Statement by Surendra Singh at the Board meeting of January 15, 1998

86757 Intemational Bank for Reconstruction and Development IntemnationalDevelopment Association International Finance Corportation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS98-5 January 14, 1998 Board Meeting of January 15, 1998 Statement by Surendra Singh India--Country Assistance Strategy We are discussing this country assistance strategy in the 50th year of lndia's independence. This year, India has also embarked upon its 9th 5 year plan. This anniversaly is a special cause for celebration, and also for reflection and introspection. The last 50 years have been marked by substantial achievements; yet many areas of challenge remain which the nation has to address. It is a time for consolidating the achievements, and applying appropriate correctives for effectively reaching the socio-economic development goals. 2. Since this Board discussed the last India CAS, the country has witnessed reasonably good performance as revealed by certain macro-economic indicators. Annual GDP growth rate has been around 7 percent.; the current account deficit has been brought to sustainable levels; international reserves now equal to about 6 months of imports as compared to about 2 months in 1991. Overall, there has also been decline in the rate of inflation. The confidence of the international investors has been restored, and India continues to be the destination of increasing amounts of international private capital flows. 3. The macro-economic performance however hides a number of areas of vulnerability and weakness which will need to be explicitly addressed in the coming years. In this context, the first major area of vulnerability is the prospect for sustained growth of agriculture. This sector is still the mainstay of the economy, accounting for about 30 percent of GDP in 1995-96 ( down from 56 percent in 1950-51 ), with 75 percent of the population dependent on1 it. lndiani agrriculturle continues to remain vulnerable to weather related shocks, and efforts will have to be made to reduce this vulnlerability. 4. Development of infrastructure is another major challenge. Inadequacies in this sector are proving to be a serious constraint on economic growth. Investments in the various sub-sectors has been much lower than envisaged. Here it is pertinent to point out that the 9tlhPlan envisages an increase in the Power sector generation capacity of 40,000 Mw. Of this 22,000 Mw., is expected to come from the Public sector. Therefore it is important to recognize that the Bank's continued support in the Power sector, including on the generation side will be essential. The This document has a restricted distribution and may be used by recipients only in the performnance of their official duties. Its contentsmay not otherwisebe disclosedwithout World Bank authorization. _  - 2- investment needs of this sector are of a magnitudebeyond the resources available with the government. This makes private participation in the development process all the more imperative. Successful development of this crucial sector willrequire bold policy initiatives, framing of schemes and setting up of an institutional environmentattractive to investors, whiclhwould provide a level playing to all competitors, while safeguarding the rights of consumers. It would be necessary to ensure that all competitors are provided a level playing field. 5. Another priority will be to address the problems of rapid urbanization. There has been a progressive decline in the availabilityof essential services as well as in the quality of life in urban areas. The health and environmental consequences of increasing population density, lack of safe drinking water and inadequate urban sanitationwill get further aggravated uLnless immediateand meaningful steps are taken. 6. Social sectors like education, health and family welfare, women and clild development, housing and water supply will need to be further strengthened. Many of these hiaveso far depended almost entirely on budgetary support and a policy environment will have to be created for harnessing private participation in some of them. 7. The development effort now envisaged will be based on a participatory approach. We believe that the principal task of development in a federal structure should evolve olna shared visioInof and a shared commitmentto the nationalobjectives, not.only in the government at all levels, but also among all other stakeholders. Based on such a shared vision, the principal task will be to build on the successes, while addressing the problems that have emerged, particularly in such areas as capital formation in agriculture, living standards of the pooI, infrastruLcture, social sectors, regional disparity and fiscal deficits. 8. At this time, the country is preparing for elections to the national Parliament, scheduled towards the end of February. Since 1991, the year in which the economic reform process was accelerated, this will be the third general election, at the end of which the country will have its 5th national government. Such political events have often led to the questioni of sustainabilityof reforms. Any objective assessment of the situation would make it evident that despite political changes, the essential policy towards reform has remain unchanged. In fact, at any givelnpoint of time, almost every major political party in the country has been a part of one of the governments; and each government has initiated measures to further the reform process. As such1, the policy lias been nationally endorsed, and faces no threat to its continuity. India has growvn to a point where political events have been largely divorced from such economic considerations. To buttress the argument further, the same holds true for the states also. Today, as never before, states have become increasinglyproactive in furthering economic reforms with distinctive 'state' features. Perhaps also for the first time state governments have been reaching out to the external sector -- most notably the Bank -- to augment resources for investment. Governmllaenit of India has not only welcomed such a development but has encouraged such 'opening up' of the states.  -3- 9. We view these developments very positively, since the states are thus increasillnlyexposed to the external environment. Such exposure can only benefit these states, by providing opportunities of learning and absorbing them current best practices and policy fi-ameworks, the ones being instituted globally with Bank for instance assistance. A number of state governments already approached the Bank for assisting have them in areas such as fiscal management sector restructuring, and are benefiting from and power Bank's guidance in undertaking major steps carrying out reforms. Another advantage for of this approach is that the ownerslhip of much greater in such an environment, where reforms is the states themselves have initiated the process. 10. In the above context we note that the proposed CAS will increase its focus states. This is a positive shift and we welcome towards the it. It must however be noted that as per Constitution of India, there are clear divisions the of responsibility between the Center and Thus while the latter will focus on reform the States. etc., in their area of responsibility, Bank's support will also continue to be required attention and for assisting the Central governmenitefforts respective areas of responlsibility.In fact, in its' this CAS has been prepared with inputs from range of participants. It has thus benefited a wide from a participatory approach, which is evident quality of the document. Our authorities are in the broadly in agreement with the proposed strategy, and its aims and objectives. 11. India's partnership with the Bank is a very old and lasting one, and the country benefited from this relationship. While India has all along has made significant progress amid varying challenges, the serious problem of poverty continues. The document provides details regard. Given this, and the urgent need for in this investments in the social sectors, India's reliance and need for IDA funding will remain crucial. on This instrument has provided critical resources have provided major contributions to poverty that reduction and social development. Given current levels of poverty, and social sector the needs, we envisage continued and higher IDA assistance in the coming years. 12. Finally, 1 would like to communicate the appreciation of my authorities to Bank Management for the preparation of this excellent Staff and document. The government is broadly in agreement with the strategy proposed. The document tells us that if India can maintain strategy of accelerated growth with equity its current over the coming decade, it should be able most of the DAC Development Objectives, to achlieve five years ahead of the DAC target year. national endeavor will be towards this accomplishment. India's In this effort, India values the role and support of the World Bank Group as a whole,