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Regions and Countries Country Partnership Strategy Document
Country Strategy and Program 2003-2006: India
Executive SummaryIndia is a fast growing economy, with growth rates of 5.6% in FY2001 and 4.4% in FY2002. Growth rates were even higher at about 6.5% in the late 1990s. During this period poverty incidence declined from 36% of the population in 1993-94 to 26% in 1999-2000. A great deal of compelling evidence suggests that the decline in poverty is primarily attributable to growth. However, the data on ‘income-poverty’ does not capture trends in ‘human poverty’, which reflects deprivation in other dimensions of the quality of life. Based on this more inclusive metric, India is ranked at 124 out of 173 countries for human development. India's performance in attaining the Millennium Development Goals (MDGs) is mixed. It is one of the few countries on track for reducing income poverty, and is also likely to achieve the target for enrollment in primary education, and access to improved water sources. However, the country lags behind in female secondary enrollment and reduction of infant mortality rates. The Government has increasingly recognized that providing basic social services such as access to education, health care, potable water, and sanitation is key to poverty reduction. Accordingly, the recently approved Tenth Five-Year Plan for 2002-2007 (10th Plan) has programmed an increase of nearly 80% in social expenditure. The ruling Bharatiya Janata Party and its allies are in power in the central Government and in seven states. The Congress and other parties are in power in the remaining 21 states. While such political plurality has strengthened the forces of federalism, it poses a challenge for coordinated macroeconomic management. However, the systems in place to harmonize state-level economic management with policies of the central Government and central bank are working well. India has also seen significant achievements in economic, political, and civil governance during the past decade, including some important reforms, decentralization, and other institutional changes. The state-dominated path of development notwithstanding, the private sector accounts for 74% of gross domestic product (GDP) and 71% of total investment. One measure of the impact of reforms on competitive private sector development is that half of the top 100 companies today, ranked by market capitalization, were not among the top 100 when reforms began in 1991. Another measure is that foreign direct investment (FDI), which was virtually zero in 1991, is now around $2 billion per year. However, important challenges remain, such as low levels of public accountability or transparency; bureaucratic inefficiency, harassment, and corruption; persisting law-and-order problems; and an overburdened justice system. The Government’s development strategy is spelled out in the 10th Plan, emphasizing that development must be defined not just in terms of increased GDP, but more broadly in terms of human well-being, i.e., reduction in income poverty and also human poverty. The 10th Plan has thus adopted a strategy combining high growth with equitable growth and social development. The 10th Plan also attempts a new kind of planning that focuses on good governance. It indicates that the role of the Government in production will continue to decline while increasing in the provision of better public services and a better regulatory environment for private enterprises. Thus, the strategy of the 10th Plan consists of four basic themes: high growth, equitable growth, human development, and reforms. The strategy is a sound one to maximize the poverty-reducing impact of development and is similar to the Asian Development Bank (ADB) poverty reduction strategy, which is based on pro-poor growth, social development, and good governance. The strategies of the Government and ADB thus fit together well. Although the 8% growth target will be difficult to achieve, the basic strategy of the 10th Plan is appropriate and merits strong support from India’s development partners. The most important role they can play is in introducing international best practices to strengthen fiscal and other structural reforms highlighted in the 10th Plan. The main lessons for the Country Strategy and Program (CSP) from India’s past performance and ADB’s country experience are the following:
The theme of the new strategy—the first operational strategy for India
after adoption of ADB’s Poverty Reduction Strategy in 1999—is mainstreaming
poverty reduction. Based on ADB’s comparative advantage, 1core competencies,
and past country experience, poverty will be addressed primarily through growth,
not only high growth but also equitable, pro-poor growth in line with the 10th
Plan’s priorities. Growth interventions will also be complemented by social
development and environmental protection interventions to support the 10th Plan’s
emphasis on human poverty reduction alongside income poverty reduction. The
Government has also indicated that it looks to ADB, among development partners,
to play a leading catalytic role in supporting the next generation of policy
reforms and build capacity for improved governance by introducing international
best practices. These new priorities will require ADB operations to expand to
subsectors that are especially important for equitable growth, social development,
and improved governance, in addition to sectors focusing on high growth, reforms,
and private sector development. State-level operations will also be adjusted
to mainstream poverty reduction through support for improved delivery of pro-poor
social services and extension of coverage to a few more focal states that have
demonstrated their commitment to reforms and are also poor. Thirty-three loans are proposed for 2003-2006 for a total of $7.5 billion, or approximately $1.9 billion per year. The loan pipeline will increase moderately from $1.67 billion in 2003 to $1.84 billion in 2004, $1.96 billion in 2005, and $2.05 billion in 20062. This program is based on an assessment of India’s future needs, past performance, and absorption capacity. In terms of needs, the level and composition of operations proposed is the minimum needed for ADB to lead, in partnership with other agencies, in providing the 2003-2006 time slice of investment and capacity-building assistance that India needs to be on track to attain the MDGs. In terms of past performance, an average growth rate of 6.5% over 1993-94 to 1999-2000 effectively reduced the level of poverty incidence from 36% to 26%. Although growth is somewhat lower now, India is still a fast growing economy. India’s portfolio performance has also generally been good in terms of disbursement and contract awards. Finally, although much remains to be done in economic reforms, progress during the past decade has been significant in industry and trade policy, the financial sector, telecommunications, civil aviation, ports, and roads. Regarding absorptive capacity, the current account balance of payments has turned around from large deficits to a modest surplus since 2002. India’s foreign exchange reserves of over $70 billion fully cover about 14 months of imports (equivalent to about 13 months imports net of short-term debt liabilities). With a prudent debt service ratio of 14% and a debt-GDP ratio of only 21%, India can easily absorb the additional ADB assistance. There are risks that need to be constantly monitored to make midcourse corrections as required to ensure delivery of the program. Such corrections may also be required in response to changing conditions, including new policy developments. The country program and portfolio performance will be monitored against annual and medium-term targets set for each of four blocks of performance indicators that will be reflected in the Poverty Reduction Partnership Agreement to be signed after Board approval of the CSP. As per ADB’s business processes, the regional management team will be primarily responsible for program implementation, supported by the country team. The teams will closely monitor the performance indicators to ensure successful implementation of the CSP. Figure: CSP Formulation Process and ADB Operational Strategy [ PDF ]
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