Government of India and the World Bank sign $1.5 billion agreement to support India's expanding National Rural Roads Program

January 14, 2011

New Delhi, January 14, 2011­:  More than six million people are set to directly benefit from a new agreement for the World Bank to provide $1.5 billion in funding to expand India’s rural roads program, the largest rural roads project the Bank has ever approved. 

World Bank Group President, Robert B. Zoellick, joined India’s Finance Minister Pranab Mukherjee to witness the signing of the deal to supplement the Pradhan Mantri Gram Sadak Yojana (PMGSY) or the Prime Minister’s Rural Roads Program.

The funding will be used to build more than 24,000 kilometers of all weather roads in the states of Himachal Pradesh, Jharkhand, Meghalaya, Punjab, Rajasthan, Uttarakhand and Uttar Pradesh and any other state, which may join the program at a later date over the next five years. The construction and maintenance of these roads will create an estimated 300 million person-days of employment for the rural people. More than 20,000 engineers as well as many contractors and skilled and unskilled workforce will be trained in modern rural road engineering practices and business procedures.

Speaking on the occasion, Finance Minister Pranab Mukherjee said, “Government of India launched PMGSY in the year 2000 -- a time when almost 41% habitations did not have access to all-weather roads and a large part of the road network was in poor condition. Today, the PMGSY program has added about 300,000 km of new and improved rural roads connecting over 73,000 habitations, yet some parts of the country, especially in the economically weaker and hilly states still remain inaccessible. Under the overall PMGSY program, some 375,000 km of new roads are being constructed and another 372,000 km improved at an estimated cost of about $40 billion.  The World Bank is supplementing our efforts in providing all-weather connectivity”.

“Delivering much needed infrastructure will help India in its drive to ensure all people have opportunity,” said Mr Zoellick. “Roads are an essential lifeline -- vital not only to boost people’s incomes by providing greater access to markets, but also to help raise education standards, as teachers and children have the means to get to school, no matter what the weather. These roads will not only connect people to markets and services but also create jobs in rural areas.”

“The World Bank is pleased to work with the Government of India as it ramps up the pace and quality of work under this important national program,” he said.  

The agreement was signed by Mr Venu Rajamony, Joint Secretary, Department of Economic Affairs, Ministry of Finance, on behalf of Government of India, and Mr Roberto Zagha, Country Director, India on behalf of the World Bank.

The World Bank experience in funding rural roads programs globally will be used to enhance the effectiveness of India’s program by improving its overall systems and policy framework, with a greater focus on achieving results. The World Bank project also includes $60 million in technical assistance to build the capacity of the rural roads agencies, especially in the ongoing management of assets and the sustainable maintenance of roads.

Over the next five years, the project, along with Government of India funds, will enable participating states achieve 91 percent connectivity, by building the roads and improving the links of the existing network. A system will be developed for maintaining these roads in good condition over the long term.

The project will help improve performance and address key sector issues such as maintenance, further strengthening capacity, governance, and accountability. It will introduce efficiency measures, such as e-procurement, social audits, and performance-based maintenance.  Greater emphasis will be placed on developing the capacity of road agencies to carry out the program effectively, and adhere to technical design standards, especially in the smaller and more remote communities.

The project will be financed from two World Bank institutions: the International Development Association (IDA), the Bank’s fund for the poorest countries, and by the International Bank for Reconstruction and Development (IBRD), which supports credit-worthy developing countries.  The IDA credit is on both regular and hard terms. While IDA on regular terms provides interest-free loans with 35 years to maturity and a 10-year grace period, the latter attracts a 3.2 % interest rate with the same years of maturity and grace period. The IBRD loan has a 5-year grace period, and a maturity of 18 years.

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