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FEATURE STORY

India Country Strategy (CAS) 2009-2012

April 6, 2010


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STORY HIGHLIGHTS
  • The World Bank's Country Assistance Strategy seeks higher standards of living for people of India.
  • The strategy envisages a total proposed lending program of US$14 billion.
  • The strategy is closely aligned with the Government of India’s own development priorities expressed in the Eleventh Five Year Plan.

The World Bank’s Country Strategy (CAS) for India for 2009-2012 focuses on helping the country to fast-track the development of much-needed infrastructure and to support the seven poorest states achieve higher standards of living for their people. The strategy envisages a total proposed lending program of US$14 billion, for the next three years, of which US$9.6 billion is from the International Bank for Reconstruction and Development (IBRD) and US$4.4 billion (SDR 2.982 billion equivalent at the current exchange rate) from the International Development Association (IDA).

The strategy is closely aligned with the Government of India’s own development priorities expressed in the Eleventh Five Year Plan. It was arrived at after a series of consultations with a broad range of stakeholders including the government and civil society. Under the strategy, the Bank will use lending, dialogue, analytical work, engagement with the private sector, and capacity building to help India achieve its goals.

Maintaining rapid and inclusive growth

Infrastructure: For India's rapid and sustained growth, major investments in power, transport, water, and urban development are needed. Inadequate power supply remains a critical constraint to growth; while GDP grew at an average of about 8% a year over the past five years, electricity generation only grew at an average of 4.9% per year. The national and state highway networks have not kept pace with the tremendous growth in demand for road transport: only about 30% of state highways are two-lane and more than 50% are in poor condition. Inadequate urban infrastructure is hampering the expansion of growth centers. While the Eleventh Plan foresees a major role for private sector involvement in infrastructure development through PPPs, these may not materialize to the extent hoped for in the aftermath of the global financial crisis. The Government of India has requested the World Bank to specially focus on infrastructure investment in its new strategy, including on strengthening the capacity of government agencies to design and manage public-private partnerships(PPPs).

Skills: The shortage of skills is preventing large segments of the population from being part of India's growth story. Nearly 44% of India’s labor force is illiterate, only 17% of it has secondary schooling, and enrollment in higher education is just 11%. This compares unfavorably with, for example, China, where access to secondary education is almost universal and enrollment in higher education exceeds 20%. Moreover, the quality of most Indian graduates is poor and employers offer very little skills upgrading (16% of Indian manufacturers offer in-service training to their employees, compared to over 90% of Chinese firms). The informal sector employs over 90% of the workforce, but there is very little investment or opportunity for formal `skilling’ for informal workers and enterprises.

Agricultural Growth: Low agricultural productivity is keeping some 60 percent of India’s population behind. Shortages of basic rural infrastructure - from roads to electrification - are hindering the growth of off-farm activities. No doubt, agricultural growth has been faster over the past five years (4.7% per year)- facilitated by very good monsoons, greater production of high-value fruits, vegetables, and dairy products, an increase in the minimum support price for grains, and the sudden increase in global prices for agricultural products. But, sustaining this level of performance over the longer term will be difficult without addressing several policy and structural constraints, including a myriad of restrictions, subsidies, support prices, sector governance issues, as well as the tiny size of landholdings and years of underinvestment. The Indian Government has asked the World Bank to place special emphasis on agricultural development in its new strategy.

Making development sustainable
Most environmental indicators suggest that growth is extracting an increasing toll on the country's natural resources - water, land, forests, soils and biodiversity - and leaving a larger pollution footprint. India is highly vulnerable to climate change; cyclones, floods and droughts are happening with increasing frequency, and the Himalayan glaciers that feed India’s largest rivers show clear signs of retreat. Indeed, climate change will impact India first and foremost through its water resources. Rising temperatures will also affect agricultural yields, forests, and marine and coastal biodiversity. India will need to better manage these resources (particularly water) and reduce the burden that environmental degradation is imposing on the population, particularly on the most vulnerable groups.

Increasing the effectiveness of service delivery
While much progress has been made on primary school enrollment, improvements have been elusive in other sectors, particularly health. Although deaths from TB have fallen and polio cases have reduced dramatically in 2008, child malnutrition levels are worse than in Sub-Saharan Africa, despite large expenditures. No Indian city provides water 24/7, only half the population has access to safe drinking water, and less than a third has access to sanitation. Public services fall short largely because they have little or no accountability to the ultimate client, and outdated management systems are unable to provide the information needed for decision-making. These issues are particularly acute in centrally sponsored schemes which are designed and funded by the central government but implemented by the states and lower echelons of government. Given the importance of these schemes, systemic improvements in design and governance are crucial to get results from public spending. The Government of India has requested the World Bank to place special emphasis in its new strategy on centrally sponsored schemes that aim to achieve the MDGs. The Bank will focus on increasing accountability to citizens, decentralizing responsibilities, and enhancing private sector participation in the delivery of these services.

Strategies for states
Given India’s enormous size and diversity, the Bank will adopt different strategies for states depending on their needs, stages of development, and capacity for project implementation. Special strategies will also be adopted for the Northeastern and Himalayan states.

Low-income states
The new strategy devotes more resources to engaging with India’s seven low-income states - Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, and Uttar Pradesh - which are home to more than half of India’s population. Here, the Bank will focus on poverty reduction and on achieving the Millennium Development Goals (MDGs). Intensive technical assistance will be provided to help these states develop their administrative capacity. Bank lending to these states will primarily be in the form of low-interest IDA credits as well as technical and advisory services.

Middle-income states
India's richest states already have incomes comparable to lower middle income countries, with incomes being some five times higher than those in the poorest states. This gap is higher than most other democratic societies.In these states, the Bank will provide support on two fronts: fighting poverty in their lagging regions, and addressing the complex challenges emerging from rapid growth. States such as Andhra Pradesh, Karnataka, Punjab, Tamil Nadu, Haryana, Gujarat, and Maharashtra will be helped to forge the institutions needed in a middle income economy. Cutting-edge analytical work and the best international expertise will be brought to bear upon complex problems where there are yet no clear solutions. Lending to these states will be in the form of competitively priced IBRD loans, with the International Finance Corporation (IFC) – the Bank’s private sector arm – providing support for private sector clients.

Engaging the Center
The World Bank will continue to assist the central government by providing comprehensive analytical work to underpin policy and institutional reform and to improve the implementation of central government projects on the ground. Under the Sarva Siksha Abhiyan (SSA) for example, while schools are now more accessible and gender parity has been reached, the focus will now be on improving the quality of education provided. In the power sector, the Bank will continue to support Powergrid, India’s national electricity transmission agency, which it has helped to grow into a world-class institution.

Key Studies
The World Bank will also support some key multi-year, cross-sectoral studies on important issues confronting policymakers, including poverty and exclusion, skills and job creation, low-carbon growth, the challenges of rapid urbanization, and the management and development of water resources.

Public Private Partnerships
The World Bank and IFC are collaborating to bring India cutting-edge expertise to deal with emerging issues in Public-Private Partnerships (PPPs), tailored to India’s needs. While this work has so far been the strongest in infrastructure - power transmission, roads, irrigation and rural infrastructure, urban development - it will now be extended to agribusiness, health and education, and renewable energy. The Bank and IFC are also working together on long-term finance: through the proposed India Infrastructure Finance Co. Ltd. Project (IIFCL).


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