The World Bank and India The Indian Economy Overview

The World Bank and India

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The Bank and Structural Adjustment

The 80s will be remembered as the decade of global impoverishment linked to the Bank and the IMF's infamous medicine: the Structural Adjustment Program (SAP). These programs are being implemented in over 70 Third World and Eastern European countries with devastating results. The Bank-IMF sponsored SAP has two phases. The first phase is short-term macro-economic stabilization. It is followed by implementation of a necessary structural reforms phase. In the early 80s, most SAPs focused on a narrow range of policies aimed at reducing account deficits.

As the debt crisis deepened and it became obvious that the stabilization programs were not working, the US Treasury Secretary, Mr. James Baker came up with a strategy to solve the debt crisis. This was called the 'Baker Plan'. Under this plan, the WB was asked to impose more comprehensive conditions on the debtor countries. By 1990, majority of the countries that had received conditional loans from the IMF also received structural adjustment loans with harsh conditionalities from the Bank.

In 1992, the bank's lending for SAPs totaled 5847 million or 27% of its total commitments. More than 70 countries are subjected to 566 IMF and World Bank stabilization and SAPs in the last 14 years. These countries were told that the structural reforms were essential for sustaining growth and economic stability. Faced with the threat of a cut off of external funds Aid needed to service the mounting debts incurred from western private banks in the 1970s, these countries had no choice but to implement the painful measures demanded by the Bank.

Fourteen years after the World Bank issued its first structural adjustment loan, most countries are still waiting for the market to "work its magic". Despite global adjustment, the third world's debt burden rose from $785 billion at the beginning of the debt crisis in 1978 to $1.3 trillion in 1992. The structural adjustment loans from the Bank have enabled the third world countries to make interest payments to western commercial banks. Having done this, the Bank went on applying adjustment policies to assure a regular supply of repayments in the medium and long term. Thus, the structural adjustment has brought neither growth nor debt relief, it has certainly intensified poverty.

The series of policy measures launched by the Indian government are part of structural adjustment program in India. Government has taken up following measures to implement SAP :

All the above men-tioned ingredients of SAP are based on the Anderson Memorandum titled "Trade Reforms in India" dated Nov. 30, 1990 submitted to Government of India by the World Bank. It is interesting to note that this memorandum was not disclosed to the then Prime Minister, Mr. Chandra Shekhar, the then Finance Minister and the Cabinet Secretary by a group of senior officials in the Finance Ministry. Incidentally, all these officials were ex-World Bank and ex-IMF employees.

India embarked upon a path of liberalization in the 1980s, whose pace quickened radically after 1985. Two points need to be noted, as a backdrop to India's new liberalization saga. It has been argued that it came at a juncture in the international situation when the second oil-price hike of 1979 had prompted the advanced industrial countries to raise interest rates (nominal) which had a serious, adverse impact on the borrowings by the developing countries, jacking up their debt servicing charges. Secondly, anti-inflationary measures pursued by the advanced capitalist countries extended the impact of recession into the Third World countries. The recession in their markets led to lowered demand for developing country exports further adversely affecting their trade balances.

On top of this was the direct impact that the hike in oil prices was to have on India in any case, since crude oil and its products are the single largest item on India's huge import bill.

India's deficit on the current account increased throughout the eighties. From the mid-eighties it was pushed into greater reliance on high interest commercial loans from international banks to finance the deficits. The net outcome was that her external debt tripled during this decade of high growth.

The above scenario set the stage in 90s for undergoing the medical therapy of the IMF and WB.

When these 'reforms' were initiated, the Government denied any pressure from the Bank or IMF but had few takers. But very few believed in it. The Government's claim that they had been independently decided to carried little weight. Later on the Finance Minister told Parliament that the loans of the Bank and IMF carry conditionalities. In fact, the Finance Minister did not disclose about his correspondence with the IMF and the Bank, due to great public pressure, he presented to Parliament the terms of the IMF standby credit of $2.2 billion. But, the same consideration was not applied to reveal the policy conditions accepted under the Structural Adjustment Loan of $900 million by the World Bank. When news of the Bank having access to the 1992-93 budget and the Eighth Five Year Plan document prior to their presentation to Parliament, the government was forced to make them public.

Under SAP, WB is not supervising individual sectors of the Indian economy such as agriculture, social sector and energy sector. The Bank now monitors the entire macro-economy such as balance of payments, fiscal deficit, foreign investment, money supply, etc. The public expenditure reviews are a part of the Bank's conditionalities. Under this review, the Bank not only asks for cuts in expenditure but also gives detailed instructions for cuts in specific sectors. The health budgets in recent years are an example of this. Health, far from being accepted as a basic right of the people, is now being shaped into a saleable commodity. Thereby, excluding those with less or no purchasing power. The existing distortions of health services in India are getting accentuated with the Government following the Bank's agenda on healthcare. The recent budget of 1994-95, of which health care forms just 0.58% is an indication of the government willingness to adopt Bank's policies. In India, the health care agenda is increasingly being set out by the Bank rather than by the people and the Indian state.

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Before and After Adjustment
The World Bank's own study titled, "Adjustment Lending: An Evaluation of Ten Years of Experience" (1988) illustrates that the structural adjustment programs undertaken by 15 Sub-Saharan African countries failed in many areas :
  • The shape of Gross Domestic Product (GDP) devoted to investment fell rather than rose as intended.
  • Annual economic growth declined.
  • Budget deficits of export earnings that had to be devoted to debt payment increased.

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: kaval@pirg.unv.ernet.in


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