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ADB Partners Modernization of India's Infrastructure

NEW DELHI, INDIA (16 January 2007) - Ensuring that the Asian Development Bank (ADB) remains relevant and responsive in a vast and diverse country such as India is a serious development challenge. At a special briefing today, ADB's Country Director in India, Tadashi Kondo, said that ADB will draw on cross-country experience and international best practices in carrying out its development program in the country, in close partnership with the Government.

ADB is committed to scaling up its annual lending to India to more than $2 billion and to raise disbursement levels to around $1 billion per annum as agreed between President Kuroda and Finance Minister of India in 2005. ADB achieved a record disbursement of $701.2 million in 2006, which was $43.2 million more than the previous highest disbursement of $658 million achieved in 2003. Contract awards in 2006 ($1.71 billion) were about 65% higher than those achieved in 2005 ($1.03 billion). In addition, disbursements were $18.8 million while contract awards were $27 million under the grant portion of the Tsunami Emergency Assistance Project.

"Improved portfolio performance and higher disbursement levels are key to further enhancing lending levels to India in the years ahead," Mr. Kondo said.

The core focus of ADB's India program is supporting the Indian Government's efforts to combat poverty through infrastructure-led growth. The rapid growth of the Indian economy and India's changing needs point to the need for strengthening infrastructure and helping India progress towards meeting the Millennium Development Goals. ADB's Country Partnership Strategy (CPS) 2007 for India which is expected to be finalized by October 2007, will therefore be closely aligned with the priorities of the country's 11th Five Year Plan (FYP).

The continued relevance of ADB's strategy for assistance in India is borne out by the high priority being given by the Government to infrastructure development. "Public private partnerships (PPPs) offer an attractive method of financing infrastructure services," says Mr. Kondo. The PPP approach would be a challenge not only for states, but also for ADB. Currently ADB is working on how to provide catalytic support to the Government of India on strengthening PPP at the Center and in selected States.

ADB's assistance program is expected to increase from around $2.45 billion in 2007 to $2.85 billion in 2009. Transport and energy sector will each account for around 34% and 19.5% of the 3-year program, respectively, while 22.6% will consist of urban sector projects.

Loans for developing agriculture infrastructure, modernizing commodity markets, improving water and coastal resources management, and supporting public private partnerships in infrastructure and tourism account for the remaining 24% of the program. The proposed 2007-2009 program will reinforce the priorities of ADB's Medium-Term Strategy II, namely, catalyzing investment, strengthening inclusiveness, promoting regional cooperation, managing the environment, and improving governance and preventing corruption.

"Inclusion of projects in agriculture, rural development, and sustainable water management, in addition to traditional infrastructure projects, will enable ADB's assistance program to address the key binding constraints affecting the Indian economy better, and help create conditions for broad-based growth," says Mr. Kondo.

Till 2002, ADB's state-level operations were mainly in Gujarat, Karnataka, Kerala, Rajasthan, West Bengal, and Madhya Pradesh. Since 2003, ADB has increasingly focused on the relatively poorer and weaker capacity states to support the Government's efforts at reducing inter-state disparities. The 2007-2009 program includes assistance for states such as Assam, Chhattisgarh, Jammu and Kashmir, Jharkand, Madhya Pradesh, Rajasthan, Uttaranchal, and those in the North eastern region. ADB will continue to provide the required capacity building support to these states.

In order for ADB to be more responsive to client needs, ADB has recently adopted new financing instruments such as multitranche financing facility (MFF), subsovereign/non sovereign lending and local currency loans. In keeping with the Government of India's preference for MFF loans, several of the loans programmed for 2007-2009 will offer MFF. India is the first developing member country where Innovation and Efficiency Initiative (IEI) reform modalities are being used widely. The Rural Roads II, Uttaranchal Power project, North Karnataka Urban Development project, and the Uttaranchal State Roads project which were approved in 2005 and 2006 offer multi tranche financing.

The scope for offering local currency loans and non-sovereign assistance is also being considered. ADB has requested the Government's permission to mobilize around an additional Rs37.5 billion in order to provide local currency loans to public sector entities.

ADB and the Government have been working closely with client states and executing agencies to address bottlenecks, and expedite implementation. Periodic tri-partite portfolio reviews have helped to promote cross-learning across states, and to re-affirm that balanced development is the common goal of ADB and its clients. Within ADB, increasing emphasis is being given on a results-focus to all operations. ADB's forthcoming India Country Partnerships Strategy will be prepared following a results-based framework.

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