The World Bank: India’s development partner

Donald John Trump, the Republican Party candidate for the 2016 US presidential election, vowed a largely Indian origin gathering at a glitzy event in Edison, New Jersey, by declaring, “I am a big fan of Hindus and a big fan of India. If elected, the Indian and Hindu community would have a true friend at the White House… I look forward to working with Prime Minister Narendra Modi.” That was an endorsement that India matters in world politics, which was not so till a few decades ago. Indians living in the US would have hardly imagined such an admission, especially by a presidential candidate until the 1990s.

It is common knowledge that India and the US have always shared a lukewarm relationship till recently. Why this shift? Why does the US presidential candidate want to forge a new relationship with India? Admittedly, India is a democratic country like US. But it is one of the fastest growing economies in the world, and is one of the nuclear powers to reckon with. Does that explain the growing clout of India? One needs to look for a more convincing argument.

It is undeniable that India has been one of the main partners in the world economic operations and the World Bank (also known as the Bank). America, being the largest contributor to the funds of the Bank, has enormous influence in the functioning of the Bretton Woods Institutions (BWIs). The Bank has played a major role in transforming the Indian economy and the country’s emergence as a credit worthy nation. Like India-US relations, the journey of India and the Bank also had its ups and downs.

It is noted that the current situation evolved from skepticism to friendship with many a blips in between. Today, the relationship has matured, but the experience is worth recording. Both India and the Bank share the fundamental goal of achieving poverty reduction marked by sustainable growth. India’s relationship with the Bank has undergone different phases with unmistakable imprints of the world of political pulls and pressures.

The relationship strained in 1966 after the Indian economic crisis. The Bank’s diminished role after that lingered briefly in memory. But the timely aid from the Bank (under President Robert McNamara) soon revived and increased many-folds. Though this phase did last longer, mutual trust got some beating on different occasions. While the Indian government accepted the need for reform, suggested by economist Bernard R. Bell, the Bank’s pressure caused resentment in the rank and file of the Indian polity. During this period, the Indian political scenario was also undergoing many upheavals. That had its own reflections on the Banks policies towards India.

The Bank’s presence in every sector was quite visible as well as the achievements. It introduced the structural adjustment policy in India in 1981 when loans were sought from BWIs owing to the second oil crisis and severe droughts across the country. Since the days of Jawaharlal Nehru to the 1980s, India was, arguably, among the most important bastions of third world dirigisme. Hence, this shift was a momentous development, and leading Bank economists reportedly celebrated it as among the “three most important events in the history of the 20th century”, alongside the collapse of the Soviet Union and China’s transition to “market reforms.”

Though reform has delivered growth; scholars, particularly having Left leanings, lashed out at the Government of India and in the States for creating conditions leading to sharp slashing of allocations to welfare schemes, cuts in subsidies, and the reduced role of the State in the economy. The Left wing politicians argued that the Bank and organizations owe allegiance to the rich counties and pushed their agenda, especially of the US. They were particularly harsh in lambasting the growing importance and role of MNCs in the Indian economy. Despite criticism, one visible trend was many Indian bureaucrats getting attractive assignments at Washington, and the Bank continuing to employ Indian academics and scientists.

While during the seventies and eighties, the Bank paid more emphasis on project and sector lending, after the nineties the Bank was focused more on the macro economics of India. After setting right a few macro-economic policies, in the mid-1990s, the Bank launched its new assistance strategy – policy-based lending to sub-national governments – to set right lopsided development across states with the national interest. The Bank loans triggered reforms in some reform-oriented states but not to the extent envisaged.

In 2004, after the results of the national elections, prodded by the Indian government, the Bank changed its approach further and made its adjustment lending available to lagging states too, to ensure inclusive growth. Through project, sector, and policy-based lending; technical advice; policy dialogue; and institutional building; the Bank has contributed to India’s economic development and policy changes. The objective of projects or adjustment lending in all these years has been alleviation of poverty, whose success is visible in the drastic reduction in the number of people living in conditions of utter poverty.

The Bank-India relationship had two major determinants: one, the ideological shifting of goals in Indian polity, and second, major upheavals in the economic scenario. The milestones are visible but the path has not been systematically traced thus far. The journey of the political economy of the Bank on the Indian soil is as interesting as the history of India’s economy itself. The process of opening the economy was surely a major turning point in this eventful, meandering, and at times tortuous journey.

Featured image credit: The World Bank Group Headquarters sign — in Washington, D.C by Victorgrigas. CC-BY-3.0 via Wikimedia Commons.