The Asian Development Bank’s (ADB) focus on financing infrastructure in India’s lagging states helped promote inclusive economic growth, and was well aligned with the government’s strategy of reducing disparities in poverty rates across states, says ADB’s Independent Evaluation Department in an assessment of the institution’s $22 billion assistance program in India over the past decade.
“India is enjoying strong economic growth that is being more widely shared across states than ever before, and it is the low income and highly populous states that are growing faster than the national average,” says Marvin Taylor-Dormond, Director General of Independent Evaluation. “Yet India is home to the world’s largest number of poor and faces immense challenges to securing long-term economic growth that is strong, sustainable, and sufficiently inclusive to pull this enormous number of people out of poverty.”
Promoting inclusive and environmentally sustainable growth, along with regional cooperation and integration, were the main agendas that guided ADB’s program for India during 2007-2015.
The evaluation found that ADB’s operations in India were successful overall, based on assessments of projects in the main sectors supported. But implementation delays and cost overruns were factors common to projects that fell below the line. ADB-supported programs were responsive to government initiatives promoting inclusive growth, such as the Prime Minister’s Rural Roads Program and the Deen Dayal Upadhyaya Gram Jyoti Yojana energy scheme.
ADB’s focus on basic infrastructure in transport, energy, and water supply was appropriate given the high inclusion impacts of these sectors. The transport program promoted rural development by, for example, financing roads giving better access to labor markets. In the evaluation period, 14,220 kilometers of roads were constructed or rehabilitated with ADB support.
“Hindering faster progress on inclusive economic growth are India’s major infrastructure gaps and governance issues, and the achievements are widely regarded as insufficient when compared with the needs of the population,” says the report’s main author Toshiyuki Yokota. “But the current leadership is committed to pursuing policies geared to inclusive growth.”
India’s long-term growth prospects are expected to be buffeted by uncertainty over the impact of climate change on the economy and cost of remedial action. “A significant increase in climate finance is needed to support India’s ability to manage greenhouse gases and improve climate resilience,” says the evaluation. It recommends that ADB increase its lending to India to finance environmental and climate projects in line with the institution’s commitment to double its total annual climate financing to $6 billion by 2020. ADB’s environmental sustainability agenda in India was led by renewable energy, energy efficiency, and water resource management.
Over 2007-2015, ADB’s support for regional cooperation and development was limited, although support has been increasing. Even so, this is an area in which ADB should step up its engagement given India’s size, influence, and opportunity to stimulate south-south learning in South Asia.
With the government looking to the private sector as a key player to promote faster and more inclusive growth, public-private partnerships (PPPs) have become an important source of economic development, and will be vital for helping close the country’s infrastructure investment gap. India’s Twelfth Five Year Plan, 2012-2017 projects infrastructure investments of $836 billion in this period, of which 48% is targeted to be financed by the private sector, mainly through PPPs. ADB’s support in this area helped catalyze infrastructure investments and PPPs by providing loans to the government and private sector through financial intermediaries for projects with development impacts.
“A healthy investment climate must be in place for private sector participation in development projects to really take off,” says coauthor Benjamin Graham. “Regulatory uncertainties, the lack of experience with negotiating long-term contracts and inadequate attention to the rights and risks of project partners are among the many challenges preventing PPPs from reaching their full potential in India.”
ADB’s future support to India — one of its biggest borrowers — will continue to be shaped by the government’s Finance Plus policy, which calls on development partners to anchor finance on knowledge solutions and mobilize finance for development projects from other quarters, especially the private sector.
“ADB is well placed to make a significant contribution to the Finance Plus policy given the knowledge resources it has built up over its long engagement with India, particularly by capitalizing on best practices and lessons learned from implementing and evaluating projects,” says Taylor-Dormond. “In its future support to India, ADB will need to clearly demonstrate the value-adding dimension of its approach to development finance in Asia.”