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A couple of days after the Asian Development Bank (ADB) expressed its inability to lend more to India due to resource crunch, New Delhi today sought the Manila-based bank’s funding for its infrastructure, needed to rev up economic growth that slipped to a ten-year low of five per cent in 2012-13.
It asked the development bank to look for innovative financing products and urged member countries to augment resources of ADB, as was done in the case of the International Monetary Fund (IMF) amid the Euro zone crisis.
To make a case for investments in India, the government apprised the ADB members of steps taken to make the country attractive for investors, saying India’s investment story is just starting. It stuck to eight per cent averarge annual growth target for the 12th five year plan (2012-13-16-17) despite the first two years expected to yield far less pace of economic expansion.
"We have expanded the resources of the IMF enormously in response to the crisis in Europe. We now need to substantially expand the resource base of multilateral development banks so they have the firepower to help developing countries reach their growth potential," Prime Minister Manmohan Singh said at the ADB inaugural session of its annual general meeting.
India has pegged its investment requirement in infrastructure to $1 trillion in the 12th five year plan, more than double that invested in the previous five year plan. Almost half of this is expected from the private sector.
But, the prime minister said investments in this sector are long-term, and the private sector continues to be risk averse. This is where multi-lateral and regional development banks should come in, he said.
On Thursday, ADB President Takehiko Nakao had said the bank would like to continue to lend at high levels to India, but there are challenges to maintaining those levels. As ADB's income from investments of surplus resources is mostly lent to European countries, the return on investment is lower than expected, owing to low interest rates, he had said.
The prime minister conceded this point, but asked the bank to look for innovative products to fund infrastructure. "I understand the level of lending the ADB can sustain is projected to come down. At this juncture, ADB should take the initiative to find innovative ways to channelise global savings into infrastructure."
He said pooling investments across various countries can mitigate risk which can be further reduced through credit enhancement by the ADB. "Expanding infrastructure financing and investment through the intermediation of the ADB could help lower the cost of financing long-term infrastructure projects," the prime minister said.
According to the ADB’s website, ADB’s sovereign lending assistance to India increased from an annual average of about $1.16 billion in 2000–2006 to $1.85 billion in 2007–2012 and the country has been ADB’s largest borrower for the last 3 years (2010–2012).
ADB's outstanding debt rose to $642.79 billion in 2012 from $582.57 billion in the previous year, while its paid-in capital and reserves rose to $164.20 billion from $165.34 billion over the period.
Finance Finance Minister P Chidambaram, chair of the bank’s board of governors, also sought support of ADB to creating special vehicles for financing infrastructure in India.
“We would like to see ADB support the development of innovative special financing vehicles to support the expansion of infrastructure finance,” he said.
He said ADB could explore credit enhancements of infrastructure projects bonds for road funds and municipal bond issuances in order to expand the finance available for transportation and urban infrastructure.
ADB has partnered India Infrastructure Finance Company for providing the facility that would help infrastructure bond issuers to enhance their credit ratings and attract investments from insurance firms and pension funds.
The finance minister invited the multilateral institution to carry out an in-depth exploration of how it could employ its expertise in energy, logistics, urban, and skills development around economic corridors such as Delhi-Mumbai Industrial Corridor, Chennai-Bengaluru and Mumbai-Bengaluru corridors.
“ADB can not only partner in these efforts but also actively pursue the potential of a corridor linking India, Bangladesh, Myanmar, Asean and China,” he said.
The finance minister also said that to give a push to its regional cooperation initiatives, ADB should ensure that the funds for the regional projects are given to the participating countries as an additionality, over and above the country support programme.
Even as the first year of the five year plan is estimated to have yielded a decade low growth of 5 per cent and the current financial year, which is the second year of the plan, is projected to deliver growth in the range of 6.1-6.7 per cent, the Prime Minister stuck to the target of average annual growth rate of 8 per cent during the plan period. For the target to be achieved, India's economy needs to grow over 9 per cent in the last three years of the plan even if the economy expands by the upper range of the projections for the current year.
"This (eight per cent a year growth rate) is the rate of growth that the country achieved over the past decade," Singh said.
The Prime Minister told ADB members that that his government is initiating measures to spur investment and make India more attractive to investors both at home and abroad. "We have taken steps to fast track major infrastructure projects." The government has set up the Cabinet Committee on Investments to clear projects costing over Rs 1,000 crore and cleared 25 oil blocks in its meeting held last week.
The prime minister also reminded the ADB members that India has introduced strong measures to achieve fiscal consolidation. According to a five-year roadmap, the Centre's fiscal deficit is projected to reduce to 3 per cent of GDP in 2016-17 from 5.7 per cent in 2011-12. In the first year of this roadmap, fiscal deficit is estimated to come down to 5.2 per cent and in the current financial year to 4.8 per cent.
Citing the steps taken by the government in liberalising FDI in retail, aviation, setting up of the Cabinet Committee on Investments, Chidambaram said India's investment story has just begun.
Economic Affairs Secretary Arvind Mayaram said Indian financial system remains sound and robust despite prevalent financial fragility and risks in advanced economies.
The ADB President said operations of ADB totaled nearly $22 billion, including $8 billion in cofinancing, in 2012. He said this figures fall short compared with the needs of the region. As such, he said steps should be taken to leverage external sources of finance, including bilateral official sources. Public-private partnerships will be critical in this regard, he said, adding "I will pursue this area more vigorously."
