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India: Developmment Policy Lending to India's States

September 17, 2007

The World Bank has helped support a number of state governments in their wide-ranging efforts to improve their policies and institutions to achieve faster growth, better governance, and to reduce poverty. As India has begun to deregulate its economy, these state-level reforms have become especially important. The World Bank has, for example, played a supportive role in Andhra Pradesh, Karnataka and Orissa. Seven development policy loans (DPLs) on concessional terms have helped these states achieve fiscal consolidation, upgrade their investment climates, improve governance, implement sectoral reforms, and better monitor and evaluate their anti-poverty programs. As a result, these states have improved their performance in a number of areas:

Reallocating Resources for Development:

States have been helped to achieve fiscal consolidation by improving tax policy and administration; budget management; rationalization of expenditures; protection of social sector spending; and better public financial management.

Promoting Reforms in Key Sectors:

Key sectors, such as power, can often become bottlenecks to faster all-round progress. Power sector reforms in these states have included metering, reduction in transmission and distribution losses; reducing cross-subsidies; and the unbundling and corporatization of power utilities.

Measuring and Monitoring Poverty:

States have been supported in the monitoring and evaluation of anti-poverty programs. Ongoing programs have been carefully assessed for their effectiveness, as well as ways to improve outcomes.

Initiating Broad Public Sector Reforms:

Improving government functioning has been at the heart of many reform programs. Key areas of attention and support have included civil service reforms, improved accountability to citizens, governance reforms, procurement reforms, and financial management reforms:

Promoting Better Governance:

Central and state governments have been helped to improve their delivery of public services through broad-based governance reforms. World Bank-supported projects, as well as broader collaborations with the Government of India, have helped to improve the procedures and mechanisms for planning, spending, and accounting for the use of public money.

Reforming Financial Management:

Reforming Financial Management: Financial management systems have been strengthened to ensure that projects have a wider and more sustainable impact. A major innovation has been to involve communities and project stakeholders in overseeing the use of funds and monitoring results. Efforts to promote greater transparency and the more cost-effective use of resources have often been accompanied by more efficient procurement practices. Timely and reliable financial reporting and auditing systems have helped to better monitor the use of project resources and meet citizens’ demand for information.

Better public financial management leads to better results on the ground. New areas supported by the World Bank include the more effective management and oversight of contingent liabilities and cash management, and the adoption of e-Government procurement at the central and state levels. Recent support has improved public expenditure management and oversight in states as well as in municipal and Panchayati Raj Institutions (local, elected self-governance bodies). Work across the entire public financial management system, including efforts relating to improving treasury systems, internal audit, and procurement systems all rely heavily on learning from international experiences that the World Bank has helped support.