Monday, May 5, 2014
World Bank will continue to give India concessional aid
NEW DELHI: The World Bank is working on a special dispensation to maintain financial support to India even though the country is no longer eligible for concessional development funds.
India receives the bulk of funds from the World Bank through International Development Association (IDA), the development bank's fund for the poorest, and International Bank for Reconstruction and Development (IBRD).
IDA provides concessional credit at little or no interest and repayments are stretched over 25 to 40 years, including a 5- to 10-year grace period, to help the poorest countries fight poverty.
These funds are available to countries with per capita income, as computed under the World Bank atlas methodology that adjusts nominal income for purchasing power, of up to $1,260, a threshold India has crossed convincingly with a per capita income of around $1,500. So, strictly speaking, India is not eligible for funds support from the IDA, but the bank faces a dilemma in stopping access to a country that is home to a very large number of poor.
"The logic of World Bank fund for poor not supporting India is a little bit difficult to maintain," Onno Ruhl, country director for India at the World Bank, told ET in an interview. The bank has, therefore, agreed in principle — the negotiations are not finished — that India would benefit for the coming period through an arrangement called transition support.
"It is totally unique that India is getting transition support. No other country in history has had it. And there is no other country right now that we are proposing to give it to," he said. India would continue to get IDA support over the next few years, though the quantum of funds would be less and the terms may be somewhat stricter. "The amount is not fixed, though it is likely to be slightly less than what India got under IDA in the previous period," Ruhl said.
Over the last six years, India has received an average $4.3 billion a year from the World Bank through the IDA and the other lending programme, IBRD. The World Bank will maintain the same level of support from the next financial year, which runs from July to June, though concessional IDA element will go down. IBRD funds infrastructure projects in middle-income and credit-worthy low-income countries at interest rates higher than those provided by IDA but lower than those offered by other commercial lending agencies.
So, the World Bank will in effect stretch IBRD to maintain the funding support to India at the same level as in the recent period. In the upcoming five years, India is expected to get $4.5 billion to $5 billion funds a year. In the current fiscal, IDA is available to India. "The uniqueness of India's situation is clearly recognised in proposing a special purpose mechanism to support India," Ruhl said.
India still has more than 300 million people below the poverty line. The government had been in discussion with the World Bank for continued support given the high levels of poverty in the country. India also needs these long-term cheap funds to balance its rising reliance on short-term borrowings to fund its high current account deficit that touched 4.8% of GDP last year.
Tags:
Concessional, Loans
India receives the bulk of funds from the World Bank through International Development Association (IDA), the development bank's fund for the poorest, and International Bank for Reconstruction and Development (IBRD).
IDA provides concessional credit at little or no interest and repayments are stretched over 25 to 40 years, including a 5- to 10-year grace period, to help the poorest countries fight poverty.
These funds are available to countries with per capita income, as computed under the World Bank atlas methodology that adjusts nominal income for purchasing power, of up to $1,260, a threshold India has crossed convincingly with a per capita income of around $1,500. So, strictly speaking, India is not eligible for funds support from the IDA, but the bank faces a dilemma in stopping access to a country that is home to a very large number of poor.
"The logic of World Bank fund for poor not supporting India is a little bit difficult to maintain," Onno Ruhl, country director for India at the World Bank, told ET in an interview. The bank has, therefore, agreed in principle — the negotiations are not finished — that India would benefit for the coming period through an arrangement called transition support.
"It is totally unique that India is getting transition support. No other country in history has had it. And there is no other country right now that we are proposing to give it to," he said. India would continue to get IDA support over the next few years, though the quantum of funds would be less and the terms may be somewhat stricter. "The amount is not fixed, though it is likely to be slightly less than what India got under IDA in the previous period," Ruhl said.
Over the last six years, India has received an average $4.3 billion a year from the World Bank through the IDA and the other lending programme, IBRD. The World Bank will maintain the same level of support from the next financial year, which runs from July to June, though concessional IDA element will go down. IBRD funds infrastructure projects in middle-income and credit-worthy low-income countries at interest rates higher than those provided by IDA but lower than those offered by other commercial lending agencies.
So, the World Bank will in effect stretch IBRD to maintain the funding support to India at the same level as in the recent period. In the upcoming five years, India is expected to get $4.5 billion to $5 billion funds a year. In the current fiscal, IDA is available to India. "The uniqueness of India's situation is clearly recognised in proposing a special purpose mechanism to support India," Ruhl said.
India still has more than 300 million people below the poverty line. The government had been in discussion with the World Bank for continued support given the high levels of poverty in the country. India also needs these long-term cheap funds to balance its rising reliance on short-term borrowings to fund its high current account deficit that touched 4.8% of GDP last year.
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