” A States Focus Makes Sense”

The multilaterals have begun dealing directly with the state capitals and New Delhi does not seem to mind.

A new trend is afoot as the World Bank and the Asian Development Bank seek to give their lending in India a stronger "states" focus. The ADB made a USD 250 million loan to Gujarat last year (with the horrendous title of the "Gujarat Public Sector Resource Management Programme") and is eyeing Madhya Pradesh and one of either Tamil Nadu or Kerala as additional candidates. The World Bank is developing a "restructuring" loan for Andhra Pradesh, and is also working on Rajasthan, Haryana, Orissa and Karnataka. Fiscal reform at the state level is at the heart of the exercise, because without it all lending will be unfruitful. It seems a little late in the day to come to this realisation, but better late than never. As an official at the World Bank asked, "If we make a big educational loan to the states, how do we know they will continue to have the money to pay the teachers after we leave. We´ve poured a lot of money into the power sector, but is it sustainable?"

The central government in New Delhi sees the multilateral banks as allies in its effort to broaden and deepen fiscal reform countrywide. With attention focused exclusively on the central government´s fiscal deficit (slated to go down to 4.5 percent of GDP this year) the fact that all the states put together add another 4 percent to the overall public sector deficit is completely lost sight of. "There hasn´t been much action on the part of the states yet on fiscal reform," the World Bank staffer said.