Regions and Countries

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p. 2 of 4 BACK | NEXT I. Development Situation II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Lending Levels

Country Strategy and Program Update 2002-2004: India

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II. Implementation of the Country Strategy and Program

A. Poverty Reduction

10. The latest National Sample Survey (NSS) 2000 reveals a sharp decline in the percentage of the population below the poverty line, from 36 percent in 1993/94 to 26 percent.² Of the rural population, 27 percent was poor, compared with 23.6 percent of the urban population. This improvement is also reflected in ADB’s focal states (Gujarat, Kerala, and Madhya Pradesh). For example, poverty in Gujarat declined from 24 percent in 1993/94 to 14 percent in 1999/2000; in Kerala, from 27 to 12.7 percent; and in Madhya Pradesh, from 43 to 37.4 percent.

11. While the proportion of population below the poverty line has dropped considerably, reflecting noticeable progress towards achieving the poverty reduction target of the International Development Goals, the absolute number of poor – although still high – has also come down to about 260 million. Substantial inter- and intrastate variations, and urban-rural disparities characterize this trend and are also reflected in the continued limited access of the poor to social services, compounding intergenerational poverty. While in other countries the bulk of the poor reside in rural areas, in India large numbers of poor live both in rural and urban areas. Urban centers such as Mumbai and Kolkata face huge challenges as the megacities continue to grow. In rural areas, agricultural laborers and small-scale farmers bear the brunt of poverty. The fundamental causes of poverty are (i) lack of access to arable land, (ii) limited opportunities for wage labor, (iii) lack of education, (iv) shortage of capital, and (v) poor management of natural resources.

12. The Government recognizes that poverty is more than lack of income. Poverty includes vulnerability, powerlessness, and social exclusion. The Government thus supports the devolution of authority and responsibility from the states to rural and urban local bodies to increase the participation of the poor in decisions that affect their lives. Strengthening institutional and decision-making processes involving civil society and the poor are Government priorities and will be reflected in the 10th Five-Year Plan (2002–2007). The High-Level Forum and Poverty Reduction Partnership Agreement will be linked with the Government’s preparations for the plan to ensure that the CSP’s priorities and ADB’s country program are consistent with India’s developmental needs as well as ADB’s strategic emphasis on poverty reduction.

B. Thematic Priorities

1. Economic Growth

13. Achieving sustainable poverty reduction by generating jobs and increasing incomes through faster and broad-based economic growth remains a thematic priority. Empirical evidence in India (as in many other countries) strongly suggests that growth is essential to sustain poverty reduction. In particular, the rural poor’s gains since the 1970s have been due almost entirely to growth. ADB’s national poverty analysis and the recent NSS results reiterate these findings. The Government continues to implement its priority reform program, focusing on macroeconomic and structural reforms, including creating an enabling environment for private sector development, financial sector and capital market reforms, and decentralization. ADB will support key elements of the program to improve sustainable economic growth.

2. Human Development

14. The Government accords high priority to human development, but despite some improvement, the absolute levels of performance are still low compared to those of other developing economies. India ranks 128th out of 174 countries in the human development index (Appendix 2). The Government’s human development policies recognize education as the catalyst for better health and nutrition, socioeconomic opportunities, and natural environment. Given the strong linkages between poverty and low social development, especially in rural areas, the Government also recognizes provision of basic social services as a key element of poverty reduction. Education and social services are under state government responsibility, and ADB’s assistance will be provided as part of state-level public resource management reform.

3. Gender and Development

15. While declining over the past several decades, wide gender disparities still exist. India ranks 108th out of 143 countries in the gender-related development index, or comparatively lower than the country’s human development index rank, implying persistent gender bias. Gender disparities also show significant regional variations, somewhat correlated to poverty incidence.

16. ADB is undertaking a gender study as input into the CSP. To ensure better policy and institutional responses, participatory assessment of gender issues will be part of the gender situation analysis and contribute to (i) identifying decentralized and efficient implementation mechanisms to respond to the needs of women, the poor, and the disadvantaged (e.g., ethnic minorities, scheduled castes); (ii) examining alternative service delivery channels; and (iii) analyzing the gender-poverty-ethnicity nexus, including impact of gender disparities on incomes, job opportunities, access to healthcare and education, and nutrition. ADB’s gender strategy for India, evolving from the gender study, may include (i) assistance to policy support, capacity building, and awareness raising; and (ii) assistance for women’s empowerment in development by, for example, enhancing women’s economic opportunities and status in state resource management projects.

4. Good Governance

17. The Government increasingly stresses the importance of sound management for socioeconomic development. A consensus on economic reform has evolved, with support for key elements of the program maintained despite changes in government. Resources are allocated less through discretionary interventions and more by market forces. Efforts to enhance competition and encourage private investment are bearing fruit: industrial licensing was abolished; trade barriers reduced; and the power, insurance, and telecommunications sectors opened to the private sector. However, much more improvement in governance is needed if India is to utilize its full development potential. Public financial management and resource mobilization need to be strengthened, poorly targeted subsidies reduced, and bankruptcy regulations—promoting neither revival nor liquidation—revised. Delivery of essential services must be improved, and a key constraint, corruption, must be tackled.

18. Some of these problems are addressed by new initiatives: (i) devolving responsibilities and resources at the state and local levels, and enhancing accountability of economic policies through the Fiscal Responsibility and Budget Management Bill at the central level; (ii) creating an enabling environment for transparency, competition, and private sector participation in infrastructure sectors; and (iii) establishing a predictable policy, legal, and regulatory framework for the financial sector and capital markets. The Lok Pal Bill and the so-called Lokayutka laws promote accountability.³ Expeditious implementation and strong enforcement of these initiatives is essential. To encourage these initiatives, ADB holds policy dialogues with the central and state governments and designs and implements public resource management programs and sectoral projects. ADB also supports legal reform through TA for Support for Registration System for Secured Transactions and as part of regional TA, Accountability Mechanisms in the Asian and Pacific Region, including whistleblower protection to encourage exposure of corruption. A governance assessment will be prepared to provide the background for CSP revision.

5. Private Sector Development

19. ADB’s private sector development strategy and operations will continue to support Government initiatives to develop the legal, regulatory, and institutional frameworks that will enhance and sustain private sector activities focusing on, inter alia, (i) effective governance in the public and private sectors; (ii) effective financial intermediation; (iii) expanded public-private partnerships; and (iv) regional cooperation. Lending and nonlending support will help create the enabling environment for the private sector, including sound macroeconomic management; well-functioning financial and capital markets; and adequate infrastructure. Another important reform to be supported is the restructuring and privatization of state-owned enterprises, particularly at state level. Possibilities may also be considered for credit enhancement to mobilize local currency financing for private sector projects.

6. Environmental Protection

20. The range of environmental problems confronting India is vast, and mitigation measures are expensive. A key issue is the disproportionate impact of environmental degradation on the poor, women, and the low castes. While India is mainly rural, it also has a large and rapidly growing urban population. Basic amenities such as sanitation, water supply, housing, and transport have not kept pace with urbanization, leading to significant deterioration of the quality of urban environment, where air pollution, water supply, solid waste, sanitation, and sewerage are serious problems. Natural resource-based environmental problems include deforestation, biodiversity loss, and land degradation due to erosion and salinity. Although India has elaborate statutes and regulations for environmental protection, monitoring and enforcement are weak.

21. ADB’s environment strategy will support (i) improving the urban environment, focusing on air pollution programs, solid waste management, water supply, and sanitation services; (ii) awareness raising; (iii) energy efficiency with concomitant environmental benefits; and (iv) natural resource management and biodiversity conservation.

7. Regional Cooperation

22. Regional cooperation activities are gaining momentum in South Asia, offering significant potential benefits. ADB is building on bilateral partnerships to further enhance growth potential through regional cooperation between Bangladesh, Bhutan, India, and Nepal. The strategy is to proceed initially with projects involving bilateral and trilateral linkages. ADB aims to address constraints identified under past regional cooperation initiatives, and continue consultations with governments and other stakeholders on the modalities for pursuing economic cooperation under the South Asia Subregional Economic Cooperation initiative as well as private sector initiatives such as the Private Sector Forum, which represents various chambers of commerce in the four countries. Potential areas of cooperation include (i) multimodal transport and communication, (ii) energy (particularly hydropower development), (iii) trade and investment facilitation and promotion, (iv) natural resource use and environmental management, and (v) tourism.⁴

23. ADB is also working with the Government to identify high-priority projects that can be part of national programs with potentially great subregional benefits. Such initiatives include improving the north-south transport corridor in West Bengal and conserving biodiversity in the Indian Sundarbans, which may enhance cooperation between India and Bangladesh to protect and sustainably develop this globally important but fragile ecosystem.

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