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Q. As the new ADB Country Director, how do you see the Asian Development Bank’s (ADB’s) role in alleviating poverty and economic disparity in India?
A. ADB’s strategy for India is to help poverty reduction through infrastructure-led growth. However, growth alone is not enough and it has to be supplemented by specific measures to address equity. ADB is attempting to do this through increasing emphasis of assistance on broad-based economic growth and inclusive development, especially in rural areas, through investments in agriculture, irrigation, rural roads, and provision of rural finance, which will directly benefit the poor, 75% of whom live in rural areas.
In other sectors like industry and services, ADB will endevour to ensure that growth is employment-intensive, since creating employment is a key factor in reducing poverty. Some of the ways to do this is to raise investments in rural infrastructure, promote informal enterprises, and provide entrepreneurs with better access to credit and producer services. At the same time, employment in the formal sector must also expand. To create jobs on the scale needed to make a dent in poverty, the government needs to work more closely with the private sector.
ADB’s state-level operations extend to states which are comparatively less developed like Assam, Chhattisgarh, Jammu and Kashmir, Sikkim, Uttaranchal, West Bengal and the Northeast region as a whole.
Q. What factors will drive India’s economic growth for 2005-06 and what are the challenges for future growth?
A. Expansion in investment – especially in infrastructure – is key to sustained growth over the long run. Both private and public investments, including foreign direct investment, have clearly been inadequate. ADB as a committed development partner is fully ready to support the government in rectifying the current situation.
Several challenges remain in the medium-term. These include meeting the fiscal consolidation targets stipulated in the Fiscal Responsibility and Budget Management (FRBM) Act of 2003; stepping up infrastructure investments; appropriately managing the surge in international oil prices; managing the burgeoning foreign exchange reserves; and reinforcing India’s competitive advantage in the manufacturing and services sectors.
Q. What is ADB’s outlook for the Indian economy? ADB has raised its growth forecast for India for 2006-07 from 6.2 per cent to 6.8 per cent. With rising oil prices and India’s heavy dependence on oil imports how will this be achieved?
A. India’s growth outlook is positive with GDP expected to grow by almost 7%. Robust domestic demand, strong growth in industrial and services sectors, and normal monsoon will help achieve this target. Surge in export earnings from IT-enabled services and financial services has also contributed significantly to the strong growth.
Inflation could be under pressure due to high oil prices. The appreciation of the yuan is also likely to marginally benefit Indian exports. Indian exports lost competitiveness against PRC’s exports as the Indian rupee has been appreciating over the last several months. Managing foreign exchange reserves and striking an appropriate balance between a competitive exchange rate and an internally consistent money supply growth will remain a significant challenge for the Reserve Bank of India.
Q. Do you believe that India is a fast emerging market and what are the opportunities here?
A. India has the potential to become a major economic powerhouse of Asia. One of its major comparative advantages is a large stock of human resources - scientists, engineers, doctors, lawyers and financial managers, which has helped India to emerge as a global hub for services. This is facilitated by the widespread and rapid development of telecommunications and information technology. More important, India’s demographic composition is such that there will be ample supply of labour for the expanding manufacturing sector. For this to happen, the Government will have to play a facilitating role of creating appropriate institutions and pursuing policy reforms across sectors.
Q. How is the economic emergence of China affecting countries like India?
A. The economic emergence of PRC can be to India’s advantage. Recent studies show there are positive growth effects for India arising from trading with fast growing partners such as PRC. On the import front, it is unlikely that Chinese imports will adversely affect domestic industry. With competition from cheaper Chinese goods, Indian industries will be induced into becoming more competitive. Further, there exist significant complementarities between Chinese and Indian merchandise. For instance, China’s comparative advantage in hardware can be complementary to India’s comparative advantage in software. Similarly, significant bilateral trade potential exists in agricultural biotechnology products. There is also significant potential for Chinese investments in India and vice versa.
Q. There is a huge gap in infrastructure financing in the region. In India is ADB planning to play a greater role in this sector?
A. ADB’s active portfolio has focused heavily on infrastructure, with transport, urban, and power sector operations maintaining their share of total operations at 45%, 23%, and 23% respectively. At present, there are 31 ongoing loan projects in key infrastructure sectors like transport, energy, urban infrastructure, and financial sector amounting to US$6.2 billion. 72 Technical Assistance (TA) projects with grants totalling to US$51.1 million are under implementation to enhance quality of follow-up loans, provide advisory technical assistance, and more effectively implement the ongoing loans.
While maintaining the focus on infrastructure, ADB has significantly enhanced the proposed assistance for agriculture and rural development in line with the priorities of the National Common Minimum Programme. Since most of the poor depend on the rural sector, the poverty-reducing impact of employment-intensive growth in agriculture and rural off-farm activities will be immediate, deep, and widespread.
Q. India has launched the Bharat Nirman programme, which entails investing over US$40 billion in six critical areas of rural infrastructure over four years starting 2005. What is ADB’s involvement, if any, in this much talked about programme?
A. The President of the ADB, Haruhiko Kuroda, on his recent visit to India proposed that ADB could play a key role in supporting financing of infrastructure development in India, including the Bharat Nirman Programme and investments under the National Urban Renewal Mission. A technical assistance of US$2million has been proposed in 2006 to help the Government draw the master plans for selected cities. A follow up investment loan is proposed in 2008.
During his visit to India, President Kuroda met with President Abdul Kalam, Prime Minister Manmohan Singh, Finance Minister P. Chidambaram, Deputy Chairman, Planning Commission, Montek Singh Ahluwalia, and other ministers and assured them of ADB’s commitment to supporting the Government in its development agenda. The estimated requirements for infrastructure financing in India are US$15 billion per annum. ADB has already provided five loans for the country’s National Highway Development Programme, and is now pursuing the possibility of a new series of lending to the sector. ADB has also supported the energy sector since 1986 with 15 loans amounting to over US$3 billion. The ADB President also assured support for the Government in formulating innovative methods of infrastructure financing to meet their needs, including public-private partnerships.
Q. How, in your view, can ADB promote better public-private partnership?
A. Faced with the urgent need for developing infrastructure in an accelerated manner, the Government of India has recently announced major infrastructure development programmes under public private partnership (PPP) arrangements. While India’s experience in using PPP schemes is somewhat limited to a few projects, the scale of the PPP based infrastructure development programmes is unprecedented, and it requires an approach significantly different from traditional infrastructure development. This in turn calls for establishing an institutional environment conducive for private sector participation in infrastructure development, and adopting comprehensive investment strategies and schemes.
In support of Government’s initiative, ADB has offered broad-based assistance, covering both capacity building aspects and investment requirements. More specifically, ADB has already extended advisory services to the National Highway Authority of India (NHAI) for the development of investment strategies for PPP based highway development. It organized a workshop on PPP based water sector development in May 2005 and is planning to organize another PPP workshop for highway development in November 2005. ADB is further planning to provide lending to qualified PPP based national highway development programmes. We believe such support would contribute to the mainstreaming of the PPP for the future development of infrastructure in India.
Q. How do you see ADB’s role in promoting regional development in South Asia and economic cooperation amongst countries in the region?
A. ADB has made considerable effort to promote development and cooperation in the South Asian sub-region. This is coordinated through several working groups in the areas of transport and communication; energy and power; tourism; environment; and trade, investment and private sector cooperation under ADB’s umbrella of technical assistance – South Asia Sub-regional Economic Cooperation (SASEC) programme. SASEC is the first comprehensive ADB-assisted initiative to promote sub-regional cooperation in South Asia.
A Memorandum of Understanding (MOU) between ADB and the South Asian Association for Regional Cooperation (SAARC) Secretariat was also signed in 2004 to strengthen cooperation between the two institutions and provide a framework within which ADB can provide support to SAARC’s regional cooperation activities.
ADB was also requested to act as the facilitating development partner for the design and implementation of the Turkmenistan-Afghanistan-Pakistan Natural Gas Pipeline (TAP) Project. The TAP Project involves the development of a 1,600 kilometer gas pipeline across the three countries and India’s participation is actively being sought. Minister for Petroleum and Natural Gas, Mr. Mani Shankar Aiyer, will be participating in the ninth steering committee meeting of TAP.
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