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KAUTILYA
States
Are Central
World
Bank chief's visit to India reinforces the growing economic clout of states
By
Jairam Ramesh
Delhi,
the late Sanjeevi Guhan who was one of our most distinguished economic
administrators, once remarked, is a capital in search of a country. But
the 1990s changed all that and to reinforce that trend, World Bank President
Jim Wolfensohn visiting India between November 6 and 14 met the chief
ministers of Gujarat, Maharashtra, Karnataka, Andhra Pradesh and Uttar
Pradesh in their states and spent less than 48 hours in Delhi.
In the good
old days, Wolfensohn would have spent all his time in Delhi with the mandatory
weekend in Agra or Jaipur. That he is no longer doing so is, in large
measure, due to a decision taken in October-November 1996 when P. Chidambaram
was finance minister to have the World Bank "focus" directly
on states with the Central government playing a purely facilitative role.
This move was opposed within the system on the ground that the Centre
would lose control, but thanks to N. Chandrababu Naidu's clout in the
then United Front and Chidambaram's tenacity, the opposition was overcome.
Andhra Pradesh became the first focus state as also the recipient of about
$4 billion in loans. Uttar Pradesh was next with around $6 billion. Karnataka
is third with a portfolio of about $2.5-3 billion. Chidambaram's desire
to see our states in the orbit of the World Bank came at a time when the
Washington-based development financing institution was reinventing itself
with a view to decentralise its operations in major countries like India
to its local office.
 The
World Bank package is not charity. It comes with conditionalities, the
most basic being reforms in the power sector. Without this, the states
will not be able to reduce their revenue deficits. Between 50-70 per cent
of the revenue deficit in many states is due to power losses and subsidies.
If states cannot reduce their revenue deficits, they will not be able
to invest more in essential social and physical infrastructure which is
the need of the hour. Other than power reforms, there has to be a commitment
to reducing open-ended subsidies and making public utilities more commercial
and the government's size financially sustainable. These conditionalities
are not an assault on our sovereignty; they are things that we should
be doing on our own in our own interest but since we do not change unless
there is a crisis or there is external pressure, perfectly sensible policies
are seen as "conditionalities". World Bank terms are pretty
liberal for the states: 70 per cent comes as loan and 30 per cent as grant;
the repayment period is 20 years with half the loan having an initial
grace period of five years.
Typically,
a state-level programme begins with the publication of a white paper on
finances and a medium-term plan for fiscal management. These set out detailed
roadmaps with milestones to be fulfilled. Once this is done and a credible
demonstration of commitment to transform the electricity industry is made,
negotiations on specific projects take place. Karnataka, for instance,
has just got Wolfensohn's nod for a Rs 12,000-crore development package
covering watershed development, rural water supply, tank irrigation, roads
and highways, urban water supply and power and fiscal restructuring. This
money is spread over four to five years.
One criticism
of Chidambaram's decision was that only advanced states would gain. Andhra
and Karnataka are developed states. But the World Bank is in Uttar Pradesh
in a significant way and is negotiating with Rajasthan and Orissa. However,
Bihar and Assam are not benefiting. Madhya Pradesh felt it would not able
to handle World Bank conditionalities and hence opted out, although it
is now in dialogue with the Manila-based Asian Development Bank.
Playing
Second Fiddle: The growing interaction of the World Bank with states
has made both happy but the Finance Ministry in Delhi is uneasy. Many
officials feel they are now playing second fiddle, though it is ironic
that these very people are champions of decentralisation when they are
working for state governments. This, of course, illustrates a basic bureaucratic
maxim-where you stand depends on where you sit!
The greatest
danger to this new interaction lies in failure to reform the power sector
and deliver tangible results in a two-three-year time frame. So far, power
reforms have been seen only as increasing power rates for consumers. If
this perception persists, it will be a setback. That is why there has
to be a primary focus on cutting the huge transmission and distribution
losses (a euphemism for theft), introducing universal metering and augmenting
power supply itself. The political packaging is also crucial. That is
why the Karnataka chief minister told Wolfensohn last week in Bangalore
that after nature and it parks, he wants World Bank help for a new type
of park-Poverty Alleviation in Rural Karnataka-in which water supply,
watershed and other such projects occupy pride of place.
(The
author is with the Congress party. These are his personal views.)
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