Statement by Enzo Del Bufalo at the Board meeting of January 15, 1998

International Bank for Reconstruction and Development 86762 International Development Association Intemational Finance Corportation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS98-15 January 14,1998 Board Meeting of January 15, 1998 Statement by Enzo Del Bufalo INDIA: Country Assistance Strategy I commend management and the staff on this interesting CAS document that clearly takes into account previous Bank experience for determining the level and type of assistance to be provided in the coming years. This chair agrees with the amount of assistance proposed in the CAS (three-fold increase if we consider the real aid, or 11% increase --considering the aid planned in the last CAS). We believe that if we are able to correct past mistakes such as concentrating all aid in one sector, India would have the capacity to absorb all of it. On the other hand, we also believe that we are starting from very low initial figures, consequently, there is room to increase our assistance. However, we must since India's portfolio performance is not yet quite satisfactory and the pace of its important structural reforms is still slow. These factors can prevent the country from fully utilizing Bank assistance. In this regard, we want to stress that one of the main constraints to project disbursement is the capacity of the Indian government to manage procurement. New Delhi is one of the few places where the Bank's procurement office has been fully delegated. In the procurement discussions held about a month ago, we were informed that an audit report was requested from an outside consultant firm. In principle, the results were satisfactory. Nevertheless, considering the increasing assistance to India, we would like to be informed about the bottleneck existing in the procurement processes, measures taken to correct it, improvement and prospect for the future. We also favor the selectivity criteria applied to India's states. We do think that the Bank must concentrate its scarce resources in the states that are having better performance, generating in turn competition among them to accomplish the necessary reforms. On the other hand, it strikes us that IDA allocation to India (1 US$ per capita) remains well below other countries with similar level of performance (1 US$ per capita). The Bank policy clearly discriminates against poor people who live in populated countries, such as India. For this reason, we support the This document has a restricted distributionand may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosedwithout World Bank authorization.  2 application of the selectivity criteria to borrowing countries in the Bank. We also support the increase of the current 850 million dollar ceiling imposed to India in case they obtain a high level of performance in IDA projects. We support the priorities established in the CAS. Agriculture development is crucial since it is made up of more than 60% of active population. We believe that infrastructure must also be a priority. Private financing of infrastructure along with the elimination of subsidies must be the way to reduce the main macroeconomic imbalance: public deficit. The savings obtained through privatization and subsidies reduction can be used to reinforce the health care system. However, it seems that the Bank's staff is underestimating once more the importance of the financial sector in developing countries. We do not see any project in the financial sector, notwithstanding IFC's active role in this area. Banking sector reinforcement and capital market development are crucial to finance the increasing needs in infrastructures. India is in a very advanced stage of decentralization. We think that it would be useful to have some projects to consolidate this process; i.e., to facilitate the access of states to capital markets to finance its debts. This could considerably improve fiscal management. At the same time, we would like to know if the Bank has any criteria to determine the level of blended assistance to each state, according to the income per capita, or any other variable. It might be beneficial to have such a strategy. Finally, we agree with the strategy pursued by the Bank. It is growth oriented, emphasizing human capital development, infrastructure and rural development, thus facilitating the access to welfare of those who traditionally are excluded from these benefits. We consider the risks reasonable, although special attention must be paid to the reforn process and fiscal deficit, specially at the states level where no conditionality has been suggested in the CAS. _lr r