The Indian Economy Overview

The World Bank and India

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The Loan Cycle

Bank projects are identified in an ongoing process within a broad based framework evolved by the Bank staff and representatives of a recipient country's government on the problems and needs of that country. The following is a description of the IBRD project loans or IDA credit process.

Identification Stage : The idea of a project often arises out of existing work in the recipient country. It's part of a continuing dialogue between Bank staff and representatives of the recipient country's government. A frequent aim is to identify projects that will help remove 'bottlenecks' and other constraints. But in consonance with the Bank's reputation as a slow, lumbering institution, the identification stage can take over a year.

Preparation Stage : This stage begins after a project's incorporation in the country's lending program. Its purpose is to define objectives, identify issues & problems, and set a timetable for further processing. Preparation considers the full range of technical, institutional, economic and financial conditions necessary to achieve the project's objectives. It often involves economic and sociological studies and feasibility studies regarding particular solutions proposed. This work normally takes one to two years.

Appraisal Stage : The appraisal stage is its sole responsibility. It involves an evaluation of the technical, institutional, economic and financial aspects of the project. The appraisal report sets forth findings & recommendations for terms & conditions of the loan. Since the Bank staff is closely involved in its identification and preparation, appraisals rarely result in rejection.

Negotiation and Board Approval : This stage involves the drafting and negotiation of the legal documents which deal with all of the issues raised prior to and during appraisal. On completion of negotiations, the appraisal report, amended to reflect the consensus reached is presented to the Board of Executive Directors together with the President's report and the proposed loan documents.

Implementation Stage : Responsibility for project implementation is that of the borrower. The Bank's role is to supervise implementation to ensure conforming to project specification. In 1992, two internal bank reviews identified important problems in project implementation and its evaluation by the Bank. The June 1992 report of the Morse Commission established to investigate the Sardar-Sarovar Dam in the Narmada Valley of India, found serious flaws in the project's resettlement & rehabilitation besides and in its environmental impact. The September 1992 report of the Portfolio Management Task force headed by Willi Wapenhans confirmed on a broader basis many of the findings of the Morse Commission.

Bank's Lending
In 1992, IBRD and IDA lending reached a combined total of $21.7 billion. The Bank's assistance to the poorest countries totaled $10 billion: $4.8 billion from IBRD and 5.2 billion from IDA.

The structural adjustment lending amounted to $5.8 billion or 27% of all the assistance in 1992. India was the top recipient of IDA credit and second of IBRD credit.

Evaluation Stage : The final step in the project cycle is an ex post audit by the Operations Evaluation Department (OED), a division of the Bank which is separate from the operating staff and reports directly to the Executive Directors. After Bank funds have been fully disbursed, the Bank project staff prepare a completion report which assesses the degree to which the goals and estimates set forth in the appraisal have been met. The OED prepares an audit report and both the audit and completion reports are submitted to the Executive Directors. 

Types of Loans

The World Bank has three types of loans facilities listed below :

Project Loans

Traditionally, the World Bank has been giving loans to specific projects of the member countries. In 1987, the combined lending of the World Bank to the energy sector was 21%. Most of it finance big hydroelectric dam projects (such as Narmada and Subarnarekha in India), coal mining projects, transportation projects like roads, agricultural, telecommunications, industrial and urban development projects.

Austerity begins at Home!

The Ex-World Bank President, Mr. Lewis Preston received Rs 90,00,000 ($3,00,000) as salary and perks every year.

The World Bank earned a profit of Rs 2100 crore in the first half of 1993.

For every dollar the US government has paid into the World Bank, the US private sector has received $1.19 in contracts for Bank financed projects.

There was a net transfer from all borrower countries of about $2 billion to the World Bank in 1992.

World Bank directors recently approved a 6.2% increase in staff remuneration (salary+benefits) to an average of US $1,23,000. This increase in wages comes in face of decreasing performance as evaluated by internal and external reports.

Source: The World Bank (1993)

Sectoral Loans

These loans have been increasingly given by the bank in 1980s as countries in the third world grapple with debt problems. Although these loans are still project oriented, only a part of the money is used to meet the costs of specific projects while the rest goes to support policy changes in the relevant sector. For instance, a part of the loan for the energy sector would be used in some specific project say a thermal power project but the rest will be disbursed against changes in the policies of the energy sector such as cut in subsidy for electricity, greater role for private companies in exploration and development of natural gas and oil, etc. Such sector-wise policy changes are the distinctive feature of sectoral adjustment loans.

Structural Adjustment Loans

These loans are completely delinked from projects and disbursed quickly against commitment to carry out major economic policy changes. As in the case of IMF loans, the SAL programs require the borrowing country to make policy reforms, albeit fundamental institutional changes. The World Bank has given more SAL loans in the 1980s and is committed to providing more loans of this kind during the 1990s. In 1988, 27% of total bank lending was in the form of SAL. In December 1991, India received US $8 billion from the World Bank under the structural adjustment loan. These loans are designed to support a greater reliance on market forces, cuts in government price interventions and subsidies, greater reliance on private sector as compared to the public sector and a liberalized trade policy.

Bank's Presidents
1. Eugene Meyer : [ June 25,1946 - March 47] Owner of the Washington Post and was active in banking circles.

2. John McCloy : [March 1947 - April 1949] A lawyer, Mr McCloy's law firm was counsel to Chase National Bank. Held positions in the executive branch of the US government (including Assistant Secretary of War).

3. Eugene Black : [July 1949 - December 1962] An investment banker and senior vice president of Chase Manhattan Bank.

4. George Woods : [January 1963 - March 1968] An investment banker and chairman of First Boston Corp.

5. Robert S. McNamara: [April 1968 - June 1981] President of Ford Motor Co., and Secretary of Defense in the Kennedy and Johnson administrations.

6. A.W. Clausen : [July 1981 - June 1986] With Bank of America and Bank America Corp. for 32 years & returned to latter as chairman in 1986 from WB.

7. Barber B. Conable : [July 1986 - August 1991] Member, House of Representative from 1965-1985.

8. Lewis T. Preston : [September 1991- May 1995] Joined J.P. Morgan & Co. in 1951, where he became President and later Chairman of the Board and CEO, posts he relinquished in 1989.

9. James Wolfensohn : [June 1995 - till now]

For further details contact:PIRG (Public Interest Research Group) 142, Maitri Apt, Plot No 28, Indraprastha Extn. Delhi 110092. India. Ph: 2432054 Fax: 2224233 email:

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