Statement by Matthias Meyer at the Board meeting of February 18, 1999

International Bank for Reconstruction and Development 86769 International Development Association International Finance Corporation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS99-26 February 17, 1999 Board Meeting of February 18, 1999 Statement by Matthias Meyer India: Country Assistance Strategy – Progress Report and Andhra Pradesh Power Sector Restructuring Project This Chair is in favor of the policy outlined in the CAS of increasing the assistance provided at State level to those States who have developed strong ownership and are most willing to carry through reforms. This policy should help to overcome the identified obstacles in the reform implementation process. By triggering a healthy competition among States for the access to World Bank resources, this policy might speed up structural adjustment at the State level where it is most necessary. We are also convinced that the potential demonstration effect among Indian States can be a powerful tool to reach the objectives and will eventually enable the Bank to put its “eggs” in more than one “basket”. States such as Andhra Pradesh have already implemented significant reforms. On these grounds, we support the proposed restructuring project of this State’s power sector. This will increase the accountability and thereby help to improve the Governance situation where - as the CAS rightly states - much still needs to be done in India. We agree with the decision of the Bank to put Uttar Pradesh high on its agenda in view of the large population of this State and the extent of massive poverty. It is also a courageous decision: UP is plagued with political instability and has not, so far, progressed very far on the path of reforms. It will be a challenge for the WB to support the reform process without endangering ownership. But the potential benefits are worth taking the risks. It is commendable that the WB has an agenda on poverty reduction. However, we would have liked the CAS to elaborate more on the effectiveness of this agenda, especially concerning the outreach to the whole population, and a medium term perspective on subsidies. The overall approach is still very much government driven and top down, although it is mentioned that the private sector is partly involved even in such areas as education and health. As long at there are not more radical reforms, especially in reducing the bureaucracy, the resources will not be used effectively. They may even allow for an  2 increase in the size of the bureaucracy. This is the case particularly in rural development, where it is important to define better the role of the public and the private sectors and to make sure it is not a subsidy-driven approach. Para 25 mentions some of the issues related to poverty reduction. But it is not enough to repeat the issue of "access" to services by the poor, one needs to design delivery systems which actually reach them. It would certainly be worthwhile to conduct some evaluations about the effectiveness of the WB’s poverty erradication approach in India. With regard to Governance, para 24 says a lot between the lines: much still needs to be done for the situation to be acceptable. It would be highly desirable for the WB to strengthen the supervision through external monitoring. Reforms in the power sector, as proposed today for one State, are an important measure to increase accountability. It would be worth studying further the involvement of private distributors. Very positive experiences have been made, for instance, in the telecommunications sector. The telephone system has successfully linked private distributors (STD/ISD booths) all over the country with government-owned supply channels. The result has been stunning: better services for the user (one can phone from almost every village in India to anywhere in the world), good income for the owner of the telephone booth and excellent revenues for the telephone company. Such examples should be replicated in the power distribution and other sectors.