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World Bank to offer transition support of $3.5 billion to India for infrastructure, education initiatives

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Deepshikha Sikarwar, ET Bureau | 10 Jun, 2014, 04.00AM IST | Economic Times

NEW DELHI: The World Bank will continue its concessional lending meant for poorer countries to India and has also significantly upped the country’s single-borrower limit, looking to provide a helping hand to the new government in taking forward its agenda on infrastructure, skilling, river cleaning and tourism.

“We have concluded IDA-17 (July 2014-June 2017) negotiations. India has got a transition support of $3.5 billion,” World Bank country director for India Onno Ruhl told ET.

Under the IDA, concessional credit at little or no interest with repayments stretched over 25 to 40 years, including a grace period of five to 10 years, is given to the poorest countries to help them eradicate poverty.

India has crossed the threshold of $1,260 per capita income and is not technically eligible for the funding. However, since the country is still home to a large number of poor, a transition support has been provided.

“I think there will be an interesting conversation with the new government. How do you build model cities….Rural connectivity and obviously education and skills…You have to get people ready for work. Scale at which skilling needs to be done, it needs a national dialogue…. We are working in solar energy and I think India is well positioned to become a global power house in solar,” Ruhl said.

The bank has committed $5.2 billion in the year ending June, 2014 to support a number of initiatives including the Sarva Shiksha Abhiyan and Eastern Dedicated Freight Corridor, Ruhl said.

Ruhl cautioned against any let-up in fiscal consolidation as advised by leading economist Arvind Panagariya. His suggestions to the new government include subsidy rationalisation and continuation of fiscal consolidation, shift to goods and services tax and modernisation of tax administration.

“Total subsidies in India are actually enough to be handed over to everybody in the poverty line….So working on the targeting is a high value thing to do,” he said.

Ruhl said any relaxation on fiscal front could stoke inflation, which is the “bane” of the economy. “I do not think it (pause in fiscal consolidation) is a good idea…Growth will be above 5% next year and over 6% the year after. So I do not see need to take the risk of not doing fiscal consolidation… It’s just not necessary to take that risk and recent history in India has showed that it did not work and it did not even bring back growth,” he said, adding that high inflation not just hurts po¬†..

On the fiscal side, the previous government made effort to contain fiscal deficit but it wasn’t done very elegantly, he said, adding that the new government should focus on the quality.

“The initial signal we have got from the new government is that they are committed to restrained fiscal policy….I think it’s also important to look at quality of expenditures and reining the deficit in the right way….With a new government in place, it can be more systemic in reviewing expenditures and making choices than rather cutting across the board,” he said.

Ruhl emphasised on cutting down on transaction costs by reducing inspections, switching to self declarations and creating flexible working framework for new employees to improve the business climate.

Original URL: http://economictimes.indiatimes.com/news/economy/finance/world-bank-to-offer-transition-support-of-3-5-billion-to-india-for-infrastructure-education-initiatives/articleshow/36314937.cms

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