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Countries and Regions Country Assistance Plans Document
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Country Assistance Plans - India : I. Country Performance Assessment
E. Implementation Assessment1. The Portfolio21. Asian Development Bank's (ADB's) lending operations to India, which began in 1986, totaled $7.7 billion (9.5 percent of total ADB lending and 13 percent of ADB's cumulative OCR lending) for 47 public sector loans (40 projects) by end-1999. ADB's ongoing portfolio in India as of that date consisted of 27 loans for a total net loan amount of $3.9 billion. While energy and transport and communication sectors account for 36 percent and 26 percent of the approved amount, the social infrastructure sector and state-level operations account for about 27 percent and 13 percent, respectively, of the portfolio under implementation. This reflects a noticeable change in the sectoral distribution of the loan portfolio for India over the recent years. 22. Most of the loans approved since 1986 have supported policy reforms and investments in the energy, transport and communications, and finance sectors. In the energy sector, the main thrust has been on providing assistance for new investment in power generation and transmission; development of oil and gas, including hydrocarbon sector deregulation and tariff setting; and improving energy efficiency. Lending operations in the transport and communications sector have included development of national and state highways; investment support for rehabilitation and extension of selected ports, as well as assistance for corporatization of Ports Trusts and establishment of Tariff Authority; expansion of the rail network, technology transfer, and procurement of equipment; and extension of the telecommunications network. Assistance for financial and capital markets reform included support for financial deregulation, development of prudential and supervisory framework, and establishment of capital markets infrastructure. In the last five years, ADB has been increasingly active in the urban sector in support of urban infrastructure development, including institutional and policy reforms and, more recently, has also initiated support for housing finance. Since 1996, ADB has supported comprehensive state-level reforms, focusing inter alia on improved public resource mobilization, restructuring of state public sector enterprises, and creating an enabling environment for private sector involvement in infrastructure development. 23. In terms of ADB's private sector operations, India has the largest portfolio of unguaranteed loans and equity investments, amounting to $271 million for 21 investments. Together, these loan and equity investments account for 15 percent of ADB's approved private sector investments. ADB's private sector operations have so far mainly focused on support for financial and capital market institutions and infrastructure investment funds. 24. ADB has also provided $56.8 million for 114 technical assistance (TA) projects, of which 85 were advisory and 29 for project preparation. Advisory TAs have focused on policy, institutional, and regulatory issues in the port, hydrocarbon, and financial sectors; the regulatory framework for the gas and electricity subsectors; capacity building for improved infrastructure development for local governments; strengthening capacity for infrastructure finance; institutional strengthening of public administration and financial institutions; industrial restructuring including social safety net; and environmental monitoring, pollution control, and environmental legislation. In response to natural calamities, assistance has been provided for capacity building for disaster mitigation and management. ADB has so far also approved 14 TAs (amounting to $7.8 million) in support of its state-level operations in Gujarat and Madhya Pradesh. 2. Issues in Project Implementation25. Of the current portfolio of 27 ongoing loans at end-1999, 23 loans were rated as satisfactory or highly satisfactory in terms of development objective, and 19 loans in terms of implementation progress (see Appendix 2). However, a number of projects do experience slow start-up and delays in disbursements. Moreover, all ADB's state-level projects in Gujarat and Madhya Pradesh were rated satisfactory for both implementation progress and development objective. Key general causes of implementation delays in the public sector project portfolio have included complex and prolonged government internal procedures, lengthy procurement approvals, ineffective contract supervision, and weak project supervisory personnel. Some projects continue to suffer from delays due to weak management and supervision by the executing agencies and inexperience of domestic contractors, thereby adversely impinging on the projects' developmental impact. In the case of the private sector portfolio, four fifths of the portfolio is rated as satisfactory or better, with the balance rated as marginal or worse. The poorest performing elements of the private sector portfolio relate to ADB's early investments in the manufacturing sector, which are in difficulty for various reasons, including weak management, implementation delays, and adverse market trends. Such investments are no longer part of ADB's private sector strategy in India. Moreover, most public sector projects and all private sector investments have now been delegated for implementation to the ADB's India Resident Mission (INRM) (see Section VII.B). This has enabled closer monitoring, and more expeditious follow-up including on-site inspection of executing agencies' project management and supervision. 26. The disbursement performance in 1998 and 1999 continued to be strong, with disbursements for public sector operations at $620 million and $607 million, respectively, compared with average $593 million during 1995-97 and $215 million in 1993. The disbursement ratio (including program loans) rose to 35.2 percent in 1999, compared with an ADB-wide average of 23.5 percent. (Excluding program loans, the disbursement ratio for India was 34.5 percent in 1999, compared to ADB-wide average of 17.7 percent.) The improvement in disbursements reflects inter alia better quality at entry (in terms of project design and readiness for initiating disbursement); simplification of internal procedures and the use of standardized bidding documents for tendering on aid-funded projects by ministries and agencies concerned; the creation of a central project monitoring unit in the Finance Ministry; and increasing disintermediation by the Central Government of new loans to public sector entities. The semiannual tripartite review meetings held between the Government's Department of Economic Affairs (DEA), executing agencies, and INRM have also contributed to the improvement in disbursement performance. 27. Commitments have increased again in 1999, totaling $625 million, compared to $250 million in 1998 and $563 million in 1997, but were still below the level in 1996 of $763 million and average $840 million in the early 1990s 8. The lower than programmed lending levels in 1998 and 1999 primarily reflect the disruption in the implementation of ADB's operational program in India, noticeably infrastructure projects which needed to be carried over to subsequent years. Meanwhile, contract awards amounted to $557 million in 1999, compared with $654 million in 1998 and $473 million in 1997. Improved implementation, together with portfolio consolidation (mainly cancellations of loan proceeds no longer required), have reduced the undisbursed balance of approved loans significantly from a high of $3.4 billion at the beginning of 1994 to $1.3 billion as of end-1999. The Government expressed concern at the low undisbursed balance, especially when set against the relatively low level of commitments during 1997-1999. Moreover, the Government stressed that even with the proposed approval of a number of new loans in 2000 and beyond, it may be difficult to maintain the recent disbursement performance since in the early years of a project's life, disbursements generally tend to be lower. The situation would clearly worsen further, and undisbursed balance decline even more, if the disruption in the implementation of the operational program were to lead to prolonged postponement in the approval of fully processed loans. Moreover, postponement of infrastructure projects would further delay the removal of bottlenecks and thereby constrain their developmental impact on pro-poor economic growth. ___________________
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