World Bank hopes for clearance soon

Karnataka adjustment loan halted by NDA govt

"We hope to resume the third adjustment loan (to Karnataka) shortly," Michael Carter, country director for the World Bank in India, said here Tuesday.

"Karnataka does not give free power," he clarified when asked whether free power to farmers had stopped the disbursal of the loan which was meant to help the state undertake fiscal reform and if so, how would the issue be resolved.

Just before the campaign for the last election had started, the S M Krishna government of Karnataka had waived power dues of farmers totalling Rs 100 crore and ordered reimbursement of what had already been collected.

Explaining the rationale of the bank's action, Carter said that disbursal had "slowed down because of our concern over the fiscal position for 2002-03. But the fiscal outcome of 2003-04 represented remarkable progress."

For the disbursal to be resumed, "the next stage was to prepare for negotiations with the department of economic affairs at the centre. We are hopeful that we will get to the negotiating stage shortly."

For this the DEA needed to update itself on the state's fiscal reform measures. Once negotiations are completed, the rest leading to disbursal follows quickly, Carter explained.

Karnataka has so far received in two parts an economic restructuring loan from the World Bank to take its fiscal reforms forward.

The third tranche of the loan was appraised by the bank and negotiated with the government of India which approved it. But disbursal was stopped by the central government because the Karnataka government had revised its power sector targets.

Karnataka has an MoU with the government under the Medium Term Fiscal Reform Facility. It is the targets under this agreement that had been missed. Even as Karnataka was denied the World Bank assistance, the then NDA led union government approved a disbursal to Andhra Pradesh.

This was perceived as a political sleight of hand by Karnataka and the then chief minister S M Krishna had protested against it in his last budget speech.

He complained of "step-motherly treatment meted out to us by the Central Government on the issue of releasing the Structural Adjustment Loan" when "the World Bank had, after its assessment of our reform effort, recommended the loan for Karnataka."

He went on to add that the ministry of finance had "inexplicably", called off the negotiations "when it had gone out of its way to rush through negotiations and ensure that a similarly placed state is rewarded."