World Bank may double lending

The World Bank is finalising a fresh deal with India to almost double its lending commitment from $1.2 billion now to $2.5-3 billion a year over the next four years.

An informal memorandum of understanding might be signed with the finance ministry in due course, senior World Bank officials said.

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According to them, the series of meetings over the last few days here and earlier in New Delhi have identified infrastructure as the key sector to put India in the high growth orbit.

The World Bank's South Asia Region vice president Praful Patel told Business Standard the Bank had proposed a new strategy to address India's concerns on the debt build up in the government's own books.

"The Bank will lend to the private sector and the Indian government only needs to provide the guarantee. This will mean that the debt on the government's own books will be reduced by a factor of 10," Patel said.

The Bank would allow India to mix-and-match the expensive International Bank for Reconstruction and Development loans, which carry an interest rate of 7 per cent, with the soft International Development Association loans which have a tenure of 40 years with an interest rate of 0.75 per cent a year.

"This will reduce the average cost of borrowing for projects to roughly 4 per cent a year," he added.

At present, India has a fixed IDA allocation of $850 million a year. However, in the IDA-14 meetings currently underway, the overall IDA corpus was likely to go up 30-40 per cent.

The IDA corpus now is $23 billion for a three-year period ending mid-2005. India's share will also proportionately increase to top $1 billion by then.

While Patel said there was no limit to the IBRD funding, the actual lending by the World Bank depends on a country's capacity to absorb and the space its fiscal policy allows.

The Bank will ensure that put together, the IBRD and IDA lending has strong linkages to the attainment of millennium development goals and infrastructure development, to make the 8 per cent growth a distinct possibility.

The sectors identified by the Bank in consultation with the finance ministry include power, railways, roads (national highways, state highways and rural areas) and water resources management.

"The Bank is willing to lend to the Railways immediately for its safety programme," Patel said.

The Bank will be incorporating the stepped up plan in its country assistance strategy to be effective from July 1 next year.

"The discussions will start next week and the new country assistance strategy will be in place by March next year," Patel said, adding that the additionalities or incremental lending would be in the infrastructure sectors.