Statement by Andrei Bugrov at the Board meeting of January 15, 1998

International Bank for Reconstruction and Development International Development Association 86756 International Finance Corportation Multilateral Investment Guarantee Agency FOR OFFICLALUSE ONLY CONFIDENTIAL EDS98-16 January 15,1998 Board Meeting of January 15, 1998 Statement by Andrei Bugrov India: Country Assistance Strategy and APL for the Haryana Power Sector Restructuring Project We support the proposed joint Bank-IFC Country Assistance Strategy for the Republic of India and commend the Staff for the preparation of this important document. In our view, the suggested World Bank Group strategy and sectoral orientation of the lending program broadly correspond to the country's development goals and objectives. In particular, we firmly endorse the proposed increase in IBRD lending in response to the Government's request to expand Bank Group support for India's pursuit of accelerated growth with equity. We also welcome the expected expansion of the IFC program in India, encourage further exploration of opportunities for MIGA and IBRD guarantee operations, and anticipate a significant improvement of non-lending services in terms of their operational relevance, timeliness and cost-effectiveness. It is praiseworthy that in the course of its preparation the CAS has undergone a very extensive consultation process with the participation of government officials at all levels, academia, private sector and NGOs. I welcome the incorporation into the new strategy of the OED and other evaluation findings, as well as lessons learned from past experience of CAS implementation, particularly in the power sector and infrastructure. I am pleased to see that the new CAS for India has benefited in many respects from the changes under the Strategic Compact and the Renewal Program, and, as a result, the Bank Group will possess an increased ability to respond speedily, intensively and effectively to the challenges of India's development agenda. I believe that the proposed adaptable program loan (APL) for the Haryana Power Sector Restructuring Project (which is accompanying this CAS) is the first good manifestation of the beginning of a practical realization of these new abilities. We support this operation and are very hopeful that APL will prove to be an effective instrument in- terms of responsiveness to the client's needs and the continuity of Bank support to long-term development programs. This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwisebe disclosedwithout World Bank authorization. _,_  2 We are pleased to note a remarkable improvement in the performance of India portfolio in the last fiscal year, including an increase in the ratio of disbursement above the bank average, significant reductions in the ratio of problem projects and the ratio of projects at risk. Clearly, to a large extent, this turnaround was made possible due to a field-based portfolio management system which was established in Delhi in FY97. I expect that a greater leadership by national professional staff in the field, as well as other new portfolio management initiatives, which are mentioned in Box 4, will be very helpful in ensuring an improved quality of the ongoing and new IBRD/IDA projects. Despite the obvious decline in poverty incidence and improvement in social indicators, about 320 million Indians today are below the poverty line, almost as many as the entire population of the country at the time of independence. This makes continued large-scale Bank support to India on the poverty alleviation front absolutely necessary. We welcome the strong emphasis in the CAS on investment in human capital and improving the effectiveness of poverty alleviation programs, as well as increasing attention to rural and urban development, which create employment and income opportunities for the poor. At the same time, it would be interesting to learn about the volume of operations earmarked for targeted poverty interventions. As the CAS paper notes, the decline in poverty in India has been uneven among the individual states and correlated with investments in human development and infrastructure, as well as in agricultural growth. At the same time the suggested strong focus of the new strategy on the few reforming states virtually means the exclusion of many of the poorest states from IBRD/IDA lending. While I agree that there are very sensible and convincing arguments in favor of the Bank Group's high selectivity, I remain concerned about the possible negative implications which the proposed approach could have in terms of amplifying existing serious economic and social disparities among the states. I would be very interested to hear Staff comments on this issue. I regret to say that the proposed Bank Group CAS does not seem to me -- if you pardon the expression --"joint" enough. In my view, while Annex 1 "Country Program Matrix" is rather informative in presenting an overall picture of the World Bank Group's planned inter- agency division of labor and cooperation, the main text of the document does not go far beyond identifying sectors and areas of joint activity. In general, I expected the new Indian CAS to have a more prominent joint strategic framework and be more explicit about the various aspects of the combined efforts of different institutions of the Group. After several decades of strong emphasis on central planning and extensive state control over the means of production, India has recently changed its development course and started liberalizing its economy and reducing the economic role of the government. Therefore, it would be appropriate to devise and incorporate into the CAS a lucid Private Sector Strategy (PSS). In our view, its main building blocks should include: (i) the results of a thorough assessment of the existing Indian private sector and its abilities to lead a rapid, socially and environmentally sustainable economic growth; (ii) a clear vision of the roles of the central and state governments in eliminating constraints on the private sector and promoting its sound development; (iii) the analysis of the main issues of privatization; (iv) an integrated agenda for the Bank Group's  3 private sector assistance; (v) plans of coordination of individual efforts of IBRD, IDA, IFC, MIGA and EDI, and their closer cooperation, including, in my view, possible and very promising joint projects and programs. In conclusion, I would like to reiterate our overall support for the proposed CAS and wish the Indian authorities every success in attaining the objectives of accelerated economic growth with equity.