World Bank eases lending norms for states

More support for weaker states like Bihar, Jharkhand, Orissa and UP

The World Bank (WB) today eased lending norms to accommodate more states.

In its country strategy for India, the multilateral institution has decided to focus on four states where poverty is increasingly concentrated and where public institutions are considered to be at their weakest:- Bihar, Jharkhand, Orissa and Uttar Pradesh.

"This new Bank Group CAS coincides with a fresh governing cycle at the Centre and in major states," says the World Bank Country Strategy for India for 2004-05, adding that the regime retains the broadly liberal economic policy thrust of the last decade, but with a strengthened emphasis on social programs and benefits to low income groups, especially in rural areas.

"There is no longer an upfront decision to concentrate substantial state-level investment lending on 'focus states' that are also receiving adjustment lending in support of cross-cutting reforms....The Bank will also seek, when possible, to provide its investment lending to the states that have the greatest number of poor citizens, or weakest indicators, in order to maximise its impact," the report states.

Investment lending will be channeled to states that are able to comply with new sector-wise 'guidelines for engagement' which will specify the conditions necessary for project success.

However, all of the largest and poorest states, that wish to engage in a dialogue on cross-cutting reforms, fiscal management, governance, service delivery, power sector and investment climate will be encouraged.

State-level adjustment lending operations aimed at supporting achievement of the Millennium Development Goals, by improving service delivery, will remain an important part of the Bank Programme.

Based on country performance ratings and India's absorptive capacity, a substantially higher level of International Development Association (IDA) resources could effectively be utilised in India.

"Beyond any ceilings that are imposed by the IDA Deputies, the CAS will not place any additional constraints on India's IDA resources unless a dramatic unforeseen deterioration in performance warrants a review of the overall strategy," the strategy says.

The strategy also proposes a new way of looking at the lending by the International Bank for Reconstruction and Development (IBRD). The Bank programme will now fall within an upper limit of $ 2.15 billion per year to support India's achievement of MDGs. Getting to this upper limit will require strong reform performance as well as a strengthened pace of project preparation.

The level of lending to the states will depend on the pace of reform implementation and application of 'self-regulating' triggers.

Guidelines for engagement will increase the transparency of the triggers for state-level investment lending and open opportunities for an increased number of states to engage with the Bank. The guidelines also specify new triggers for investment lending with the Centre.