The Asian Development Bank (ADB) has played a crucial role in funding infrastructure projects in India. It has been providing financial as well as technical assistance to the centre and states over the years. The bank will continue to strengthen its presence in the country through interventions in road safety, urban mobility, affordable housing and solid waste management, among others. Takeo Konishi, county director, India Resident Mission, ADB, shares his views on the bank’s lending experience in India, the challenges faced and future plans for the country.
How has ADB’s lending portfolio in India evolved over time?
Since the beginning of our operations in India in 1986, ADB’s support for India has been aligned with the country’s evolving development priorities over the phases of its economic transition. Earlier, when the government’s policy focus used to be articulated in five-year plans, ADB referred to them to guide its country programme. Currently, our assistance is aligned with NITI Aayog’s long-term vision and strategic agenda and the government’s priorities and flagship programmes.
Briefly explaining our evolving engagement with India through the years: ADB’s initial loans to India in the 1980s supported the country’s pursuit of rapid industrialisation. In the 1990s, ADB supported measures to enhance market-based policies following India’s landmark economic reforms. From the mid-1990s, the government focused on achieving inclusive growth and bridging inter-state disparities. To support this vision, ADB gradually expanded its operations to the state-level, particularly in the north-eastern and low-income states. As India began its high-growth trajectory, ADB tailored its operations to address the emerging challenges of urbanisation, strengthen the rural economy, encourage private sector development and public-private partnerships (PPPs), build the capacity of government institutions, facilitate skill development, and support regional cooperation.
The current country partnership strategy (CPS), 2018-2022, for India centres on assisting India in accelerating its economic transformation through interventions to boost the country’s industrial competitiveness, create much-needed jobs, enable the growth of low-income states, and address environment and climate challenges. Since the outbreak of Covid-19 in 2020, ADB has deployed additional resources, apart from its regular lending programme, to help India meet its emergency needs and support social protection and economic stabilisation.
What are the specific challenges that India faces in comparison to the other developing economies in terms of financing of infrastructure?
Many developing countries, including India, have the common goal of raising adequate investments to create much-needed infrastructure to not only promote economic growth, but also ensure that the gains are shared by all and development is environmentally sustainable. According to an ADB study that projected the development of Asia’s infrastructure needs from 2016 to 2030, India’s infrastructure investment requirement can range from $291 billion to $343 billion per year depending on how new infrastructure development incorporates climate adaptation and mitigation needs. The higher investment needs could well turn out to be around 9 per cent of India’s gross domestic product. Clearly, existing funding for infrastructure investments must be augmented through greater efforts at increasing the amount of both public and private financing.
As far as public funding for infrastructure is concerned, there is a need to mobilise resources through innovative mechanisms such as issuance of municipal bonds and the use of land value capture to fund urban infrastructure. At the same time, many developing countries, including India, have been taking steps to enhance the role of the private sector in financing and creating infrastructure, including through PPPs. The Government of India, in particular, has taken several initiatives to strengthen the policy and regulatory framework for PPPs underpinning some of the key infrastructure sectors to create an enabling environment for private sector participation. There are challenges, including the paucity of bankable PPP projects. To overcome this, there is a need to build capacity in order to plan, appraise and manage these projects, and adopt proper risk allocation and dispute resolution mechanisms to attract private sector interest.
What kind of arrangements is the Bank entering into with Indian states? What has been the experience so far?
The expansion of ADB’s operations to states began in mid-1990s, prompted by the government’s focus on reducing inter-state disparities and promoting inclusive growth. As of November 25, 2021, ADB has ongoing projects in 19 states worth over $11 billion out of a total active portfolio, for India, of $16.6 billion. The concessional lending modality for states or state-owned enterprises is the same as for central government utilities. The central government is the guarantor for all public sector financing to states by multilateral development banks such as ADB.
Our experience of working with states has been productive and mutually enriching on many counts. First, ADB’s lending support is helping states bridge the infrastructure gap through improved connectivity and services in urban and rural areas, especially in low-income states. Second, ADB’s knowledge support through technical assistance and grants helps improve project preparedness and implementation, build capacity, and undertake strategic studies to identify transformative investments. We have recently introduced the project readiness facility for upfront capacity building of executing agencies in preparing feasibility and detailed project reports. Third, ADB is assisting partner states in better implementation of projects through capacity building of executing agency officials, and promoting cross-learning among project agencies and state government institutions.
Recently, ADB has expanded its collaboration through holistic strategic engagement with selected states to identify areas of possible investment support in line with their rising aspirations and emerging development priorities.
What has been the impact of Covid-19 on ADB’s lending strategies in India? Are there any new geographies and/or sectors being explored?
Since the beginning of the pandemic, ADB has provided comprehensive support to India’s Covid-19 response. In the initial phase, ADB approved a $1.5 billion assistance to support the country’s immediate fiscal response to counter and mitigate the adverse health, social and economic impacts of the pandemic. It was complemented with financial and technical support to the government’s pandemic containment plan, including upgrading hospital facilities and enhancing the test-track-treatment capacity while supporting social protection measures for the poor, women and other vulnerable sections. ADB has recently approved a $1.5 billion assistance to help India expand its large vaccination programme by purchasing safe and effective vaccines.
In the next phase, ADB’s focus is on reinvigorating India’s economy in the post-pandemic era, building investment competitiveness (by enhancing ease of doing business and expediting infrastructure creation) and rebuilding human capital to meet sustainable development goals. This will be reflected in ADB’s operations, which will shift from the crisis response mode to the pursuit of medium and long-term development goals. The country programme will explore a way of providing more assistance towards an improved health system to enhance preparedness for and resilience to future pandemics, comprehensive urban primary healthcare, health service infrastructure, and system digitalisation. ADB is also expanding assistance to protect small businesses and underpin education, social protection and infrastructure development.
What are the Bank’s future plans for India?
ADB continues to scale up its operations in India. In 2021, ADB committed a record $4.6 billion in sovereign loans to India for 17 projects. The current portfolio comprises 69 projects worth $15.5 billion as of December 31, 2021.
Broadly, ADB’s India operations cover the agriculture, energy, social (health, education, and skills), transport and urban sectors, as well as finance and public sector management .
While continuing our support for these sectors, ADB’s operations will be further expanded into emerging subsectors and new areas such as road safety, urban mobility, affordable housing, solid waste management, modernised irrigation, agriculture value chains, financial technology and digitalisation across sectors.
Climate change will certainly be a critical area of ADB support, to help the Government of India meet its climate action commitments. Clean energy transition projects such as electric vehicles and battery storage, as well as biofuel development are included in ADB’s future lending programme, alongside climate change mitigation projects on flood and erosion control, and coastal protection. Climate change adaptation measures such as efficient water and energy use in the urban and agriculture sectors, and building of disaster-resilient infrastructure will also be supported.
ADB will continue its assistance to less-developed states through provision of basic infrastructure services and capacity building support. Transformative projects such as economic corridor development at the national and state levels, logistics development, urban and inter-city rapid transit systems, and multimodal transport that will link industries to global value chains, promote industrial development and create jobs will be pursued.
One distinct shift in ADB’s India operations will be more investments in health and education, finance and small business, social protection, and public sector management. ADB will support government initiatives for strengthening healthcare infrastructure, developing MSME clusters and improving rural water supply.
ADB’s non-sovereign operations will expand assistance to transport, logistics, affordable housing and other non-infrastructure sectors such as health, education and agriculture, while supporting renewable energy initiatives.