Independent Evaluation

Evaluation Presentations

Full Evaluation Report

After independence in 1947, the Government of India promoted public enterprises as the engine of economic growth. It applied controls on private sector participation, and on foreign trade and investment. Later, in the mid-1980s, economic liberalization, an expansionist fiscal stance, and a hike in public sector wages boosted growth from 3.5% to 5% per year.

In India, state finances depend heavily on transfers from the center. By the early 1990s, fiscal expansion and higher oil prices from the Gulf War had made state finances unsustainable.

In 1991, the Government initiated stabilization and structural adjustment to contain fiscal imbalance. Thereafter, it encouraged multilateral development banks to partner with states. Beginning in 1996, over an 8-year period, ADB approved program loans in Gujarat, Madhya Pradesh, Kerala, and Assam. How did ADB's operations perform?

In 2007, the Operations Evaluation Department in ADB assessed the 4 programs as well as 11 associated technical assistance projects. It rated one of the programs successful, two partly successful, and the ongoing program in Assam potentially successful. The 11 completed technical assistance projects were rated successful overall.

As a whole, ADB's support was judged relevant, effective, efficient, and likely sustainable. Its impact was rated substantial. Most importantly, ADB's assistance enabled the Government to assist state fiscal reforms. This provided recognition and support for more politically difficult reform measures.

ADB also saw the need to build capacity to manage complex reform processes, and addressed it with technical assistance. Thereby, it developed a comparative advantage in state-level fiscal reforms, with lessons influencing other public resource management programs in India and the region.

Also, the programs improved revenue legislative and regulatory frameworks as well as administration systems and procedures, including automating tax administration and preparing for the introduction of value-added tax. Multi-year expenditure planning was introduced. Treasury payment systems were automated. Power sector subsidies were reduced in two states.

Public enterprise reforms had varied success, but a number of poorly performing enterprises merged, divested, or closed. Far-reaching measures included critical reforms establishing power and port sector regulatory authorities and attracting significant private sector and ADB investment in power and transport.

Provision of adequate public expenditure to meet the government's portion of adjustment costs varied across the programs. But, the efficiency of the programs was high: an independent study found that actual adjustment cost expenditure in Gujarat was close to the estimates. In Madhya Pradesh, it was revised down.

By giving state governments the opportunity to chart direction and by developing capacity to implement complex fiscal reforms, the programs changed attitudes, increasing the likelihood that the broader reform agenda will be sustained.

The study identified lessons of broad applicability: (i) effective political economy analysis will improve reform design; (ii) there is no blueprint, but there is a sequence to reforms; (iii) coherent application of design tools is needed to achieve development results; (iv) developing "soft" capacities is necessary to sustain reforms; and (v) reform actions supporting anticorruption efforts should be explicitly identified.

There are standards of good practice: (i) time and resources are required for policy dialogue and communication campaigns; (ii) program design should be internally coherent, focusing on key elements of the fiscal reform agenda, launching broader reforms after consolidation; (iii) long-term technical assistance is needed to match the changing nature of reform processes; and (iv) implementation should lean on existing institutions.