Graduation” is the World Bank Group’s jargon for ushering a borrower out of eligibility for soft loans or “credits” from the International Development Association (IDA), and into a new middle-income status as a borrower of only standard-term loans from the International Bank for Reconstruction and Development (IBRD). The end of aid is the essence of this graduation. The occasion is not marked by any special ceremony, just closed dialogue among IDA Deputies (donor-country representatives in the triennial IDA replenishment) followed by more closed dialogue among the bank’s executive directors. The local papers might not even carry the story.
The intersection of two trends in the bank-India relationship — a looming IDA endgame, and the recent emphasis on “lagging states” in the bank’s assistance strategy — poses an urgent tension. India as a whole has arrived at the bottom rungs of the bank’s broad middle-income classification, and its shift from an IBRD-IDA “blend” borrower to IBRD-only status may be imminent. But enormous states such as Bihar and Uttar Pradesh are nowhere near this income threshold.
Some among India’s policy elite, imprudently, seem to think that graduation from IDA would be more sweet than bitter. The finance ministry already has manoeuvred to reduce India’s use of bilateral aid, sending almost two dozen surprised donor countries packing in 2003. Indian leaders are keen to gain a more prominent role in global governance, including in the Bretton Woods institutions. They are aware of China’s path over the past decade: an IBRD-IDA blend borrower for nearly two decades, it graduated from IDA in 1999 and became a modest donor in 2007. Perhaps New Delhi’s indifferent stance is simply to make a virtue out of necessity — as its formal influence in the IDA replenishment process is, anyway, rather limited. But this “graduation,” a non-event with lasting financial implications, seems a dubious accomplishment for burnishing India’s great power credentials.
Even as it confronts donor-country pressures to get out of the IDA pool, India itself has led the way toward its “lagging states” engagement with the bank. This was a central thrust in the 2005-08 Country Assistance Strategy, reaffirmed in the 2009-12 strategy. It is, therefore, ironic that India’s aid mandarins would regard IDA graduation as a badge of honour. They know very well that India’s nascent middle-income status rests on the achievements of states such as Gujarat and Tamil Nadu. Per capita incomes in the agglomerated lagging states — UP, Bihar, Jharkhand, Orissa — are only about one-fourth those of India’s frontrunners. Simply put, without IDA, a “lagging states” strategy makes little sense — for India or the bank. Both sides could choose to ignore the contradiction. Indeed, this seems to be the course they are on.
There is another way forward. India should pursue a revolutionary reform of the IDA allocation regime, which would prorate its eligibility on a state-wise basis. The IDA support alone will not have a decisive impact on the development challenges confronting the states; in the end, it is for their people and their leaders to commit to hard reform tasks. But there are signs of increased political will and capacity to do so, especially in Bihar and Orissa. With IDA, the bank can at least offer a cheap line of credit for essential developmental investments, thereby reducing the future debt burden.
The issue has important implications for federal politics. Having lobbied the Centre for years to realise IDA credits on “back-to-back” central transfer terms, the states are unlikely to let the graduation issue pass without a fight. They will resent the symbolism, substance, and process of central officials essentially holding the door open while donors push India out of IDA. And the lagging states themselves would not be the only ones to object. The richer and less aid-dependent states, too, would prefer to see their poorer neighbours continue to tap IDA, to reduce their burden on India’s fiscal regime.
It is a pressing issue. The 16th IDA replenishment talks have already begun. Isabel Guerrero, World Bank vice president for South Asia, has recently said that India has to make the case for continued access to soft loans perhaps until the end of this year . One strategy, she suggests, would be to emphasise the relatively strong performance record of IDA projects in India, as compared to other bank borrowers.
Such a high-level IDA reform would require innovative thinking by all parties: the World Bank, donor countries, and above all, the proud borrower itself. Indian leaders would have to muster the political courage to articulate a new kind of great power identity — one that embraces the lagging states challenge as a defining task for this great civilisation in the new millennium. By pursuing continued IDA access for India’s poorest states, New Delhi could encourage new thinking about the multilateral development assistance regime more generally — thus contributing to the expanded role in global governance that it seeks for itself. This would not be an easy reform to achieve, because some NGOs in the global North would be hostile to a proposal that could be seen as taking away IDA resources from other borrowers. Bono and Bob Geldof have not been sounding the alarm on India’s lagging states. But the poor in Bihar and UP should have as much right to IDA as the poor in Burundi and Uganda.
Would some in India be glad to see the back of the bank altogether? Perhaps. But when IDA was created 50 years ago, it was in large part for India. It is as much India’s facility as anyone’s. Let there be a considered debate on when and how India should leave it — with the transparency and inclusiveness befitting the best aspirations of the world’s largest democracy.
Jason A Kirk is the author of India and the World Bank: The Politics of Aid and Influence and teaches at Elon University, USA
