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Annual Report 2002 : South Asia

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India

Economic performance

For FY2002 (ending March 2003), the official GDP growth estimate for India was 4.4%, compared with 5.6% in FY2001. The consolidated fiscal deficit of the central and state governments together as a percentage of GDP was targeted at 9.3% in FY2002, lower than the revised estimate of 10.0% in FY2001. The lower deficit ratio was due to the expected higher growth in revenue receipts relative to aggregate expenditure.

Despite poor harvests, which usually trigger inflation, the annualized average inflation, as measured by the wholesale price index, remained low at 2.8% during April–December 2002. This enabled the central bank to adopt an expansionary monetary stance to boost industry sector growth. The central bank’s midterm review of the Monetary and Credit Policy for FY2002 lowered the cash:reserve ratio from 5.0% to 4.8% effective November 2002. At the same time, the bank rate was reduced from 6.5% to 6.3%.

Export growth showed signs of revival at 11.4% in FY2002, after growing at 0.1% in FY2001. Imports grew by 6.3%, reflecting the recovery of domestic industrial activity. The current account surplus continued to improve at 0.6% of GDP.

ADB operations

Operational strategy: ADB recently finalized its country strategy and program for 2003–2006. The theme of the new strategy—the first operational strategy for India after adopting ADB’s Poverty Reduction Strategy in 1999—is mainstreaming poverty reduction. Poverty will be addressed primarily through growth—not only high growth but also equitable, pro-poor growth. Growth interventions will also be complemented by social development interventions that deal with poverty reduction. The Government has also sought ADB assistance for the next generation of policy reforms—to build capacity for improved governance by introducing international best practices. These new priorities will require that ADB operations are expanded 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, including support for improved delivery of pro-poor social services, will also be extended to a few more focal states that are poor but have also demonstrated their commitment to reforms.

Policy dialogue: Policy dialogue has focused on fiscal consolidation; improving the state-level governance and policy environment, particularly in the power and roads subsectors; fostering reforms in and modernizing the Indian Railways; providing a policy and operational framework to attract private sector participation; and promoting subregional economic cooperation.

Loans, technical assistance, grants, and equity investments: Seven loans for six projects—five public sector and one private sector, totaling $1,183.6 million—were approved in 2002. The projects aim at developing the East-West Corridor, developing roads in Madhya Pradesh, reforming the state power sector, improving railways, and modernizing government and fiscal reform in Kerala. The private sector loan of $20 million equivalent in local currency was made to a medical services network, which is expected to create an integrated private sector system in India. Twenty-six technical assistance totaling $13.2 million and three grants totaling $55.3 million were approved (see tables 1, 6, 7, 10, 24, 25, and 35 in the Statistical Annex). ADB also approved two equity investments totaling $25 million in an infrastructure fund to help finance private sector infrastructure projects and a mortgage guarantee company in India.

Project implementation: Since joining ADB in 1966, India has received 76 loans totaling $11,636.9 million, of which 34 were active at the end of 2002. Contract awards totaled $862.4 million, bringing the cumulative figure to $6,808.6 million. The contract awards ratio for 2002 was 22.4%—close to the ADB-wide average of 22.6%. Disbursements during the year totaled $576.5 million, bringing cumulative disbursements to $6,386.6 million. The disbursement ratio was 17.9%—lower than the ADB-wide average of 22.2% (see tables 14–23 in the Statistical Annex).

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