World Bank Provides US$4.3 Billion to Support India’s Economic Stimulus, Infrastructure Investments

After a period of high economic growth — which reached 9.7 percent in 2006-07 — the onset of the global financial crisis in 2008 saw India’s growth rate fall to about 5-6 percent in the fourth quarter of 2008-09.  Although there is uncertainty about the pace of the economic recovery, current trends suggest that a growth rate of between 5.5 and 6.5 percent for 2009-10 is realistic.

“This is a crucial time to support India,” said Roberto Zagha, World Bank Country Director for India. “While the worst of the crisis seems to be behind us, doubts linger about the strength of the comeback, partly because the strength of the global recovery is uncertain.  Today’s support will help maintain credit growth and continued infrastructure investments. Supporting infrastructure is particularly important during the current crisis, not just to sustain the domestic economy at a time of reduced global demand, but even more to lay the foundations for stronger future growth.”

The US$2 billion Banking Sector Support Loan will provide budgetary support to the Government of India, helping it maintain its broad economic stimulus program by enhancing the capital of select public sector banks. As a result of the global financial crisis, private and foreign banks have slowed their lending and deposit taking, increasing demand on public sector banks. This loan will help maintain credit growth levels, support social banking and employment growth, and help strengthen the economic recovery ahead.

Sustaining high growth and making it more inclusive is one of India’s most formidable challenges. Central to this is the need to improve its physical infrastructure. India’s roads, railways, ports, airports, communication, and above all, power supply, are urgently in need of investment. The US$1.2 billion loan to the India Infrastructure Finance Company Ltd. (IIFCL) is designed to support its role to catalyze private financing for public-private partnerships in (PPPs) in infrastructure and stimulate the development of a long-term local currency debt financing market.

 “This loan will help IIFCL increase the availability of long-term finance for infrastructure projects across a range of sectors including roads, power, airports, and ports,” said Mr. S.S. Kohli, Chairman and Managing Director, IIFCL.

Continuing its 15 years support to the Powergrid Corporation of India, the country’s national electricity transmission company, the Bank also approved US$1 billion for the Fifth Power System Development Project. It is designed to help address India’s acute deficit of power. Almost half of Indian households (44 percent) do not have access to electricity. The loan will help Powergrid strengthen five transmission systems in the northern, western and southern regions of the country. This will facilitate the transfer of power from energy surplus regions to towns and villages in under-served regions of the country. The Bank has supported Power Grid since its inception, during which time the company has nearly tripled its transmission network to become one of the world's largest electricity transmission system operators.   

“This loan will enable Powergrid to strengthen the existing transmission system as well as expand  the Indian national grid which will help the Government of India achieve its objective of ‘Power for All by 2012’,” said Mr. S.K. Chaturvedi, Chairman and Managing Director, Powergrid.           

Lastly, the Bank approved US$150 million for the Andhra Pradesh Rural Water Supply and Sanitation Project, designed to improve water supply and sanitation services in 2,600 villages across 6 districts of the state. It aims to provide piped water to 2.1 million people and extend sanitation services to 1 million people who currently do not have access.

The loans (Banking sector and Powergrid) from the International Bank for Reconstruction and Development (IBRD) have a 30 year maturity including a 5-year grace period.  The IBRD loan to IIFCL has a 28 year maturity including a 7.5-year grace period.

The credit from the International Development Association (IDA), the World Bank’s concessionary lending arm, carries a 0.75 percent service fee, a 10-year grace period, and a maturity of 35 years.

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Source: World Bank