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Countries and Regions Country Assistance Plans Document
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Country Assistance Plans - India
V. Donor Activities and Aid Coordination83. ADB maintains close coordination with major multilateral and bilateral donors through its India Resident Mission (INRM), through its programming and processing missions, and through the annual India Development Forum (IDF). During the most recent IDF meeting, held in May 2000, both the ADB and the World Bank made presentations on their respective state-level operations 10. These initiatives facilitate coordination and agreement on technical and policy issues, avoid unnecessary duplication of effort, and enable donor agencies to learn from each other's experience. Although ADB, in line with its operational strategy, does not provide direct assistance to all sectors, through this shared approach ADB keeps informed about key constraints and problems that other donors are addressing. As part of its increasing state level focus, ADB organized an aid coordination meeting in Madhya Pradesh in 1998-the first such coordination meeting held at state level in India-to assist in initiating and coordinating funding agency efforts in parallel with ADB's development assistance. This has provided impetus for bilateral donors' efforts to reorient their developmental strategy and for strengthening their geographical and sectoral focus of assistance. In support of ADB's long term development partnership with its focal states, ADB is now preparing to organize aid meetings in these states to facilitate donor coordination within the states' holistic reform agenda. In addition to ADB, the World Bank, Germany, Japan, Netherlands, United Kingdom, and United States, as well as the European Union are India's major sources of aid. ADB, the World Bank, and the Japan Bank for International Cooperation (JBIC) provide the bulk of India's official loans. 84. The World Bank, which lends from both International Bank for Reconstruction and Development (IBRD) and International Development Agency (IDA) resources, provides support mainly to agriculture, social sectors (family welfare, health, nutrition and primary education), and infrastructure (power, and transport) and financial sectors. World Bank has also provided support for forestry and water supply projects, including in Madhya Pradesh and Kerala. In response to a decision by the World Bank's management to increase IBRD lending to India to about $3 billion per year and to harden the terms of its overall assistance by achieving an IBRD:IDA ratio of 2:1 (from 1:1 earlier), the World Bank is substantially increasing its lending to the power and road sectors and also envisages possible support for urban development as well as for the railway sector. While there is complementarity between ADB and World Bank in several key sectors (especially power and transport), ADB has taken the lead in holistic state level support. To increase the developmental impact of its assistance, the World Bank has also begun channeling a portion of its lending operations to more focused state-level operations and, in April 2000, approved its first loan for subnational adjustment program 11. In discussion with the Government, ADB and the World Bank are coordinating on an appropriate geographical focus for each institution's state-level operations. ADB has commenced state-level operations in both Gujarat and Madhya Pradesh, and has received Government concurrence for initiating work on Kerala as the third focal state. The World Bank has so far concentrated its subnational operations on the power sector in Haryana, Orissa, and Rajasthan, and on more comprehensive support including public finance reform in Andhra Pradesh and Uttar Pradesh. In other sectors too, activities are coordinated to ensure an appropriate division of labor and geographic spread. As a result of such efforts, in recent years ADB has taken the lead in capital market development, policy reform in the hydrocarbon sector, support for investment in gas infrastructure, and in state-level reforms of resource management. Over the current programming cycle, ADB is expected to play a lead role in policy development for railways, urban development, housing finance, as well as debt market development. Regular consultations between ADB and the World Bank at the headquarters level have also been institutionalized. 85. JBIC, successor to the merged Japan's Overseas Economic Cooperation Fund (OECF) and Export-Import Bank of Japan (JEXIM), has focused its support in the past mainly on economic infrastructure (power, transport and communications, urban sector), as well as the environment, agriculture, and small-scale industries. It also has been an important source of official cofinancing for ADB projects. Following the merger, and in the context of the current international environment, the focus of Japan's development assistance to India is shifting. In future, JBIC's focus will be directed more towards basic human need projects and selected, high visibility infrastructure projects. This could also limit the future scope for JBIC cofinancing from the official financing window, at least of hard infrastructure projects. In contrast, ADB may evolve modalities for possible cofinancing opportunities for social sector interventions, or for facilitation of donor financing of investment on basis of ADB technical assistance. ADB may also play a more pronounced role in administering JBIC loans which are co-financing ADB interventions, as is being done in the ongoing Private Sector Infrastructure Facility project. 86. The United Kingdom, through its Department for International Development (DFID), has a large aid program to India, focusing on poverty reduction inter alia through support for social sector initiatives. The program also seeks to support sustainable economic growth through support for economic reforms, particularly in fiscal policy and the power sector. DFID is concentrating its assistance to selected states, including Madhya Pradesh, Andhra Pradesh, and West Bengal, and is collaborating and coordinating activities with ADB in the areas of mutual interest such as support for power sector reforms, urban water supply and sanitation and slum improvement. ADB's efforts to strengthen the poverty focus of its portfolio and the supporting TA program provide further cooperation opportunities. The United States Agency for International Development (USAID) has focused its program inter alia on population stabilization; provision of health care, including HIV/AIDS control; environmental protection and pollution control, particularly in urban areas; and support for energy conservation and demand side management. USAID also provides extensive food aid. The Canadian International Development Agency (CIDA) has been active in support for state power sector reforms. In its preparatory work for power sector reforms in Kerala, the ADB is already drawing upon work being prepared by CIDA-financed consultants. The ADB and CIDA are also closely collaborating on power sector reforms in Madhya Pradesh. The priorities of Germany's assistance are the infrastructure (power) and social sectors, including water supply, urban waste management, housing, and health. The Netherlands is providing assistance mainly for social sector interventions, as well as in support of local governance and effective decentralization. One of its focal states is Kerala. The European Union (EU) provides assistance under two broad categories: development assistance and economic cooperation. The former is directed towards improving the quality of life of the poorest and is providing grants for rural development, as well as primary education and health. EU's economic cooperation program mainly comprises technical assistance and training support. 87. External assistance to India substantially increased from the low levels in the early 1980s, and averaged about $4 billion annually during FY1991-FY1998 (Appendix 3), or almost $5 in per capita terms. The terms of the ODA to India have considerably hardened over time, with the grant element declining from 19 percent during 1975-1980 to 8 percent during 1990-1995; the grant element is further declining with the World Bank modifying its overall funding mix of IBRD and concessional (IDA) resources from an IBRD:IDA ratio of 2:1 to a ratio of 1:1, although the ratio of actual commitment may vary slightly from year to year. This will imply an increase in the cost of long-term funds as the portion of concessional lending in total lending is diminishing over time. Following India's nuclear test in May 1998, and the subsequent imposition of economic sanctions, most bilateral donors put a freeze on new aid to India and in addition indicated their unwillingness to support new lending from multilateral agencies for other than humanitarian purposes. As a result, Board consideration for several World Bank loans was postponed in May/June 1998, the end of its fiscal year. Similarly, ADB lending to India was substantially affected and only one basic human needs loan approved by the Board in late 1998. Together with the freeze on bilateral assistance, the drastic decline in multilateral lending to India lowered foreign aid to $1.8 billion in FY1999 compared to $3.7 billion in FY1998 and about $4 billion on average since the early 1990s. As the international environment and the G-7 stance on lending continued in FY2000, foreign aid to India remained severely constrained, and new ADB and World Bank commitments amounted to $625 million and about $800 million, respectively. Moreover, the non-approval of infrastructure projects by multilateral institutions and the freeze on bilateral lending is increasingly hampering the medium to long term growth potential of the Indian economy by preventing removal of infrastructure bottlenecks. ___________________
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