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Annual Report 2001

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India

Economic performance

India’s economic growth for FY2001 (referring to 1 April 2001–31 March 2002) is estimated at 5.4% compared with economic growth of 4% in FY2000. While economic performance has improved in FY2001, it still falls short of the levels recorded in the mid-1990s. The main causes of the economic slowdown of recent years are structural and cyclical in nature: high fiscal deficit, infrastructure bottlenecks, and depressed global and domestic demand. Industry sector performance remained sluggish; the agriculture and services sectors’ performance recorded improvement in FY2001, compared with FY2000. Fiscal deficits as a share of GDP declined in FY2000. However, lower-than-expected tax revenues put pressure on fiscal balances in FY2001, for which the Government set a fiscal deficit target of 4.7% of GDP. The Reserve Bank of India has taken measures to accelerate economic growth, including lowering the bank rate to 6.5% and reducing the cash reserve ratio to 5.5% by December 2001. Oil prices were a major cause of rising inflation in FY2000, which eased in FY2001. Wholesale price index inflation, at 2.0% in December 2001, has been on a downward trend. India’s external position in FY2000 was favorable, owing mostly to exceptional export performance. India’s trade balance improved to 3.0% of GDP, narrowing the current account deficit to 0.5% of GDP. Although the global economic slowdown has caused export growth to drop in FY2001, imports have followed suit in the context of a sluggish industry sector performance and slow investment demand.

ADB operations

Operational strategy: ADB’s strategy supports achieving higher and sustainable pro-poor growth, improved income, and reduced poverty by removing infrastructure constraints and increasing investment. It focuses on alleviating infrastructure bottlenecks and improving supply side efficiency by supporting priority public investment and catalyzing private sector investment in energy and transport and communications; and focusing on social infrastructure, including urban development and housing. Emphasis is given to creating a conducive private sector environment. ADB helps foster further development of financial and capital markets as an effective source of funding for infrastructure projects. ADB’s operational program continues to be sectorally and geographically focused. In the medium term, about half the annual lending to India will be for state-level operations in ADB’s focal states. ADB state-level assistance supports macroeconomic reform and fiscal consolidation to improve public saving and enhance resource mobilization, increase efficient resource use, promote policy reforms in key physical infrastructure sectors, and foster human development by reallocating budgetary resources to social sectors.

Policy dialogue: In support of the operational strategy in 2001, policy dialogue focused on improving the policy environment and governance of the power subsector at the state level; providing a policy and operational framework for attracting private sector participation in infrastructure; promoting subregional economic cooperation; and removing the capacity constraints on the transport corridor through private sector participation. The Madhya Pradesh Power Sector Development Program will support the creation of an efficient, self-sustaining, and competitive power subsector to provide sufficient quantity and quality of power, thereby enhancing the economic and social development of Madhya Pradesh, one of the poorest states in India. Another project will promote private sector participation in infrastructure at the state level to facilitate project development and address risks associated with financing projects through various initiatives. The West Bengal Corridor Development Project, one of the pilot efforts in project processing by a resident mission, will develop a corridor and sector development framework to promote sound corridor development and management practices, improve the policy environment for the efficient delivery of transport infrastructure, and strengthen environmental and social governance through mitigation measures. The Western Transport Corridor Project will improve capacity and increase safety on the national highway network through private sector participation in developing the high-density transport corridor.

Loans and technical assistance: ADB approved seven loans totaling $1.5 billion in 2001 to rehabilitate and reconstruct areas damaged by the Gujarat earthquake, develop the western transport corridor and the West Bengal corridor, establish a private sector infrastructure facility at the state level (two project loans), and implement the Madhya Pradesh power sector development program (program and project loans). ADB approved 12 technical assistance grants, of which 8 were for advisory purposes on capacity building for earthquake rehabilitation and reconstruction of housing, conducting the Madhya Pradesh integrated water resource management study, enhancing the corporate finance capability of the National Highways Authority of India, assessing the role of mortgage-backed securities, determining the impact on poverty reduction of financial sector policies and reforms, and improving the accounting system of the Calcutta Municipal Corporation. Four were technical assistance grants to prepare the Kerala power sector development program, Madhya Pradesh State road sector and integrated urban development projects, and public-private partnership on the National Highway Corridor.

Project implementation: Since joining ADB in 1966, India has received 69 loans, of which 38 were active at the end of 2001. Contract awards totaled $106.5 million, bringing the cumulative figure to $6.0 billion. The contract award ratio was 4.5%, lower than the ADB-wide average of 14.8%. Disbursements during the year totaled $269.8 million, bringing cumulative disbursements to $5.8 billion. The disbursement ratio was 11.9%, lower than the ADB-wide average of 20.5%.

During the country portfolio review in December, the Government agreed to accord high priority to the readiness of new projects to facilitate implementation and to ensure quality at entry. ADB will also provide more training on ADB’s policies and procedures. A working group has been formed to identify steps for improving the flow of funds to externally assisted projects at the state level.

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