India's key issues

1. Making Growth More Inclusive

Faster economic growth has seen rising disparities between urban and rural areas, prosperous and lagging states, and skilled and low-skilled workers. India’s richest states now have incomes that are five times higher than those of the poorest states – a gap that is higher than in most other democratic countries. The challenge will now be to ensure that pockets of poverty do not increase in this downturn.

Small and medium enterprises (SME): Small and medium enterprises are essential for dynamic economic growth and job creation. The sector has, however, been hit hard by the current downturn with credit growth slowing and demand falling in both domestic and export markets. As access to finance for this sector is key, the World Bank has, in September 2009, agreed to extend budgetary support of $2 million to the Government of India to help public sector banks expand credit for SME, as well as for the development of infrastructure and the rural economy. Moreover, in June 2009, the World Bank provided additional financing of $400 million to the Small Industries Development Corporation of India (SIDBI) to assist India's SME sector through the financial crisis.

Agricultural and rural development: Some two-thirds of India’s people depend on rural employment for a living. While the agriculture sector grew at only about 2.5% a year for a number of years, in recent years growth has touched 4.7% a year, facilitated by good monsoons, greater production of high-value crops, an increase in the minimum support prices for grains, and the rise in global prices for agricultural products. Going forward, it will be essential for Indiato build a productive, competitive, and diversified agricultural sector and facilitate rural, non-farm entrepreneurship. Encouraging policies that promote competition in agricultural marketing will ensure that farmers receive better prices.

• Raising agricultural productivity: In a number of states, the World Bank is improving soil and water conservation on degraded lands, rehabilitating and modernizing surface irrigation systems (Madhya Pradesh, Maharashtra, Rajasthan, Uttar Pradesh), reviving traditional rain water harvesting systems, and assisting farmers to diversify crops and reclaim saline lands. The Bank is also working to raise agricultural productivity by linking public research organizations and farmers to promote the use of agricultural innovations.
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• Improving rural livelihoods: Rural livelihoods projects support the empowerment of the rural poor and the development of their livelihoods. Projects are ongoing in a number of states including Andhra Pradesh, Chattisgarh, and Tamil Nadu, with new projects commencing in Orissa, Bihar and Madhya Pradesh.
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• Rural water supply and sanitation: The Bank is also working to improve the quality of life in the rural areas by improving water supply and sanitation. Since 1991, World Bank support has helped India first pilot and then scale up a rural water supply and sanitation services (RWSS) reform program. Bank support to three states (Maharashtra, Karnataka, and Uttar Pradesh) has been followed by support to Kerala, Uttarakhand, Punjab, and Andhra Pradesh, and further support to Karnataka and Maharashtra. In all, the Bank will soon have provided over $1 billion in support to the sector, benefiting 20 million rural people so far.

Informal Sector Jobs: While the services sector has been offering promising job opportunities for skilled workers, some 90% of India’s labor force remains trapped in low-productivity jobs in the informal sector. India’s labor regulations - among the most restrictive and complex in the world - have constrained the growth of the formal manufacturing sector, where these laws have their widest application. Better-designed labor regulations can attract more labor-intensive investment and create jobs for India’s unemployed millions and those trapped in poor quality jobs.

Given the country’s current downturn, the window of opportunity must not be lost for improving the job prospects for the 80 million new entrants who are expected to join the work force over the next decade. The challenge will be to build enough safety nets for those losing their jobs in the informal sector, especially in urban and peri-urban areas hardest hit by the slowdown, while creating the space for the enhancement of skills.

Lagging States: While India’s higher-income states have successfully reduced poverty to levels comparable with the richer Latin American countries, its seven poorest states - Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, and Uttar Pradesh - are lagging behind their more prosperous counterparts and remain home to more than half of India’s poor. It will be essential to ensure that states, especially those with the least resources, are able to continue improving social services during the downturn. Lagging states will also need to attract more jobs by becoming an attractive investment destination. Reforming cumbersome regulatory procedures, improving rural connectivity, establishing law and order, creating a stable platform for natural resource investment that balances business interests with social concerns, and providing rural finance are important. Reforms have started in virtually all states, and in many of these the Bank is an active partner. The World Bank’s Development Policy Lending (DPL) – to Andhra Pradesh, Karnataka and Orissa and more recently to Bihar, and Himachal Pradesh – are helping states to implement reforms and spreading the lessons of success.

2. Improving Infrastructure

Infrastructure: India’s rapidly growing economy has been placing huge demands on power supply, roads, railways, ports and transportation systems. But, infrastructure bottlenecks have been eroding the country’s competitiveness. Increases in power generation during the Tenth Plan period fell short of target; when the economy was growing at a rapid 8% a year, power supply grew at only 4%. And, although the national highway network doubled in size between 1997 and 2007 – almost 35,000 kms were added during this period – soaring demand has far outstripped supply. Urban infrastructure is a severe constraint to the expansion of key centers of growth, while weaknesses in basic rural infrastructure—from roads to electrification—have constrained the growth of the rural economy.

To help India continue to expand its critical infrastructure, the World Bank has, in September 2009, agreed to extend $1.195 billion to the India Infrastructure Finance Company Limited (IIFCL) to help finance private-public partnerships in infrastructure, especially in the roads, power and ports sectors.

Power: In the past, World Bank support has helped India build its largest hydropower plant at Nathpa Jhakri in Himachal Pradesh. The Bank is now helping the country augment the supply of hydropower. Support for the 412 MW run-of-the-river Rampur Hydropower plant on the Satluj river in Himachal Pradesh is ongoing. Two other hydropower projects are in the pipeline; a 444 MW project on the Alakananda river in Chamoli district in Uttarakhand, and the other at Luhri, further downstream from Rampur in Himachal Pradesh. The Bank is also supporting the efficient transmission and distribution of power to consumers. It has helped Powergrid, the national power transmission agency, to emerge as a world class agency. In September 2009, the World Bank extended a loan of $1 billion to Powergrid to strengthen and expand five transmission systems in the northern, western and southern regions of the country. At the state level, improvements in transmission and distribution are being supported in Haryana and Maharashtra.


Transport: In the transport sector, the World Bank has supported Andhra Pradesh to upgrade its state highways. It is now helping to upgrade rail and road connectivity in Mumbai; improve state highways in Andhra Pradesh, Himachal Pradesh, Kerala, Orissa, Punjab and Uttar Pradesh; construct a section of the Golden Quadrilateral in Uttar Pradesh and Bihar; and upgrade rural roads in select districts of Himachal Pradesh, Rajasthan, Jharkhand and Uttar Pradesh.


Urban Development: India’s frenetically growing cities and towns face major challenges in creating adequate infrastructure including in the transportation, communications, solid waste, water, and power sectors. The World Bank is helping streamline urban transport in Mumbai and improve the delivery of urban civic services in Tamil Nadu and Karnataka. It has recently supported a successful pilot to provide continuous, reliable water supply in three urban areas in Karnataka. Nevertheless, if economic growth is not to be constrained, it will be essential for India to make faster progress in urban development by investing in public goods and services, including through the Jawaharlal Nehru National Urban Renewal Mission (JNNURM).

3. Addressing Issues for Longer-Term Sustainability

High levels of population density and poverty, stressed ecological systems, and a substantial dependence on natural resources have made much of India’s population very vulnerable to climate change. The following areas will thus require long-term vision and urgent action:

• Adapting to climate change and the growing scarcity of water
• Improving energy efficiency and ensuring adequate energy supplies
• Coping with accelerating urbanization through strengthened urban governance
• Protecting India’s fragile environment in the face of the rising pressures created by economic success
Climate change could impact India more than most other countries. Its impact will most likely be felt first and foremost in the water sector. In this context, the World Bank is piloting a new Drought Adaptation Initiative in Andhra Pradesh that will help farmers adapt to warmer and more drought-like conditions. An Integrated Coastal Zone Management Project that seeks to protect India's coastal areas while also ensuring the livelihoods of the people living along the coastline is in the pipeline. In addition, the Bank's studies on groundwater resources and low carbon growth will soon be complete.
The World Bank is also supporting India in its efforts to increase the generation of clean energy. It is helping the country to tap the hydropower resources in the Himalayan region, as well as supporting the rehabilitation of old and inefficient coal-fired power plants so that they produce more energy with the same amount of fuel, reducing their carbon emissions. The Bank is also helping to strengthen power transmission networks to ensure that the power produced reaches consumers efficiently and losses in transmission are reduced. It is also promoting energy efficiency in various sectors (in small and medium enterprise, chillers, etc.) and is seeking to expand this support. .
4. Improving the effectiveness of public services and social protection, especially to the poor

Indiawill have to dramatically improve the impact of every rupee spent. Most public programs suffer from varying degrees of ineffectiveness and poor targeting. Improving them will requiresystemic reform of the public sector service providers, effective systems of accountability to citizens, decentralization of responsibilities, and expansion in the role of non-state service providers.

Education: India has made huge progress in getting more children, especially girls, into primary school. Since 2001, the government’s flagship elementary education program, the Sarva Shiksha Abhiyan, has helped to bring some 20 million children into school; most of them are first-generation learners. The gender gap has reduced and more children are transitioning from primary to upper primary school. Many of India’s states are now either approaching universal primary enrollment or have already achieved it. According to the Government, less than 5 million children between the ages of 6 and14 now remain out of school. The program is now focusing on bringing the hardest-to-reach children into primary school, raising access to upper primary education and improving retention and learning outcomes.

World Bank support in the mid-1990s helped India pioneer new initiatives to bring children into school. Since 2004, Bank support to the SSA has played an important role in scaling up the program to the hardest-to-reach communities, improve the quality of learning, and assess learning outcomes. Between 2002 and 2007, the World Bank contributed $500 million of the total program cost of $3.5 billion. Between 2008 and 2010, domestic funding of over $9 billion for the program was complemented by another $600 million in Bank support.

Skills: Equally important is the building of skills among India’s rapidly rising work force, whose ranks are joined by some 8-9 million new entrants each year. Presently, nearly 44 percent of India’s labor force is illiterate, only 17 percent has secondary schooling, and enrollment in higher education is a mere 11 percent. Moreover, the quality of most graduates is poor and employers offer very little upgrading of skills; only 16 percent of Indian manufacturers offer in-service training compared to over 90 percent in China. To help produce engineers of international standards, the World Bank has supported improvements in the quality of education in engineering institutes in 13 states. A project is now supporting 400 Industrial Training Institutes (ITIs) to become centers of excellence in technical skills that are in demand.

Health: The health sector presents a mixed picture. Despite some gains - in infant mortality, institutional births, family planning, and the understanding of AIDS - a large unfinished agenda remains. Maternal mortality rates and child malnutrition levels remain persistently high - 45 percent of India’s children remain underweight and 70 percent are anemic. India also needs to get better prepared to deal with the rapidly emerging challenge of non-communicable diseases.


The World Bank has been lending for health and nutrition in India since the early 1990s. It has supported India in eliminating leprosy as a national health problem, and in bringing the WHO- recommended DOTS TB treatment to all districts in the country. Ongoing Bank projects support national programs for disease control - such as kala azar, polio and malaria, HIV/AIDS, and TB. They also support child nutrition and reproductive and child health programs. Other projects are working to strengthen state-level systems for rural healthcare (Rajasthan, Tamil Nadu, Karnataka), as well as national programs for food and drug regulation, and disease surveillance.


Safety Nets: The global economic crisis has lent new urgency to strengthening safety nets. The expansion of the NREGA has fortunately provided a social safety net in the rural areas. It will now be important to consider this and other alternatives for urban areas hard-hit by the downturn. Innovative and new schemes for urban renewal and construction and the delivery of public services can offer synergistic opportunities.