World Bank support for India's state reform programs

Recognizing that faster growth and poverty reduction in India cannot happen without addressing inherent imbalances in the economy, the World Bank is working in concert with the central government to catalyze state-level reform efforts through its lending and policy dialogue. While continuing to support nationwide programs in health and education, the Bank has re-oriented its strategy to focus on reforming states, which includes 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 the overall policy stance of the state. Under the new approach, the Bank is providing multi-sectoral programs of assistance, which serve as a vehicle for developing and deepening a state's reform agenda and for accelerating poverty reduction. Bank loans to the states 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 all the major reforming states in collaboration with local research institutions.

In 1998, Andhra Pradesh (AP) was the first to benefit from this new type of state-level lending operation, with the approval of a US$543 million loan. The Bank-supported Andhra Pradesh: Economic Restructuring Project (APERP) underpins the state's ongoing innovative program of public expenditure restructuring by seeking growth-enhancing fiscal reforms, including specific targets for increased spending on social services and key physical infrastructure, divestiture of public enterprises, and capping deficit spending. The project is providing resources to meet priority needs in human development (nutrition, primary health, and primary education), rural development that will directly benefit the poor (irrigation, rural roads, and core access roads), and public enterprise restructuring. One example of the result of these efforts to date is an increase in public spending on primary education and health care between 1998 and 1999 from 0.9 percent to 1.4 percent of state GDP.

AP's Economic Restructuring Program is complemented by a US$210 million loan to support the state's Power Sector Restructuring Program. The loan is the first in a series of loans totaling up to US$1 billion that the Bank plans to provide over the next eight years to help transform AP's power sector from being a major drain on the state's budget into a contributor of resources for priority social sectors. The Bank is also supporting complementary projects in AP, including irrigation, health, roads, forestry, and poverty initiatives for community development. Taken together, these programs are making a major contribution to reshaping the state's finances and speeding up economic growth, human development, and poverty alleviation.

In April 2000, the reform agenda of the Government of Uttar Pradesh, India's most populous state, was strongly endorsed by both the Indian central government and the Bank. Included under a broad package of assistance is a US$251 million loan for a Fiscal Reform and Public Sector Restructuring Program, which was the first sub-national single tranche adjustment loan the Bank has provided in India. The project will assist UP as it implements a comprehensive set of reforms in the areas of public expenditure management, tax policy and administration, civil service, anti-corruption, deregulation, decentralization to local bodies, public enterprise and privatization; and financial management and accountability. The Bank is also supporting the state's efforts to reform its power sector with the help of a US$150 million loan. A third UP District Primary Education Project and a Health Systems Development Project, along with ongoing irrigation and forestry projects, round out this considerable package of Bank support. Together, these operations provide urgently needed funds and create fiscal space to improve social services for the poor, while helping the state put its finances on a sustainable path.

The Bank also has an intensive lending and advisory relationship with other key reform states, and additional state-level assistance programs are under preparation. 

(Source: World Bank Group)

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