate that provides interest-free loans to economies with low per-capita incomes.

From 1949 to June 2000, the Bank has extended about 215 loans and 292 development credits to India, totaling approximately US$26.2 billion from the IBRD and US$27.2 billion equivalent from IDA. As of June 30, 2000, the Bank's lending portfolio of ongoing projects for India comprised 79 projects amounting to about US$11.5 billion.

India is also among the Bank's top annual borrowers. In FY00, lending commitments reached about US$1.8 billion (US$866.5 million equivalent in IDA credits and US$934.3 million in IBRD loans) for eleven projects.

The sectoral allocation of the existing portfolio is concentrated in rural development (23 percent of total commitments), education and health (23 percent combined) and infrastructure, including energy (20 percent).

Focusing on Reforming States

As the reform agenda has shifted to the states over the past few years, the Bank Group has reoriented its strategy to focus mainly on those states that have chosen to embark on a comprehensive program of economic reforms. These include some of the poorer states with the worst social indicators.

State-level operations are not new to the Bank in India. In the past, however, selection of state projects was done largely on project and sector grounds rather than on the basis of the overall policy stance of the state itself. The Bank is now developing comprehensive assistance programs for reforming states. All Bank loans to the states will continue to be channeled through the central government, and then on-lent to the states. In support of this strategy, the Bank is undertaking fiscal studies of the major states in collaboration with local research institutions.

Andhra Pradesh (AP) was the first state to benefit from this new type of state-focused lending. A loan of US$543.2 million loan was approved in June 1998 for the multisectoral Andhra Pradesh Economic Restructuring Project, which provides urgently needed resources to the state for health, education, nutrition, rural development, and civil service reforms, while sup-porting ongoing reforms intended to redirect spending towards priority areas by restructuring the state's public expenditure. This was followed a few months later by a US$1 billion commitment for a series of loans for restructuring AP's power sector.

In FY00 Uttar Pradesh became the second state to receive state-level Bank assistance, through a multisectoral package aimed at supporting its economic reform program. Operations supporting primary education and health systems development as well as fiscal, public sector and power sector reform, have provided urgently needed funds, especially for the improvement of social services for the poor, while helping the state put its finances on a sustainable path. The re-forms encompass the civil service, tax reform and privatization. Further operations are envisaged to support highway development as well as reforms in the water sector. Discussions are underway with other states for similar assistance.

(Source: World Bank Group)

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