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Tuesday, Oct 26, 2021
Outlook.com

Give Some, Get Some

States discover true federalism as they approach the World Bank directly for reform-linked aid

Give Some, Get Some
Give Some, Get Some
outlookindia.com
-0001-11-30T00:00:00+05:53

IN October 1996, when World Bank president James D. Wolfensohn came to India, Andhra Pradesh chief minister N. Chandrababu Naidu was a prominent member of his visitor's list. The computer-savvy, liberal-thinking Naidu, who was to later impress the Bank with his vision of the future, made a detailed and lengthy presentation on the fiscal mess his state was in. He was quite forthright: Andhra Pradesh was ready for economic reform and restructure and would the Bank help?

A month later, the Andhra Pradesh Agenda for Economic Reform was ready for discussion with the state and Central governments. The World Bank report pointed out clearly that without adjustment, the state's outstanding debt would rise to 32 per cent of gross state domestic product (GSDP) by 2002, revenues would remain constant at 8.1 per cent, and GSDP growth would fall to 3.5 per cent. With reforms, however, the debt ratio would fall to 25.5 per cent, revenues would rise to 11.4 per cent and GSDP growth would be 6.3 per cent.

Back home, Naidu had started using his scissors. The price of subsidised rice was raised and allocations cut, irrigation charges and power tariffs hiked, and steps were being taken to tighten government employment. In May 1997, a $150 million IDA credit for cyclone relief and a $325 million irrigation loan were cleared. Next month, a $350 million six-year loan for development of state highways was approved.

Encouraged by the politically tough decisions taken by Naidu even while facing a disenchanted electorate, the Bank has recently approved a $550-million Economic Restructuring Loan (ESL). The six-part loan will be used for primary education, primary health, irrigation, nutrition, roads and public sector restructuring. Others on the way: a $1-billion power sector loan and a $200-million second loan for Hyderabad...

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