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Countries and Regions Country Assistance Plans Document
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Country Assistance Plans - India
II. Country Operational StrategyA. The COS28. India faces several critical, but interrelated, development challenges: the need to achieve higher sustainable economic growth, the need to reduce population growth, the need to preserve its natural resources, and the need to reduce poverty. The key to higher growth lies in the continuation and deepening of economic reforms, with the aim of maintaining macroeconomic stability, improving public sector efficiency, and encouraging greater private sector investment, particularly as a complement to public sector investment in easing critical infrastructure constraints. While India has implemented the first stage of reforms and succeeded in establishing a policy framework enabling higher economic growth, important policy gaps as well as capacity gaps still remain. There is also an urgent need to extend the reform process to the state level, and to strengthen capacity at the local level for effective devolution of authority and increased participation in development management. Although higher growth and the resulting increase in employment is a necessary condition for poverty reduction, an effective strategy for alleviating poverty will also require strengthening and improved targeting in social sector expenditures and anti-poverty programs, as well as expanded investment in social sector infrastructure with emphasis on provision of basic services. Increase in per capita income will also be fostered by a decline in population growth. Moreover, prudent natural resource management is needed to ensure social and environmental sustainability of the development process. 29. To assist in meeting these challenges, ADB’s COS for India, prepared in 1996, is designed to support efforts to achieve higher growth and employment generation by improving the supply-side efficiency of the economy. This is done mainly through support for efforts that reduce bottlenecks in key infrastructure sectors, including measures to improve the policy, institutional, and regulatory frameworks and through support for financial sector reform and capital market development. Apart from support for higher growth, in view of India's current inaccessibility to Asian Development Fund (ADF) resources and its preference not to use ordinary capital resources (OCR) financing for stand-alone social sector projects, ADB’s contribution to social development comes through its state-level operations (in the form of support for measures to enhance resource mobilization, improved efficiency of resource use, and enhanced resource allocation for social sector expenditures) and urban development including environmental improvement and housing finance projects. On the basis of criteria for state selection indicated in the COS, viz., strong commitment to reforms; sizeable needs for infrastructure and social development; satisfactory record of project implementation; capacity and willingness to take OCR terms and adequate repayment capability; and absence of major assistance from other donors, ADB has chosen three states-Gujarat, Kerala, and Madhya Pradesh-for state-level support. B. Progress in Implementation30. ADB’s strategy translates to an operational program which is selective both sectorally and geographically, and which supports enhancing the incentive framework, through public sector operations, for greater private participation. Sectorally, assistance is concentrated on energy, finance, transport, and urban development. While social and environmental concerns are addressed as a matter of policy in all ADB operations, the environment is emerging as an increasingly important component of the lending program to India, both as an integral component in energy and urban development activities, and in its own right, and this trend is expected to be strengthened over the next three years. State-level operations are a key feature of the ADB’s current COS. The ADB is currently working in Gujarat and Madhya Pradesh. The Government has now confirmed Kerala as the ADB’s third focal state, and loans and TAs to support ADB operations in this state have been included in the pipeline for the program period (2001-2003). 31. Consistent with India’s developmental needs as well as ADB’s new strategic emphasis on poverty reduction, the current COS will be reviewed and revised, as appropriate, during 2000-2001. To this extent, ADB’s sector strategies in infrastructure sectors, particularly energy and transport, will be reviewed as part of country economic and sector work so as to identify future priorities for ADB support. ADB will also continue to focus on support for financial sector reform and capital market development, to foster sound development management through stable institutional framework, efficient financial intermediation, and prudential financial policies. ADB’s expanding activities in the environment sector will be guided by the results of the environment profile study that was completed in 1999. Strong efforts will also be made to support the expansion of social opportunities for the poor, at present mainly provided through ADB’s state-level operations and urban development and housing initiatives, through more direct poverty interventions. Collaboration with other multilateral and bilateral funding agencies will enable enhanced developmental impact of these interventions through a comprehensive and multi-faceted approach of policy, financial, and technical support. C. Poverty Partnership Agreement32. In support of the ADB’s strategy of poverty reduction as its overarching goal, steps are being evolved to strengthen the poverty focus of the overall India program. As a first step, a detailed poverty analysis is being undertaken on the basis of available (national and state-wise) information, to assess country performance in achieving poverty reduction in the past and review poverty impacts of past ADB assistance. The study will recommend options to improve the design of traditional infrastructure projects for stronger impact on poverty, and assess the suitability of indicators to monitor poverty reduction both at the macro and project level. This will be complemented by proposed advisory assistance on strengthening the poverty impact of urban sector interventions and on Strengthening Poverty Analysis at the State Level. The latter TA will institutionalize participatory poverty analysis at state level and strengthen feedback mechanism to provide the poor with a better voice in policy making. Both TAs have been processed as part of the 2000 TA program and are currently being implemented. Subsequent economic and sector work will examine the possibility of expanding ADB assistance in non-traditional sectors such as rural development, agro-processing, and environment/natural resource management, to provide guidance for evolving a growth- and poverty-focused lending program over the medium to longer term. 33. In view of states’ considerable financial and economic autonomy, including provision of economic and social services and regulation of key infrastructure sectors, and the above-mentioned spatial distribution of poverty, discussion on Poverty Reduction Strategy will also focus on ADB’s focal states. In the context of the evolving development partnership between the ADB and the respective state governments, the findings of the poverty analysis will be discussed by stakeholders both in Public Forums at the national and state levels. This will then form the basis for subsequent signing of Partnership Agreements in 2001.
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