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Table of Contents
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Country Strategy and Program 2003-2006: India
III. ADB’s Development Experience
A. Impact of Past Assistance
19. ADB's assistance to India began in 1986. As of 31 December 2002, ADB had
provided 66 public sector loans amounting to $11.5 billion. Of these, loans
with a net amount of $5.2 billion are ongoing. Nonlending assistance consists
of 167 TA projects for $84.8 million, of which 93 have been completed. The remaining
74 TAs (49 advisory and 25 project preparatory) for $51.8 million are under
implementation. The energy sector has received the largest share of past assistance,
followed by transport and communications. The sectoral composition of the portfolio
is shown in Figure 3.
20. The first country strategy was launched in 1986, and the second, in 1996.
Both focused on combining infrastructure investments with assistance for reforms
to strengthen growth. A major innovation of the 1996 strategy was the introduction
of state-level operations. Following adoption of ADB's PRS in 1999, and pending
a full revision of the India strategy, operations were extended to address human
poverty, mainly through urban social infrastructure projects. Overall, ADB’s
past assistance to India has been successful, especially after the introduction
of reforms since 1991. Assistance has helped promote and implement reforms,
especially in selected sectors and states.
21. In terms of sector assistance, urban projects are complex and difficult
to implement, but have had a visible impact on the level and quality of basic
urban services, along with direct poverty reduction through targeted livelihood
programs (Box 3). ADB assistance has had a major development impact on the National
Highway Development Program (NHDP) as trade and traffic have grown enormously
along the major corridors. ADB helped build capacity in the agency responsible
for this widely acclaimed success (Box 4). The financial sector has been significantly
reformed (Box 1) partly due to a series of ADB loans and TAs. However, an agenda
of unfinished reforms remains, requiring further assistance. ADB has significantly
promoted public-private partnerships through lines of credit to domestic financial
intermediaries for private investment in physical and social infrastructure.
The impact has been less successful in telecommunications, as indicated by post
evaluation exercises12, and in the railway sector, as assistance
was withdrawn due to lack of commitment to reforms. The situation has changed,
with the Railway Ministry having launched a reform program (para.38), and ADB
assistance to the sector has been resumed. The impact has been mixed in the
power sector. Although the physical investment projects have been successfully
implemented, reforms have lagged behind. ADB is now helping the Government step
up power sector reforms, especially at the state level.
Box 3: "The Smiles are Worth the Wait":
Urban Sector Poverty Interventions
Asian
Development Bank (ADB) urban sector projects have significantly
improved the urban environment in selected cities. In addition to
upgrading urban infrastructure, these projects have also enabled
ADB to provide targeted urban poverty reduction programs. However,
the projects are complex and difficult to implement. As integrated
projects they require the implementation of a large number of subprojects
in congested urban environments. The local bodies executing and/or
implementing these projects also have limited capacity. ADB's first
urban project in India (Loan 1415-IND: Karnataka Urban Infrastructure
Development Project) shows that implementing these projects take
time and patience. The executing agency and participating municipalities
not only had to learn ADB technical and procurement requirements
but also how to deal with the low-income sectors of civil society
through nongovernment organizations (NGOs) and local slum leaders.
This proved to be an 18-month exercise, beginning with the appointment
of project-financed community development officers. They, in turn,
had to gain the trust and cooperation of the local NGOs and slum
leaders before improvement of basic services and direct poverty
reduction programs could be planned. Many more meetings took place
before local communities decided which improvements they wanted
and were willing to operate. Improved water supply, street drainage,
and onsite toilets were the highest priority, followed by solid
waste management, women's centers, and roads. Now that these are
completed, the "look" of the local neighborhoods has improved and
house owners have begun to improve their homes, installing indoor
plumbing, painting, and cleaning up the area.
The
project also initiated a number of direct poverty reduction programs
for income generation, mostly targeted at women, and job creation
for young people through vocational training. These programs were
developed through extensive consultation with stakeholders. Thousands
of beneficiaries joined savings and credit groups, which consisted
of 30-50 women each and were started with only a $200 grant per
group. Each member contributes Rs.5-100 per month. By borrowing
from the joint savings, women reduce their reliance on husbands
and moneylenders for cash to purchase medicine or for other emergencies.
The additional income of participating families has led to visible
improvements in their lifestyles, neighborhoods, housing, and self-confidence,
especially among women. The increases are mainly used to buy rations,
schooling for their children, and better hygiene and diet. After
a long wait and much criticism by some local leaders and groups,
including husbands in many cases, tens of thousands of women and
children have benefited from the project. The smiles on their faces
are strong testimony that this intervention was well worth the time
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22. Finally, state-level operations were launched in Gujarat (1996), Madhya
Pradesh (1999), and Kerala (2002), which were selected based on the following
criteria: (i) firm commitment to undertake reforms, (ii) high assistance requirement
based on population size and state of infrastructure (iii) a satisfactory record
of implementation and lack of major assistance from other development partners,
and (iv) capacity and willingness to repay. Typically, ADB’s state-level
operations have consisted of a program to support fiscal consolidation, combined
with programs of sectoral reforms and investments in power, transportation,
and urban social infrastructure. The synergy between fiscal reforms and power
sector reforms is particularly significant because subsidies to cover the chronic
losses of state electricity boards are a major factor underlying states’
fiscal problems. After its completion, the first public resource management
program in Gujarat was assessed as having contained the deteriorating fiscal
situation, but the program could have been more effective with a less complicated
policy matrix and tighter monitoring of the program. The success of state-level
fiscal reform assistance owes much to ADB’s strong partnership with the
central government Department of Expenditure, which is implementing the Government’s
fiscal reform program for the states.
Box 4: Creation of the National Highways
Authority of India
The
National Highways Authority of India (NHAI) was created under an
act of parliament in 1988, to be responsible for the development,
maintenance, and management of the national highway system. However,
owing to lack of funds and a clear organizational structure, NHAI
was not formally established until February 1995. From 1995 to 1998,
NHAI took on several development projects, all of which became a
part of the highly successful National Highway Development Program
(NHDP) initiated in 1998. It is implementing projects worth approximately
$1 billion per year. The Asian Development Bank (ADB) and World
Bank were catalysts in NHAI’s establishment. Aside from providing
loans to set up NHAI, ADB has worked closely with it over the years
in providing technical assistance for institutional development;
capacity building (contract administration, environment and social
development, corporate finance); private sector promotion; toll
strategies; commercialization of operations and maintenance; and
road safety. ADB has adopted a programmatic approach for India’s
highway sector in which a multiyear lending program for NHDP is
used to enable efficient highway development, operation and maintenance,
and private sector participation. ADB is helping NHAI transform
itself into a lean and efficient highway management organization
with strong managerial and financial autonomy, extensive private
sector involvement in infrastructure development, sustainable funding
mechanisms, and strengthened capacity to deal with social and environmental
issues.
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B. Portfolio Performance and Status
23. After peaking at $645 million in 1997, annual disbursements progressively
declined to a low of $270 million in 2001 (Figure 4), reflecting a changing
age structure of the portfolio in favor of newly approved projects yet to commence
full implementation. The sharp drop in 2001 was also caused by borrowers’
deferred withdrawals due to the delayed introduction of London inter-bank offer
rate (LIBOR)-based lending from 2002. Disbursements recovered sharply in 2002
to reach $576.5 million, and disbursement in 2003 is expected to exceed $700
million. Contract awards peaked at $543 million in 1998, and then progressively
declined to $124 million in 2001, for the same reasons. However, the situation
has now turned around and contract awards rose to a record level of $831 million
in 2002. These are expected to exceed $1 billion in 2003.
24. By the end of 2002, 18% of the total value of the portfolio had been disbursed
and 28% of total contracts for the portfolio awarded. These ratios are healthy
for a young portfolio such as India’s, since they rise with the rising
age structure of the portfolio. The performance of actual disbursement and contract
awards relative to ADB norms, adjusted for portfolio age, are shown in Figures
5 and 6 respectively13. Figure 5 indicates that disbursement performance
has been well above ADB-wide norms for energy and multisector loans, and just
above the ADB norm for transport projects. Performance of social infrastructure
projects has been below the ADB norm for the reasons discussed in Box 3. Overall
disbursement performance of the India portfolio has been close to the ADB norm.
In the case of contract awards, all sectors except social infrastructure have
performed well above the ADB norm (Figure 6). Performance of the overall portfolio
is just above the ADB norm. Sustaining good portfolio performance will be a
challenge as increased lending leads to a rapidly growing portfolio. The government
and ADB are committed to achieving disbursement targets of $750 million, $840
million, $1000 million and $1200 million respectively over the 4-year period
2003-06. These are high performance targets relative to ADB norms.
25. Of ADB’s 29 ongoing projects as of 31 December 2002, 21 were rated
satisfactory or higher for implementation progress and likelihood of achieving
development objectives, while 8 were considered to be “at risk,”
requiring intensive monitoring. Six of these are in social infrastructure, where
implementation is slow due to project complexity (Box 3). As of 31 December
2002, ADB had approved nine program loans. Four have been closed, including
the Hydrocarbon Sector Program loan, which closed without the second tranche
disbursement because the Government could not comply with one unrealistic condition.
Delays of up to 2 years notwithstanding, ADB’s program lending experience
in India has been by and large successful. A major cause of implementation delay
was the need for extensive political consensus building in India’s robust
and open democratic environment.
C. Conclusions and Lessons for the Country Strategy and Program
26. The following conclusions and lessons can be drawn for the Country Strategy
and Program (CSP):
(i) The Government’s strategy of income poverty reduction through
growth has been very successful. ADB should support this basic strategy.
(ii) The Government’s development strategy recognizes that equitable
and employment-intensive growth is important to maximize the poverty-reducing
impact of growth. However, growth alone is not sufficient to reduce human
poverty. This requires an additional focus on social development and environmental
protection. Thus, ADB’s new operational strategy should also cover employment-intensive
sectors as well as social development and environmental protection.
(iii) Fiscal reforms and other structural reforms are critical for sustained
high growth. Linking assistance to reforms will remain important. A programmatic
approach where new interventions in a sector are triggered by accomplishment
of milestones in the sector road maps will be the best way forward.
State-level operations have a strong, focused impact on reforms and infrastructure
development and should be continued. These operations should also be used
effectively to help the Government contain interregional inequalities and
mainstream development in less developed regions such as the northeast. State-level
public resource management programs should go beyond fiscal reforms to support
improved governance and better delivery of pro-poor social services at the
state and local government level.
(v) Strengthening the capacity of executing and implementing agencies, and
good quality at entry, including realistic policy covenants fully understood
and owned by the executing agencies, are essential to sustain good portfolio
performance.
(vi) The enhanced role and expansion of the India Resident Mission (INRM)
under the Resident Mission Policy has been key in strengthening portfolio
management (Box 5). With the delegation of the programming function and related
economic and thematic sector work (ETSW) to INRM, the linkage between ETSW,
programming, processing, and implementation has significantly strengthened
ADB’s country focus in India and is improving portfolio performance.
Box 5: India Resident Mission’s
Portfolio Management System
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In addition to directly administering 60% of ongoing Asian Development
Bank projects in India, the India Resident Mission (INRM) is
responsible for monitoring and facilitating overall portfolio
performance. INRM has thus established a comprehensive portfolio
management system, including weekly and monthly portfolio status
reports, quarterly project status reports, and detailed half
yearly reports on tripartite portfolio review meetings (see
below).
- Twice
a year, INRM conducts bilateral review meetings with executing
agencies (EAs), followed by tripartite portfolio review meetings
(TPRMs) with the Department of Economic Affairs (DEA) and EAs.
The TPRM exercise is a 4-day intensive project-by-project review
of implementation performance, focusing on achievement of annual
contract award and disbursement targets. TPRMs also lead to
substantial “spring-cleaning” of ongoing projects.
Starting in 2003, problem projects will be reviewed more frequently.
- INRM’s
annual country portfolio review mission (CPRM) reviews the entire
portfolio performance with DEA, other line ministries, and EAs.
CPRM focuses on generic country and sectoral implementation
issues, and performance in meeting general and specific loan
covenants.
- INRM
and DEA regularly field senior official-level joint review missions
for problem projects. These missions have removed implementation
bottlenecks and revived slow-moving projects.
- Given
the extraordinary nature of the Gujarat Earthquake Rehabilitation
and Reconstruction Project, INRM has established the Extended
Mission in Gujarat to closely monitor project implementation.
- Delegation
of the disbursement function to INRM and improvement of interaction
with EAs and borrowers has reduced the processing time for withdrawal
applications by about 30%.
- With
the strengthening of the Project Administration Unit (PAU),
INRM is undertaking a systematic training needs assessment for
all EAs to provide targeted training in procurement, project
implementation, and disbursement, not just for ongoing projects
but those that expect to receive loans over the next year or
two.
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- Since operations in India started only 1986, and the portfolio
is relatively young, only nine loans have been post -evaluated. Six were rated
highly successful. One program loan in the hydrocarbon sector was rated partly
successful because one unrealistic policy condition could not be met. Two
telecommunications projects were unsuccessful because the projects were designed
without adequate sector assessment.
- ADB norms are based on the estimated parameters of a time-dependent
logistic curve, which gave the best fit for ADB-wide data.
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