This evaluation assesses the development effectiveness of Bank assistance to India during the 1990s. India was one of the Bank's founding members and remains one of its largest and most influential borrowers. The Bank has been India's largest source of external long-term capital and has financed a sizable share of its public investment. Its lending and nonlending services have been thinly spread over many central and state agencies and have addressed many different objectives.

India entered the decade with substantial economic and social achievements but also with closed trade and investment regimes, fiscal imbalances, and a large and unwieldy public sector. After a balance of payments crisis in 1991 it deregulated the trade and investment regimes. Economic growth rebounded quickly and proved resilient even during the 1997 East Asian crisis. Social indicators also improved. India, however, failed to sustain the reform process in the fiscal area and to broaden it to other structural areas. Moreover, there was little progress in reducing rural poverty, largely due to the absence of an effective agricultural and rural development strategy and low growth in the poorer northern and eastern states. In the second half of the 1990s, a few states initiated substantial policy and institutional changes, but there remains a large outstanding reform agenda at both the state and federal levels.

The Bank provided strong support for the reforms of the early 1990s, beginning with three adjustment loans. It expanded assistance to the social sectors; devoted more attention to improving participation; and, where development results had been unsatisfactory, reduced lending (to virtually zero in power) and embarked on comprehensive sector work-for example, in rural development and irrigation. After the mid1990s the Bank focused assistance on reforming states, with a notable measure of success. Still, more emphasis on fiscal management, on public sector and judicial reforms, on improvement in agricultural policies and rural development, and on gender equity may have led to greater impact.

Overall, the strategic goals of the Bank were relevant and the design of the assistance strategy improved as the decade unfolded. Efficacy was modest, mainly on account of the Bank's limited impact on fiscal and other structural reforms, the failure to develop an effective assistance strategy for rural poverty reduction, and the mediocre quality at exit of projects. Institutional development impact has also been modest and sustainability uncertain given the remaining serious fiscal imbalances, high environmental costs, and governance weaknesses. Thus, the overall outcome of the assistance for the decade is rated as moderately satisfactory.

The relevance of the assistance strategy, however, has improved substantially over the past two years through a more sharpened focus on poverty reduction, a more selective approach to state assistance, and greater attention to governance and institutions. But it is too early to gauge the efficacy of these recent initiatives.

India has built strong foundations for development. The Bank's main challenge is to support far-reaching reforms, at both the state and central government levels, with high quality and widely disseminated policy studies and policy based sector and program loans. The five pillars and the fiscal and structural reform triggers of the 1997 Country Assistance Strategy remain valid. Thus, only adjustments to accelerate and assure the full application of those pillars and triggers appear necessary.

The Bank should link the overall lending volumes to fiscal discipline at the central government level and to progress in structural reforms in agriculture and the implementation of an effective rural development strategy, as progress in these areas is crucial for rural poverty reduction. New lending should be concentrated in reforming states, where an assistance strategy has been agreed with the state government, while maintaining a strong policy dialogue with the center and supporting analyses of state finances, policies, and institutions in nonreforming states. Similarly, sectoral lending volumes should be linked to agreements on sector specific policies and institutional frameworks.

While in recent years Bank assistance has become more pro-poor, the Bank should make greater efforts to monitor systematically the poverty and gender impacts of Bank assisted projects and programs, as well as to mainstream gender beyond the social sectors. It should also assist government agencies to do the same for overall public expenditure programs. Finally, it should strengthen aid coordination on country assistance strategies and on critical sector strategies (for example, agriculture and rural development) to enhance the effectiveness of external assistance and enable greater selectivity in the Bank's own programs.