The Indian Economy Overview

The World Bank and India

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The Bank and Good "Governance"

When the World Bank team arrived in the capital of the former Soviet republic in 1992, the team consisted of economists including two lawyers. The lawyers were there to evaluate the country's laws and legal institutions to determine the legal constraints to market economy. This assessment led to legislative recom-mendations, a number of which were made pre-conditions for future World Bank lending. This country adopted the Bank's legislative recommendations as an expression of seriousness to do anything to shift from a planned to a market economy.

This case study demonstrates that the Bank is no longer merely a financial institution; it is a governance and law making institution exercising power through its financial leverage to legislate entire legal regimes and even to alter the constitutional structure of the borrowing countries.

Governance by the Bank is more pronounced in the context of policy based lending--Structural adjustment loans.

The Bank staff has rewritten India's trade policy, fiscal policies, labor laws, health care regulations, environmental regulations, procurement rules and foreign exchange laws. The Bank is playing this legislative role primarily by imposing conditions on its loans. Unlike the terms imposed by a commercial bank, however, many of the conditions imposed by the Bank have nothing to do with loan repayments.

The Bank's Articles of Agreement provide that "the Bank and its officers shall not interfere in the political affairs of any member". Nonetheless, the World Bank now asserts that the quality of 'governance' in developing countries is within its jurisdiction. In 1989, the Bank explicitly raised the issue of borrowing members' governance for the first time. The Bank publicly called upon African governments to become accountable to their citizens. The Bank has now openly declared that it is prepared to consider various governance issues integral to development projects. The Bank avers that so long as governance issues are related to economic development, it can impose conditions on governance. This policy enables the Bank to impose its economic agenda and political ideology on its borrowers.

According to the Bank, its governance concerns extend from broad macro-economic policy to the structure and role of governmental institutions that administer the economy, to environmental impact and even to military spending. There are indeed many occasions when reformed governance enhances development prospects. But the crucial issue is whether the Bank or the concerned citizens should exercise sovereignty.

Moreover, this discovery of good governance, transparency, democracy and public accountability in Africa disappears in Washington headquarters of the World Bank and the IMF. The Bank is itself structurally and operationally unaccountable to the citizens of developing countries. Despite the continuous efforts by NGOs to make the Bank transparent, it's still secretive. In fact, after struggling for the past 10 years to reform the Bank, many activists and NGOs concluded that the Bank cannot be reformed.

The Bank is not merely playing the role of lender but is using its "power of the purse" to legitimize and legislate policy focusing on macro-economic and social objectives. The Bank's principal weapon is conditionality. The loan imposes conditions and those conditions amount to the rewriting of laws otherwise preserve the legislative and policy-making control of the borrower governments legal amendments which compromise a country's development objectives, its sovereignty and ultimately the welfare of its citizens. This power was never contemplated at Bretton Woods. This authority derives primarily from the discussions its Executive Directors have in determining the Bank's functions.

Governance by the Bank is more pronounced in the context of policy based lending, e.g., structural adjustment loans.

Under the Bank's conditionalities, the Indian government has changed many laws. [See Box below]

Bank's Governance

Over the years, the Bank's Governance has been failing. Willi Wapenhans, the Bank's Vice-President, was requested by Lewis Preston to postpone retirement and conduct an evaluation of the Bank's loan portfolio. In October 1992, Wapenhans report confirmed that the Bank funded projects were failing at an accelerating rate. This report describes a situation that the Bank itself might have characterized as bad governance. Usually, the Bank takes on a governance role that may best be closer to that of a trustee in bankruptcy. However, a trustee in bankruptcy ultimately is held accountable through a bankruptcy court, while there is no equivalent accountability for the Bank.

The Bank's lawmaking assumes the character of unconsented experimentation. In the medical context, a standard of informed consent has evolved. The Bank officials hold out highly experimental and contingent "shock therapy" and "treatments" as possible cures. The Bank's reservoir of expertise and control over access to resources lend authority to its pronouncements. This authority takes on a coercive character depending upon the country's level of need. The Bank's experts will not show the "patient" her chart, for to do so might create interference with the treatment. The Bank resists second opinions. A "Patient", particularly one making such decisions should see the chart, have access to second opinions and be able to choose alternative treatments. Isn't it ?

Amending Laws
In order to implement conditionalities posed by the World Bank and the IMF, the Indian Government has taken many steps to amend and change the existing legislations. These legislative changes cover vast range of areas like industry, banking, labor, public sector companies, health, power, foreign exchange and foreign capital.

Following is the list of laws which have been amended after 1991 to implement structural adjustment program in India.

  • Inland Waterways Authority of India Act, 1985
  • Inland Vessel Act
  • Foreign Exchange Regulation Act,1973
  • The Companies Act, 1956
  • Industrial Finance Corporation Act
  • Monopolies Restricted Trade Practices Act
  • Industrial Disputes Act
  • Indian Iron and Steel Company Act, 1972
  • IISCO Act, 1976
  • Indian Electricity Act
  • The Electricity (Supply) Act, 1948
  • Iron and Steel Companies and
  • Miscellaneous Provisions Act, 1978
  • Indian Trade Unions Act, 1926
  • Bank Companies Act, 1970
  • Indian Telegraph Act, 1885
  • Mines and Minerals (Regulation and Development) Act
  • Sick Industrial Companies Act, 1985
  • Employees Provident Fund Act
  • Merchant Shipping Act
  • ONGC Act 1959
  • Maternity Benefits Act, 1961
  • Air Corporation Act, 1953

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

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