Memorandum submitted by the Asian Development
Bank, India Resident Mission
THE CASE
FOR AID
TO INDIA
1. It is difficult to overemphasize the
case for aid to India. Along with China, India accounts for the
largest number of poor in the world. It will not be possible to
meet the Millennium Development Goals (MDGs) globally unless significant
progress is made in India and China. External aid to complement
the efforts of the Government of India to create an environment
for pro-poor growth and to work towards attaining the MDGs is
therefore, critical. Refer to answer 7 below for further details.
2. Overall external assistance including
that of multilateral organizations such as the Asian Development
Bank (ADB) and the World Bank, and of bilateral agencies such
as DFID and JBIC amounts to a very small proportion (less then
1%) of India's GDP, and of total investment in the country. Focusing
on the financial flows, however, understates the total development
impact of such assistance. India has often emphasized the importance
of the transfer of international best practices that are typically
embodied in external assistance. This provides external agencies
with some leverage to give a certain direction to India's efforts
towards reducing poverty and working towards attaining the MDGs.
PARTNERSHIPS/SOCIAL
INCLUSION/SECTOR
FOCUS
3. ADB has excellent coordination and collaboration
with DFID in India. DFID, India, set up a Trust Fund—the
United Kingdom Cooperation Fund (Poverty Focused) of around $31.8
million in 2001. Since India is not eligible for ADB's concessional
lending window, the Asian Development Fund (ADF), ADB is unable
to offer funds for social sector and other poverty-focused projects
at competitive rates to the Government of India. India has access
to concessional IDA funds from the World Bank and bilateral donors.
Access to DFID's grant funds has therefore, been critical in enabling
ADB to include and/or to reinforce poverty-focused TAs and loans
in its assistance programmes for India. Based on their relative
comparative advantage, ADB and DFID have also been collaborating
in states such as Madhya Pradesh and West Bengal.
4. DFID, India, focuses strongly on assisting
the vulnerable and marginalized groups. It also engages with civil
society while designing and delivering its projects and programmes.
5. No particular comment.
MDGS AND
PSAS
6. Assisting the Government of India's efforts
to attain the MDGs on time is a key objective of DFID's assistance
programme.
7. India's performance relative to the MDGs
has been mixed so far. It is on track in terms of reducing income
poverty, achieving universal primary enrollment, and increasing
access to safe water sources. However, it is lagging behind in
attaining the targets for maternal mortality rate, gender parity
in secondary education, and under-5 and infant mortality rates.
Continued bias against women, high levels of illiteracy, inadequate
empowerment of marginalized groups, and weak governance are some
of the main obstacles to achieving the MDGs in India. It is clear
that India requires substantial targeted assistance in areas such
as health, nutrition, education, and environment in order to move
towards the MDG targets.
8. See answer 7.
AID INSTRUMENTS/NATURE
OF ENGAGEMENT/GOVERNANCE
AND POLITICAL
WILL
9. Given the volume of DFID's assistance
to India, it can probably be used most effectively if it focuses
on TA grants and support for programmes specifically to assist
India attain the MDGs and to fight poverty.
10. No particular comment.
11. Like DFID, ADB also follows a "focal
state approach" which has proved to be useful in targeting
its assistance in a country as large and diverse as India. By
focusing on the poorer regions and states which are also committed
to economic reforms, ADB works towards reducing regional disparities.
However, it must be noted that ADB's investment loans are not
restricted to its focal states alone.
While the "focal state approach" has
several advantages, donors should ensure that there is a fair
spread of their assistance across states. A weakness of this approach
is that over time, it may reduce flexibility in linking performance
of a state and its commitment to reforms to the quantum of assistance
provided.
DFID's choice of focal states seems appropriate.
In addition, DFID could consider increasing its assistance for
the north-eastern states of India which are backward and have
very poor infrastructure.
12. No particular comment.
ECONOMIC DEVELOPMENT
13. India grew at around 7.2% to 7.3% in
FY2003, a sharp increase from average growth of 4.7% during the
preceding three years. GDP is forecast to grow at 7.4% in 2004
with trend growth of 3.0% and 8.0% growth in agriculture and services
respectively, and 10.2% growth in industry. Per capita income
is expected to rise through FY2004 and FY2005 because of GDP growth
well in excess of a low and stable population growth. This will
lead to a decline in the poverty ratio. However, the pace of poverty
reduction will depend on the growth of employment, especially
in the agricultural sector which accounts for 56.7% of total employment
and the bulk of the people below the poverty line. A setback in
agriculture due to poor monsoons could reduce employment and lead
to a sharp escalation in poverty incidence.
14. Opening up of the trade sector since
1991 has led to a positive turnaround in the external sector in
recent years. The doubling of the trade to GDP ratio, from an
average of 15% between 1980-89 to around 30% in 2000-01, reflects
the increasing openness of the Indian economy. India's export
basket has become more diversified and competitive in recent years
in terms of composition and direction. A chronic current account
deficit of around -1.57% during the 1980s and 1990s turned into
a surplus for the first time in over 20 years in 2001. This improvement
in the current account balance is primarily attributable to the
strong growth in incomes on the invisibles account, especially
the surge in export earnings from IT-enabled services.
The private sector has also become very dynamic
over the past decade. The recent advances made by India in the
fields of IT and IT-enabled services, biotechnology, pharmaceuticals
etc have been spearheaded by the private sector.
June 2004
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