The evolving role of the World Bank - the food crisis in South Asia : the case of India

f; ; ':'s? $ , -Iv"'iWlul>>s , .1;N ' '1' ',*, -' , / 0 1 1' iw1- t a 5 t-Vr5*** -vS tti 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.I :ft: ~~I; i;l:iiAtl;4flis 1 Sl"iST7i t11 g; 4] Se ls7ffil;6!; fij$+e -^?s S 1.! St~~~~~~~~~~~~~~~~~~~~~~1 S t ~~~~~~~~----- -_ - ~- - - - - - - ~~~~~~~IL .. - w i**l * . v 3! Wt W7 1 t 1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ .1,; '{: 0 0 - *|b 0 g - 3 1 1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~u Wi t 'h~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.1- M I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.~~~~~~~~~~~~~  The Evolving Role of the World Bank South Asia's Food Crisis The Case of India Uma Lele and Balu Bumb T-he World Baink Washington, DC  The World Bank Group The World Bank Group is a family of multilateral development institutions owned by and accountable to metber govermnents. These governents exrise thir ownership function through Boards of Governors on which each member country is represented individually. All the powers vested in the Board of Govemors, with a few exceptions, have been delegated to Boards of Executive Directors, who are appointed or elected by member governments. The President of the Bank Grr.up is appointed by the Executive Directors. The World Bank Group today includes five iternational organizations: The Interational Bank for Reconstruction and Development (IBRD), the origial institution i the group, opened its doors for business in 1946 Today, it is the largest source of market-based loans to developing coun- tries and is a major catalyst of similar financing from other soures. It lends to governments or tDpublic orpri- vate entities with government guarantees. It is funded mainly through borrowings on the intemational capital markets. The International Fmance Corporation (IFC) was established in 1956 to support private enterprise in the developing world fhrough the provision and mobilization of loan and equity financing and through its advi- sory acivities relatmg to, among other things, capital market development and privatization IFC is also a major catalyst of both local and foreign private investment. Its lending and equity investment activities are based on the principle of taking market risk along with private investors. Under the ternms of its Artiles of Agrement it carnot accept govenment guarantees. The International Development Association (IDA) was created in 1960 to provide finance on concessional terms to low-income countries that lak creditworths for IBRD borrowing. IDA is primarily funded from grants it receves from donrs in periodic replenishments. The Intemational Centre for Settlement of Investment Disputes (ICSID) was added to the Woird Bank family in 1966 to provide coclatio and arbitration services for disputes between foreign investors and host gDv- ernments that arise directly outof an investment The Multilateral Investment Guarantee Agency (MIGA) was created in 1988 to provide nonm l invest- ment risk insuarace and technical services that help promote irvestment flows. It also dissemiinates infoma- tion on investment opportumities. As is now .mjmon practice, the "World Bank' or simply the 'Bank" are used iterhangebly to mean both IBRD and IDA. The -World Bank GC;roup" rers to IBRD, IDA,, IFCFICSID, and MIGA.  i .~~~~~~~~~~~~9 Or. . . ~ ~ ~ ~ ~ ~ ~ ~ ~ N j. 00  Foreword The world has changed dramatically over the last five decades and so has the World Bank. The Fiftieth Anniversary of the World Bank has provided us with an opportunity to reflect on and learn from the Bank's experience and to apply the lessons to the Bank's future agenda. This series of essays is devoted to improving understanding of the evolving role of the World Bank. Each essay analyzes the Bank's approach to the major development challenges its borrowing countries have faced, starting with the reconstruction and development needs of Europe and Japan in the 1940s and 1950s and ending with the transition of Central and Eastern Europe and the fortner Soviet Union. One essay examines the evolution of the Bankls relations with the world's capital markets as it mobilizes private savings for develop- ment. An overview paper provides a picture of the fifty-year period as a whole. The story that emerges is one of an evolving and learning institution that has built on its successes and its mistakes. The Bank has responded with vigor and energy to the challenges confronting its borrowers. In this process, it has made a significant contribution to the impressive developmental gains recorded in these past fifty years. In responding to those chalenges, the Bank itself has changed, learning from its experiences, deepening its under- standing of the development process, and recasting its analytical and financial support to help its borrowers betten The Bank will continue to nurture its tradition of self-evaluation and learning. These essays will, I hope, contribute to a better-informed debate on the Bank's future role. They comple- ment the recently issued paper, The World Bank Group-Learning from the Past, Embracing the Future, which sets out the future directions for the Bank Group. Armeane MA Choksi Vice President, Human Resources Development and Operations Policy, and Chairman of the Bank Group Committee on the 50th Anniversary  South Asia's Food Crisis The Case of India Uma Lele and Balu Bumb Thirty years ago, the world regarded India as an economic basket case. Today, India manages the world's largest public grain stock and has even become a minor gain exporr. In 1993, the coun- try's exports increased 20 percent (and are expected to continue Thzfyyrfs ago, the increasing rapidly), and the economy as a whole attracted Uorld regarded India as $4.7 billion of foreign investment. These positive economic trends an economic baset case. make India one of the largest emerging markets in the world. Today, India manages the wzorlds largest public Clearly Indiaes (and the rest of Asia's) Green Revolution is a grain stock development succss of major proportions-and one in which the World Bank has played a significant role. By increasing food production and creating millions of jobs, it allowed India to reduce dependence on food imports and lower the share of its population living in poverty from 50 percent in the 1970s to 30 percent by the end of the 19811s. It is also estimated that, bymaking land already under cultivation more productive, some 45 million hectares have been saved from the plow-land roughly equivalent to the land under India's best remaining forests. This triple phenomenon of enhanced food securty} poverty alleviation, and environmental susainability has been repeated in much of South and South East Asia. Moreover, enhanced food security and the ability to maintain low urban food prices and wages, combimed with global political and economic changes have allowed South Asian countres to follow the path of their East Asian neighbors towards economic liberalization- 1  The Evolving Role of the World Bank India's repeated food and The character of World Bank economic crises pushed two assistance to India has changed successive Prime Ministers, Mr. over time as it has learned from Lal Bahadur Shastri and Mrs. its experience. However, many Indira Gandhi, to try new ideas more lessons are still to be and innovative ways to develop dlistilled and applied. the country's agriculture. The advice of many assistance agen- The Green Revolution in South cies, including private United Asia' is one of the most States foundations, and some of important (yet misunderstood) the world's top experts on development stories of techno- agriculture, reinforced the logical change, international credibility of agricultural cooperation, and national per- reform. The international severance. It has been contro- character of the World Bank versial, for its contributions as Mission's agricultural team (led well as its form. Clearly, much by Sir John Crawford) remains to be done to make increased its acceptability sure that South Asia's 300 m;U- among the handful of strategi- lion poor do not have to go to cally placed Indian policy bed hungry, lacking employ- makers such as Mr. C. ment and income to buy the Subranianiam, India's then increased food supplied by the 'Minister of Agriculture. His Green Revolution. The Green Revolution in support was crucial at a time South Asia is one of the . when Indo-United States Certain policies and institutions relations had soured. With the introduced to propel the revo- blessings of both prime minis- lution have also caused other misunderstood) . ters, Mr- Subramanam and problems in their wake; axces- derelopment stonies of d several other Indians played a sive use of chemicals, the technological change, key role in selling the reforms pealing in yields, increased international cooperation, internally to a wide array of salinization, silting of dams, and national perseverance skeptics. Their efforts laid the waterlogging, interregional foundation for sustained disparities, and mounting growth in agricultural agricultural subsidies. Today productivity in the irrigated water shortages threaten to parts of India and South Asia become Indias greatest- envi- for well over three decades. ronmental crisis. Interregional 2  South Asia's Food Crisis specialization in cropping and transport; and additional patterns also need to advance investment in irrigation. 'With more rapidly. But with the pop- millions of scattered small farm I The heart of the ulation having doubled in three households with litde money or Revolution was the decades, both the environmen- access to physical or instit- introduction of miracle tal stress and poverty would utional infrastructure, public wheat and rice varieties, have been much worse without policy was crucial. Many whichc dramatically the Green Revolution-particu- agribusiness acti% ities can now changed India's agti- larly in India's semiarid areas be handled easily by the private cultural production on which larger populations sector and by nongovernmental function, and increased would have had to depend for community organizations. In t a p food security and livelihood. the early years of the Green Revolution, however, both The heart of the Revolution these sectors were far weaker was the introduction of mirade and food shortages were acute, wheat and rice varieties, which placing the burden for change dramatically changed India's on government. agricultural production function, and increased total 'Why Focus on India factor productivity. But technological breakthroughs South Asia contains 22 percent would have had little effect of the world's poputlation and I without policy reforms. New 47 percent of its poor. Within technologies required new South Asia, India accounts for policies, and India's leaders 74 percent of the population, responded to the challenge. earns 78 percent of its GNl, The country's evolving national and produces 77 percent of its agricultural strategy induded a foodgrin. complex mix of price incen- tives; a goal-oriented national As the world's largest democra- agricultural research system; cy (and one of the oldest support services responsive to among developing countries), farmers; a system of short-run India was viewed by the West imports and long-run produc- as a counter to communist tion and distribution of fertiliz- China. India took center stage er and seed; a public system of in development planning in the grain procurement, storage, 1950s and the 1960s, attracting 3  The Evolving Role of the World Bank some of the best known west- Before the end of the 1970s, ern economists. They not only India commanded a dominant backed India's import-substitut- share in the Bank's lending for ing industrialization strategy, agriculture and rural develop- they also lent it intellectual ment.3 Even so, in per capita credibility by developing terms, and as a proportion of f state-of-the-art multisectoral India's own public sector models to explore planning investment, the World Bank options. India was only share has been modest. IDA displaced as the model for lending to India averaged about development practice when $2 per person annually in East Asia achieved more rapid 1979-81, which was less than 2 and more broad-based percent of total investment economic growth. expenditures.3 Throughout the 1950s and In 1965-1967, when her food- 1960s, India attracted a grain imports constituted substantial amount of financial, 80 percent of the South Asian commodity, and technical total and 10 percent of the assistance from the United world cereal trade in 1965-67, States and became the largest India's food crisis was of glob- recipient of concessional IDA al significance. Following the lending. After Robert Green Revolution, India's Before the end of the McNamara became president share of total South Asian 1970s India commanded of the World Bank in 1968 and foodgrain imports declined to a dominant share in the poverty alleviation became its just 16 percent in 1972 and Bank's mendirg - principal goal, agricultural less than 7 percent in 1979 lending quadrupled in his first (see Figure 1). for agriculure and - term. As part of this commit- rural developmen2t . ment, India received 26 percent Undivided Pakistan and Sri of worldwide IDA credits, Lanka both enjoyed higher 60 percent of IDA commit- initial land productivity, higher ments (about $35 billion) to agricultural growth and high- the South Asian Region, and er and more stable per capita 70 percent of total Bank com- domestic food availability, mitments (about $60 billion) to possibly because both had a the region through 1993. more assured initial supply of 4  South Asia's Food Crisis water. (To maintain this sup- The World Bank and the ply, Bank agricultural United States (then India's assistance to both countries premier donor) played a central ! has focused on irrigation, for role in helping to change example, at Tarbela in Pakistan agricultural policies and institu- and Mahaweli in Sri Lanka). tions in India, and subsequently The Bank also played an active throughout South Asia. For role in bringing about the India, President Lyndon 1960 Indus Waters Treaty Johnson personally instituted between India and Pakistan, and oversaw a 'short-tether' which ecpanded irrigation and requiring India to adhere to increased food productivity in policy reforms devised by the both countries, and averted World Bank. In the midst of regional conflict over water. India's worst post-indepen- Had there been an agreement dence food crisis in 1965-67, between the two countries on and following a decade of U.S joint development and support to India, Johnson made management of waters, this food shipments available on a could all have been achieved at month-to-month basis. Indian much lower cost. policy makers found the experience humiliating, and the Figure.1 Declining dependency on food imports in India Cereal imports Kilos per person 15- 5- 0 1965 1970 1975 1980 1985 1990 S  The Evolving Role of the World Bank episode soured relations with influenced India." The Bank's the United States. Johnson later experience in India helped it to described India's Green clarify policies regarding I Revolution as 'one of the most balance-of-payments support difficult and lonely struggles" for countries during a foreign of his presidency! This testifies exchange crisis, local and to the almost insurmountable recurrent cost financing, the , difficulties that Indian policy broad-based use of local makers and the World Bank contracting, and poverty faced in instituting new agricul- alleviation. A vocal member of tural policies. the Bretton Woods conference that fashioned the IBRD in Jobnson later described 5 With considerable diplomacy, 1945, India also played an India's Green Revolution the Bank helped to convince important role in the creation as "one of the most 5 India's policymakers that of IDA in 1960, and in trans- agriculture was the country's forming the World Bank from difficult and lonely chief priority. To help them its 1950s role as a financial develop institutional and policy institution to a development reforms, the Bank also provid- bank in the 1 960s and 1970s. ed concessional finance and foreign exchange pardally to From Food Insecurity to make up for the loss of U.S. aid Growth after the 1960s. At the time of independence in For the next twenty years, Bank 1947, India's per capita income financing enabled India to was a mere $50 in nominal expand irrigation and agricul- terms, and had been declining tural credit and supply fertiliz- for almost fifty years. Average ers to millions of small farmers. daily per capita grain consump- Although its financial presence tion was only 400 grams, with was still small, the Bank's the poor consuming a fraction influence on Indian policy was of that.' Recurring droughts the greatest in the mid-1960s. and lagging growth in food- grain production forced India According to Mason and Asher, to depend on food imports. In - . India has influenced the drought years, such Bank as much as the Bank has dependence created both food 6  South Asia's Food Crisis and foreign exchange crises. In the level of real wages, and the early years of scarcity, thus indirectly, the pace of surplus commodity aid from industrialization. Over 40 percent of India's the United States stabilized net foreign resource domestic food supplies, Yet despite the commanding transfers in the ten years ensuring food security for the position of agriculture, Indian poor. These shipments saved planners did not see agri- fom mid-1962 to India the much-needed foreign cultural factor productivity as mid-1972 came in food exchange to import inter- the obvious engine of - aid, causing concern that mediate capital goods for broad-based cconomic growth, such aid had become a industrialization. Moreover, on which depended cheap | disincentive to domestic the sale of food aid provided food, employment, income, prodtciaon domestic revenue to finance savings, investment, and public expenditures, while markets for urban goods and keeping food prices, inflation, services. Agriculture was seen and real wages low. Over as a holding ground for surplus I 40 percent of India's net for- labor while industry would be eign resource transfers in the the primary source of employ- ten years from mid-1962 to ment and income generation. mid-1972 came in food aid, causing concern that such aid But industrialization (based on had become a disincentive to a minuscule, capital-intensive, domestic production.' heavy industrial sector) was unable to generate sufficient Agriculture, which provided jobs to achieve full employ- employment for almost ment. Planners considered 75 percent of India's popula- institutional changes (such as ion, was a major source of raw land reform, cooperative materials for industry, and farming, and community devel- offered a large market for opment) and infrastructure goods and services. Indian development (such as irriga- consumers, particularly the tion) to address the basic needs poor, spent over two-thirds of of India's farm households. their budget on food. Given the Rasing the motivation of the large share of food consump- largely illiterate Indian farm tion in the urban consumer households was considered an budget, food prices determined important challenge. 7  The Evolving Role of the World Bank Infludnced by the Soviet state allocative efficiency of and China's cooperative farms, traditional farming and stressed Indians saw the importance of the importance of technical institutional reforms and change in increasing farm investment in irrigation. But productivity. Influential people Foodgrain production fell. the public sector continued to in India (such as A. P. Jain, then by more than five million I focus on-and monopolize- Minister of Food and tons in 1957-58, such "basic" industries as steel Agriculture) also began to stress contributing to India's and power. the role of price incentives in first major balance of promoting growth in firm out- payments crisis- In 1958, In line with development think- pu, but such advice was slow India cuet back on its Iingof the time, donors such as to penetrate the ruling party, Itie World Bank and USAID which favored institutional inetgvestment proghra ad wholeheartedly supported the reforms? Foodgrain production Indian priority on heavy fell by more than five million riority to) agriculture +industry and infrastructure tons in 1957-58, contributing development and underwrote to India's first major balance of India!s economic strategy payments crisis. In 19S8, India financially. Nevertheless, from cut back on its investment the mid-1950s, the thrust of program and agreed to give World Bank and U.S. advice on higher priority to agriculture. agriculture had begun to promote the importance of The World Bank coordinated price incentives, technological donor efforts to meet the change, investment in irrigation Indian crisis and created one of and fertilizers The intellectual the first Bank-led Aid foundation for that view began Consortia. It also established a to emerge with, among others, resident mission in New Delhi W. David Hopper's work on But problems with foodgrain Senapur village in the state of production and the balance of Uttar Pradesh in the 1950s on payments turned out to be far the theme of the poor but from temporary. In the early rational farmer, which later 1960s, food production formed the basis of T.W. stagnated. Two successive Schultz's book, Transforming droughts in 1965-66 and -taditionalAgriculture. 1966-67, caused annual food Hopper's work emphasized the imports to rise to 10 million 8  South Asia's Food Crisis and 11 million tons, respec- India was also engaged in a direly. The droughts also came dispute with the United States at a time when the Third Five over investmentt in a public Year Plan's ambitious targets of sector fertilizer plant by industrial expansion had Bechtel Corporation. It was increased import demand for disappointed at not receiving intermediate goods while sufficient military aid from the exports had stagnated-acrating United States during wars w,,ith another balance of payments China (m 1962) and Pakistan crisis. India lacked both the (in 1965), and it opposed the foreign exchange to import the Vietnamn War. Donors were food and the port and handling beginning to suffr from aid capacity to receive, store, fatigue. and tranisport miassive food aid shipments from the By the mid-1960s, weaknesses United States.1'2 in Indian development policy-- and particularly the failure Of Changes in the global political the agricultural sectr -gen6er- and food situation and ated a consensus among worsening bilateral relations outsiders that India's policies with the United States and its and programs in agriculture neighbors combined to weaken needed change. By 1965, India's external position. Indlian scientists were fieldt United States food surpluse-s testing many new varieties of had also begun to decline. wheat developed by Dr. Tlo sucessive dmougbts President Johnson was Norman Borlaug in Mexico. In in 196S-660and11966-67, reluctant to go to Congress for November 1965, Orville fod more food aid for India. By his Freeman, U.S. Secretary of own admission, the lives of Agriculture under President &n o1Wt 10I million and II million almost SO million Indians were Johnson, signed a secret agree-