World Bank to lend India US$3B-$5B/year for next four years; 60% of funding to be spent on government-backed projects, with 30% directed toward low-income, special category states
April 12, 2013
– First strategy with goals on reducing extreme poverty, raising shared prosperity
The new World Bank Group strategy for India shifts support significantly to low-income states, where most of the poor live, and is the institution’s first country strategy to set specific goals on reducing poverty and increasing prosperity.
Discussed by the Board of Executive Directors today, the World Bank Group’s new Country Partnership Strategy (CPS) for India (2013-2017) proposes a lending program of $3 billion to $5 billion each year over the next four years. Sixty percent of the financing will go to state government-backed projects and half of this, or 30% of total lending, will go to low-income or special category states (where public services face high delivery costs). Under the previous strategy, 18% of lending went to these states.
The Bank’s India strategy outlines a scenario in which India improves the inclusiveness of the economic growth to that achieved by its best performing states. This would cut poverty to 5.5% of the population by 2030 from 29.8% in 2010 and increase the share of people living above the threshold where they are at risk of falling back into poverty to 41.3% from 19.1%. If India were to grow as it did from 2005 to 2010 without making growth more inclusive, poverty would fall to only 12.3% while 33.6% would remain above the vulnerability threshold by 2030.
”India’s seven low-income states, with 60% of India’s poor, are now growing faster than the average, and so investments there have the potential for greater impact,” said Onno Ruhl, World Bank country director in India. “In our 60 years of working with India, the country has made great strides in overcoming poverty, and we are excited that India is the first country strategy to have these goals to reduce poverty and increase shared prosperity. We hope these goals will stretch us and our partners to make even greater efforts to help India’s 1.2 billion citizens enjoy a better future.”
The idea of designing Country Partnership Strategies around specific poverty goals was announced last week in a speech by World Bank Group President Jim Yong Kim when he outlined an agenda for the global community toward ending extreme poverty by 2030.
Guided by the priorities of the government of India’s Twelfth Five-Year Plan, the strategy sees sustaining high economic growth as critical to lifting millions out of poverty in a country that has the largest number of poor people in the world. Infrastructure needs are massive; urban centers are growing exponentially, with cities adding at least an additional 10 million urban dwellers each year; and social programs need to be strengthened to generate inclusive growth.
A critical part in the strategy will be played by the International Finance Corporation (IFC), the World Bank Group’s private sector arm. IFC will invest in areas such as innovative renewable and green projects, processed food, logistics and infrastructure, agribusiness, and finance and insurance. IFC advisory services will work to address the adverse business climates in the low-income states that discourage significant levels of private investment.
"Continuing to enhance private investment in India's low-income states, home to a substantial section of India’s poor, will remain central to IFC's work in India. As part of the World Bank Group strategy, we remain committed to increasing access to infrastructure, financial services, and low-income housing for the underserved while retaining our leadership in renewable energy projects," said Thomas Davenport, IFC’s director for South Asia.
In the next five years the strategy will focus on three key areas: integration, transformation, and inclusion. A common theme across these areas will be improved governance, environmental sustainability, and gender equality.
Integration – The focus will be on improving infrastructure needs both through public and private investments. Reforms are needed in the power sector to rationalize energy pricing and improve the capacity and reliability of the generation, transmission and distribution system. A vibrant manufacturing sector – especially small and medium size enterprises – require reforming labor laws, and improving access to land and finance. Better integration would result in more-balanced growth among Indian states, helping low-income states converge more quickly with their faster-growing neighbors.
Transformation – By 2031, it is projected that 600 million people will live in India’s cities. The World Bank Group’s engagement on the rural-urban transformation and particularly on urbanization is expected to intensify over the strategy period and beyond and represents a significant shift in the World Bank Group’s strategy. It will focus on supporting the efforts of national, state, and city governments to improve the management and livability of medium-sized cities.
Inclusion – Economic integration and rural-urban transformation can benefit a large share of India’s population only if there is a stronger focus on human development and on policies that help make growth inclusive. India’s weak health care system and poor nutritional outcomes undermine its competitiveness. The World Bank Group will support the national government and states in strengthening the nutrition policy as well as systems and capacities to improve nutrition. It will support government efforts to improve education mainly at the secondary and tertiary levels, with a more pronounced focus on quality. It will also work to improve access to finance and to enhance social protection coverage for more than 90% of the labor force, which currently works in the informal sector.
As of March 2013, total World Bank (International Bank for Reconstruction and Development and International Development Association) net commitments stood at $23 billion (IBRD $13.2 billion, IDA $9.8 billion) across 76 projects. IFC’s portfolio contained 221 projects amounting to committed and disbursed exposure of $4.2 billion for its own account and that of participants.