World Bank Extends Loans to India for Infrastructure and Education Development

June 12, 2014 Posted by India Briefing Reading Time: 3 minutes

MUMBAI – The World Bank has announced that it will continue to provide concessional credit to India for infrastructure and education purposes.

The World Bank distributes funds through the International Development Association (IDA) and the International Bank for Reconstruction and Development (IBRD), both of which offer funding to India. The IBRD, the World Bank’s original lending arm, offers loans to middle-income and creditworthy poor countries for infrastructure projects at interest rates lower than offered by commercial lending agencies.

The IDA is the World Bank’s fund for countries with an income per capita of US$1,260 of below. It offers loans and grants for initiatives which will help to eradicate poverty by enhancing living conditions, reducing inequality and increasing economic growth. The IDA offers concessional credit at ‘little or no interest and repayments are stretched over 25 to 40 years, including a 5- to 10-year grace period’.

The World Bank announced earlier this week that it will continue to provide concessional credit to India, as well as increasing the country’s single-borrower limit to US$20.5 billion. India will receive transitional support of US$3.5 billion The World Bank aims to help the new government to implement infrastructure, tourism, and river cleaning initiatives, among others.

The World Bank has decided to continue its IDA concessional lending to India even though with an income of around US$1,500 per capita the country is technically ineligible for the funding.The World Bank made this decision in order to support the 300 million people living below the poverty line in the country.

“The logic of World Bank fund for poor not supporting India is a little bit difficult to maintain,” said Onno Ruhl, country director for India at the World Bank, late last year. “It is totally unique that India is getting transition support. No other country in history has had it. And there is no other country right now that we are proposing to give it to.”

The Ministry of External Affairs, in association with the Department of Economic Affairs under the Finance Ministry, previously campaigned to extend the tenure of India’s concessional loansby several more years, given the country’s high poverty levels. The Indian government also relies upon these long-term loans at little or no interest to balance the use of short-term loans to fund its current account deficit, which reached a record high of 4.8 percent of GDP in FY13 before narrowing this year.

The World Bank has given India US$4.3 billion a year on average through the IDA and the IBRD over the past six years. IDA commitments to India previously increased from US$297 million to US$948 million between 2009 and 2013.

To date, 28 countries have ‘graduated’ from using IDA concessional credit, and the IDA is still providing the funds to 82 countries. The IDA provided loans worth US$16.3 billion to over 160 new operations between July 2012 and June 2013.

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