ADB raises India budget

The Asian Development Bank has renewed its support to the Modi Administration with promises to increase lending budgets by 43% by 2020.

Takehiko Nakao, president of the Asian Development Bank (ADB), yesterday met with India’s Finance Minister Arun Jaitley to discuss ADB’s partnership with India. Nakao also discussed the bank’s support to the government’s new urban initiatives with Venkaiah Naidu, Minister of Urban Development.

In discussions with the Finance Minister, Nakao expressed strong support for reforms in the labour market as well as the proposed new goods and services tax.

“In India, ADB aims at increasing its sovereign and non-sovereign lending from the present $7 billion-$9 billion in three years from 2015 to 2017 to $10 billion-$12 billion between 2016 and 2018 using ADB’s expanded lending capacity,” Nakao said in a statement.

 “The government’s proactive role in pushing key reforms will lead to an improved business climate. Moreover, strong commitment in the budget on raising public investment by 25 percent in critical infrastructure sectors such as roads, railways, and urban development will further crowd in much-needed private investment.”

ADB’s annual lending capacity is expected to increase to as much as $20 billion a year – from the current level of $13 billion – based on the upcoming merger of its Asian Development Fund lending operations with its Ordinary Capital Resources balance sheet.

“ADB assistance to poor countries will rise by up to 70 percent,” the institution added in a statement last month.

The merger of the concessional source (Asia Development Fund) and the market-based funding source (Ordinary Capital Resources) – a leveraged source – entails the leveraging of the entire new pool of funds, which should result in lower leverage ratio on an increased lending capacity, explained a spokesperson for the bank.

Regarding Smart Cities, ADB will target cities in seven states where it already has operations in the urban sector.

Support will also go to the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), both programmes having received government funding worth one billion Indian Rupees (€13.8 billion; $15 billion) on urban development under two new urban missions over the next five years.

ADB will also support improvement of Indian Railways through investment projects in areas such as railway electrification, factories to produce locomotives and coaches, and modernising workshops.

“ADB is willing to support the Ministry of Railways on any reform measures,” said the statement.

The infrastructure push is but one part of ADB's general plan aimed at supporting the government’s new initiatives, which include Make in India, Skill India and Clean India.

ADB’s latest economic outlook for the country, published in March, projects GDP growth of 7.8 percent in fiscal year (FY) 2015 (starting 1 April this year), rising to 8.2 percent in FY 2016. The strong growth outlook is backed by good macroeconomic indicators such as a decline in inflation and the current account deficit, and reforms to further open up certain sectors for foreign direct investment and reduce fuel subsidies, read the ADB statement.

Efforts to expedite clearances for key infrastructure projects will also sustain growth momentum.

ADB is working with three state governments to enhance their citizens' skills base. It is also in discussion with the Ministry of Skills Development and Entrepreneurship to help establish skills institutes across the country and scale up private sector participation in the sector.

During the visit – his second to India this year – Nakao will travel to the western state of Rajasthan to visit ADB-assisted projects and meet with its Chief Minister Smt. Vasundhara Raje Scindia. Recent ADB projects in the state include a $500 million loan to support urban development, a $176 million loan to expand metro rail in Jaipur and a $300 million multitranche financing facility for solar energy transmission.