Overview

  • AT A GLANCE

    Real GDP slowed growth this past quarter but overall annual growth for fiscal year 2017/18 is expected to rebound to an annual rate of 7.0 %. Public finances remain stable, though there has been an increase in sub-national debt levels. The key medium-term risk is the need for recovery in private investment.

    India is governed by the Bharatiya Janata Party (BJP)-led National Democratic Alliance following its victory in May 2014 national elections.  The BJP, either outright or in coalition with other parties, now holds power in 14 states comprising 68 % of India’s population.   National elections are scheduled for 2019.

    The WBG program consists of 106 lending operations with $26.7 billion in commitments from the Bank and an IFC portfolio of $5.6 billion.  Middle income India is no longer an IDA recipient.  The WBG is formulating a new Country Partnership Framework to be completed this fiscal year.

    COUNTRY CONTEXT

    Prime Minister Narendra Modi’s BJP demonstrated sustained strength in state elections in February-March 2017, building on the national electoral victory scored by the BJP-led National Democratic Alliance in May 2014. After recent elections in the largest state, Uttar Pradesh, home to one in six Indians, BJP took 75 % of the seats in the state legislature. With other results and changes in state-level coalitions, the BJP is in power in 11 states on its own and in three others in an alliance with a regional party and governs about 68 % of India’s population. National elections are next scheduled for 2019.

    Key issues confronting the Indian government include ensuring high growth levels, fostering faster job creation, addressing distress in the agricultural sector, and strengthening implementation of flagship government programs.

    RECENT ECONOMIC DEVELOPMENTS

    Poverty has declined since 2004/5 although temporary disruptions from demonetization and depressed food prices may have moderated the pace in the short term. Real GDP growth slowed to 7.1 % in FY16/17 from 8 % in FY15/16, and to 5.7 % in Q1 FY17/18. Despite the increase in public and private consumption due to the revival of rural demand after a normal monsoon and the implementation of the 7th central pay commission recommendations, overall demand slowed as investments remained weak. Excluding agriculture, output growth experienced a slowdown compared to the previous year. Construction, real estate, and manufacturing were particularly affected.

    Poverty has declined since 2004/05 although short-term disruptions from demonetization and depressed food prices may have moderated the pace. Evidence suggests that demand for social insurance (MGNREGS) increased during demonetization.

    External accounts remain robust. Export growth turned positive in FY16/17, supported largely by a reversal in commodity prices and improvements in global trade. Imports have begun a gradual recovery; the merchandise trade deficit is rising. Overall capital flows gained momentum, due to ease in FDI policies and continued global liquidity. Foreign reserves rose to $386bn or 8.6 months of imports. The currency appreciated in 2017, in sync with many other emerging economies, partly due to US dollar weakening.

    Public finances remain stable, although contingent liabilities are rising. The central government stuck to its fiscal targets in FY16/17, reaffirming fiscal credibility. The quality of expenditures at the general government level has shifted towards productive infrastructure spending in recent years, providing an additional stimulus to growth. However, fiscal deficits at the sub-national level have risen from an aggregate of 2.6% in FY12-15 to 3.7% in FY16-17 largely because of a transfer of some public sector enterprise liabilities to direct debt of states.

    ECONOMIC OUTLOOK

    Economic activity is expected to stabilize, maintaining annual GDP growth at 7.0% in FY18. Growth is projected to increase to 7.4% by FY20, underpinned by a recovery in private investments prompted by a recent increase in public capex and an improvement in the investment climate (partly due to passage of the GST and the Bankruptcy Code, and measures to attract FDI).

    Inflation and external conditions are expected to remain stable. Supported by RBI’s inflation targeting policy, two consecutive years of normal monsoons will further stabilize prices and offset any increase in global oil prices. The dollar-rupee exchange rate has appreciated, further adding to a low inflation scenario.

    The biggest medium-term risks are associated with the recovery in private investments which continues to face several domestic impediments including the corporate debt overhang and regulatory and policy challenges, along with the risk of an imminent increase in US interest rates

    Last Updated: Oct 11, 2017

  • THE WORLD BANK GROUP AND INDIA

    The World Bank Group (WBG) partnership with India is strong and enduring, spanning nearly six decades. The WBG’s financing, analytical work, and advisory services have contributed to the country’s development since the first International Bank for Reconstruction and Development (IBRD) loan to Indian Railways in 1949. WBG-supported activities have had a considerable impact on universalizing primary education, empowering rural communities through a series of rural livelihoods projects, revolutionizing agriculture through support of the Green—and more recently White (milk)—Revolutions, supporting India’s ambitious expansion of renewable energy, and helping to combat polio, tuberculosis, and HIV/AIDS.   A major milestone in the relationship was reached with India fully graduating from eligibility for International Development Association financing as of FY18.

    The WBG is formulating a new Country Partnership Framework with the conclusion of its FY 2013-17 Country Partnership Strategy and completion of a Systematic Country Diagnostic. Under its recently completed strategy, WBG supported Indian authorities in achieving substantial results in three strategic areas of integration, urban-rural transformation, and inclusion — with sustainability, governance, and gender issues cutting across the entire program.   WBG’s activities also shifted to more state-level engagement, particularly in Low Income States which are home to over 60 % of India’s poor. The number of WBG-financed operations in such states nearly doubled in terms of commitment volumes. 

    The new Country Partnership Framework will build on the WBG partnership with India in the context of a dynamically developing country which has recorded strong growth and poverty reduction in recent years and which aspires to foster a large middle class.   The Framework will draw on the analysis in the recently completed Systematic Country Diagnostic identified three major paths to end extreme poverty and promote shared prosperity: providing for resource-efficient growth, creating jobs and investing in people, and increasing state capacity.

    WORLD BANK GROUP PROGRAM

    The WBG partners with India to help provide platforms for growth, harness benefits from the country’s spatial transformation and increase its human development potential. The Group’s lending portfolio consists of 106 operations with $26.7 billion in commitments, of which $15.0 billion is IBRD, $11.6 billion is IDA, and $0.1 billion is from other sources, primarily the Global Environment FundReflecting a strong, deepening partnership, overall lending commitments have grown by 19% over the past five years.

    WBG’s engagement in India comprises operations in sectors represented by all but two Global Practices, with the largest proportions accounted for by the transport ($6.9 billion), water and sanitation ($5.2 billion), and energy ($2.6 billion) sectors.  Spearheaded by Prime Minister Narendra Modi and WBG President Jim Yong Kim, the Group is focusing on bringing financing and cutting-edge global knowledge to bear in eight priority areas: rejuvenating the Ganga river; developing smart cities and improving urban service delivery; improving rural sanitation and ending open defecation; providing 24/7 electricity, including an ambitious push on solar energy; providing youth with training and skills development; modernizing India’s massive railway system; and improving the country’s business climate. 

    WBG’s engagement has geographically been rebalanced towards the Low Income and/or Special Category states, which collectively are home to over 60% of the poor and in most cases have economic growth and human development outcomes which have stubbornly lagged behind other states. Approximately one-third of lending commitments now target benefits specifically to these states and nearly 40 % of upcoming operations are at the state level in these states.

    The WBG has a strong analytical program supporting formulation of policy and addressing implementation challenges across sectors.  Highlights include support for state-level business climate reforms, analysis to understand constraints to agribusiness development which is underpinning new agriculture operations and development of state-level health insurance schemes. Sector analytical work was integral to producing the Systematic Country Diagnostic.

     WORLD BANK – IFC COLLABORATION

    The Bank and IFC work together in several areas, most notably in energy, transport, and health.  IFC-Bank synergies have been particularly strong in raising financing for renewable energy, highlighted by the Government of Madhya Pradesh’s decision to set up the largest single-site solar power project at record low cost in 2017.  India continues to remain the largest country in IFC’s investment portfolio, making up 10% of IFC’s committed portfolio in FY17. As of Fiscal year end June 30, 2017, IFC’s committed own account portfolio in India stood at $5.6 billion, growing at a much faster pace than IFC’s average growth.

    MIGA

    The Multilateral Investment Guarantee Agency (MIGA) does not have exposure in India. It is presently engaging with the Government of India to explore opportunities to employ its guarantees in potential transport projects.

    Last Updated: Oct 11, 2017

  • The World Bank Group’s past support to India’s development agenda has contributed to improving outcomes in a range of sectors. Some results are highlighted below:

    • Between 2001 and 2009, India’s Education for All Program enrolled some 20 million out-of-school children, especially girls and children from socially disadvantaged families. By 2009, the number of out-of-school children had fallen to about 8.1 million. Over 98% of India’s children now have access to a primary school within 1 kilometer of their home. The focus is now on improving the quality of learning, retaining children in school, and ensuring that more children are able to access and complete secondary education.
    • World Bank support for vocational training programs in select institutions has helped more graduates to find jobs, with their numbers rising from just 32% in 2006 to over 60% in 2011. Nevertheless, empowering the large numbers of India’s youth, especially in rural areas, with skills that are better matched with the demands of the labor market—whether informal or formal—will help them find jobs in the urban areas where better-paid work is more readily available.
    • Rural livelihood programs have mobilized more than 30 million poor households in 90,000 villages to form 1.2 million self-help groups (SHGs)–up from 8 million in 2009.  Ninety-five percent of SHG participants are women. In Andhra Pradesh alone, 10 million SHG women have seen their incomes rise by 115%. Members’ savings exceeded $ 1.1 billion (2011) and access to credit rose by 200% to touch $5.8 billion (2000-09). Support has also results in 30-40% higher prices for SHG products, tilting the terms of the trade in favor of poor people in India.
    • Over past two decades, World Bank projects have contributed over $1.4 billion in financing for rural water supply and sanitation. About 24 million people in over 15,000 villages–with populations ranging from 150 to 15,000–have benefited from these programs. In addition, some 17 million rural people have benefitted from improved sanitation.
    • India has the largest burden of tuberculosis (TB) in the world. There are an estimated 2.2 million new TB cases in India every year, accounting for a quarter of the global burden. Between 1998 and 2012, two IDA credits totaling $279 million provided significant support to scale-up effective diagnosis and treatment under the national TB control program. During that period, over 15 million people with TB were diagnosed and treated by the program, saving an estimated 2.6 million lives. And, to date, the World Bank supported National AIDS program has reached about 81% of female sex workers, 66% of men having sex with men and 71% of injecting drug users, with targeted interventions. However, continued attention is needed to secure these gains.
    • World Bank support for health projects has helped pregnant women to reach medical facilities in time for delivery; in Tamil Nadu, 99.5% of deliveries now take place in medical institutions.  However, despite increasing rates of decline, maternal and child mortality rates remain on par with rates in much poorer countries. And while India has recorded impressive economic growth in the past decade, malnutrition rates has declined very little; in fact, stunting rates in India are two to seven times higher than those in other BRICS countries.
    • From September 2004, World Bank support of some $2 billion is helping India’s National Rural Roads Program to improve connectivity, especially in the economically weaker regions and hill states. Some 24,200 km of all-weather roads have benefitted rural people in the states of Himachal Pradesh, Jharkhand, Meghalaya, Punjab, Rajasthan, Uttarakhand and Uttar Pradesh. However, much more remains to be done; one-third of the rural population still lacks access to an all-weather road.
    • Over the past decade or so, World Bank support for improving farmer incomes from rainfed lands in Karnataka, Himachal Pradesh and Uttarakhand have helped implement soil and water conservation measures and raise agricultural productivity. Lessons learnt have helped shape the Government of India’s Common Watershed Guidelines and the design of national watershed programs.
    • Since 1993, two Sodic Lands Reclamation Projects in Uttar Pradesh have brought more than 260,000 hectares of barren or unproductive lands under cultivation. Over 425,000 poor families have benefitted from a three to six fold increase in crop yields. Around 15,000 SHGs have helped the women pool savings and connect to the formal banking network. In several villages, these SHGs now manage the mid-day meal provided in local state schools under a government program. A $197 million World Bank credit is now supporting the third phase of the project that aims to reclaim another 130,000 hectares of predominantly barren and low productivity sodic lands in about 25 districts of the state.
Api


LENDING

India: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments

MULTIMEDIA

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