$1.7 bn ADB aid in 2004-05

Institution poised to issue Rs 455 cr bond

Close on the heels of the World Bank increasing its annual aid to India to $1.7 billion, the Manila-based Asian Development Bank has planned to extend its portfolio to the same level.

The institution had already committed about $1.5 billion to India this year, and planned to extend that to $1.6-1.7 billion next year, ADB Country Director Louis de Jonghe said.

Speaking at the sidelines of a press conference on the economic prospects of the Southeast Asian region today, Jonghe said the ADB was all set to tap the Indian capital market with its maiden bond issue amounting to over Rs 455 crore.

"We have got the clearance for the $100 million bond issue, which will be issued in rupee denomination. The exact time of the issue is not known. Our treasury department will decide on it," Jonghe said. ADB would utilise the funds for extending Rupee loans to corporates in the private sector, he added.

However, the corporates have also been promised forex swaps, subject to certain conditions.

The bonds must have a minimum maturity of ten years, and will be subject to 20 per cent risk weightage at par with bonds issued by All-India Financial Institutions, besides immunity from tax subject to prescribed conditions.

The upping of the scale of investments by ADB in India is based on its assessment of the basket of projects that will come up for financing soon.

The major projects being funded by ADB include two road projects -- one for the National Highways Authority of India and the other for Chhattisgarh. ADB is also providing funds for urban development to Madhya Pradesh and for power development projects in Assam.

It is also planning to consider the possibility of extending rural finance in 2004-05, Jonghe said.

The ADB also revised its Gross Domestic Product growth projection for the Indian economy to 6.7 per cent in 2003-04. The International Monetary Fund is also considering an upward revision of its forecast of 5.6 per cent growth.

Speaking at a press conference to discuss the economic prospects of the Southeast Asian region, Sudipto Mundle, chief economist, ADB India, said the growth projection for the current fiscal had been revised upwards from 6.3 per cent.

Next year, the economy is expected to grow at around 6.3 to 6.4 per cent because agricultural growth, on the high base of the current year, will be low.

In the medium term however, Mundle said the economy could achieve 7 to 8 per cent growth. "The trend rate of growth is around 6 per cent and the upswing in the business cycle, currently underway, will take it up further," he said.

Comparing the current fiscal with the last five years, Mundle said there was a distinct improvement on the foreign trade front. The export and import growths have doubled. The external debt is down and forex reserves are up.

The increasing importance of the external sector in the economy's growth prospects called for an increased focus on trade, especially with the Southeast Asian countries, he said, adding that the region, along with Japan, accounted for almost a quarter of India's trade, more than with any other region in the world.

The Southeast Asian economies would grow at 6.1 per cent this year, against the earlier forecast of 5.6 per cent, ADB said.

ADB's Asia Economic Monitor released here today said the strong growth in these economies was driven by the improved outlook for the US, Japan and to a lesser extent, for Europe.

The continued rise in domestic demand in a number of east Asian economies and the rapid growth of the Chinese economy were also cited as reasons for the rosy outlook.

The improved outlook provided an opportunity for these economies to accelerate reforms, said Pradumna B Rana, Director, Regional Economic Monitoring Unit, ADB.

Countries should move away from expansionary monetary policies towards a more neutral stance, and consider ways to manage their forex reserves. He also said these economies should continue with financial and corporate restructuring.

While 2004-05 would be an year of upswing for the region, potential risks included recurrence of SARS, political uncertainties because of upcoming elections, terrorism, increased protectionism and large global current account balances.

The integration of Asia was vital to ensure the re-emergence of the region as a business hub for the world, Rana said. He added that the process would throw up challenges as well as opportunities. China could not only gobble up third world markets, but also emerge a large importer for goods from the region.