Country Partnership Strategy

October 2013

India 2013–2017

CURRENCY EQUIVALENTS (as of 20 September 2013)

Currency unit – Indian rupee(s) (Re/Rs) Re1.00 = $0.0162

$1.00 = Rs61.75

ABBREVIATIONS

ADB – Asian Development Bank AFD – Agence Française de Développement CDRC – Capacity Development Resource Center COBP – country operations business plan CPS – country partnership strategy FY – fiscal year GDP – gross domestic product JICA – Japan International Cooperation Agency PPP – public–private partnership RCI – regional cooperation and integration SASEC – South Asia Subregional Economic Cooperation SPV – special purpose vehicle TA – technical assistance TASF – Technical Assistance Special Fund TPRM – tripartite portfolio review meeting

NOTES

(i) The fiscal year (FY) of the Government of India begins on 1 April. FY before a calendar year denotes the year in which the fiscal year begins, e.g., FY2012 begins on 1 April 2012 and ends on 31 March 2013.

(ii) In this report, "$" refers to US dollars.

Vice-President X. Zhao, Operations 1 Director General J. Miranda, South Asia Department (SARD) Director H. Kim, Country Director, India Resident Mission, SARD Team leader R. Hasan, Principal Economist, SARD Team members S. Viswanathan, Economist, SARD

A. Sen Gupta, Senior Economics Officer, SARD N. Kulkarni, Senior Programs Officer, SARD

K. Gupta, Project Officer, SARD B. Rout, Programs Analyst, SARD N. Kapoor, Associate Economics Analyst, SARD India Country Team

Peer reviewers W. Um, Deputy Director General, Regional and Sustainable Development Department

C. Kim, Principal Evaluation Specialist, Independent Evaluation Department

P. Vandenberg, Economist, Economics and Research Department

In preparing any country partnership strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

COUNTRY AT A GLANCE

I. DEVELOPMENT TRENDS AND ISSUES 1

A. Country Background 1

B. Economic Assessment and Outlook 1

C. Highlights of Previous ADB Country Strategy 2

II. THE COUNTRY STRATEGY 3

A. Government National Strategy 3

B. ADB Country Strategy 4

III. STRATEGY IMPLEMENTATION 8

A. Indicative Resource Parameters 8

B. Program Overview 9

IV. RESULTS MANAGEMENT 9

A. Monitoring 9

B. Risks 9

APPENDIXES

1. Country Partnership Strategy Results Framework 11

2. List of Linked Documents 13

COUNTRY AT A GLANCE

Economic FY2008 FY2009 FY2010 FY2011 FY2012

GDP ($ billion, current market prices)a 1,226 1,366 1,710 1,873 1,840

GDP per capita ($, current market prices)a 1,063 1,168 1,442 1,558 1,512

GDP growth (%, FY2004 Rs factor cost)a 6.7 8.6 9.3 6.2 5.0

Agriculture 0.1 0.8 7.9 3.6 1.9 Industry 4.4 9.2 9.2 3.5 2.1 Services 10.0 10.5 9.8 8.2 7.1

Gross domestic investment (% of GDP)a 34.3 36.5 36.8 35.0 …

Gross domestic saving (% of GDP)a 32.0 33.7 34.0 30.8 …

Wholesale price index (annual % change)b 8.1 3.8 9.6 9.0 7.3

Liquidity (M3) (annual % change)c 19.3 16.8 16.0 15.6 13.6

Overall fiscal surplus (deficit) (% of GDP)c (8.3) (9.3) (6.9) (8.1) (7.2)

Merchandise trade balance (% of GDP)* c (9.7) (8.6) (7.4) (10.2) (10.6)

Current account balance (% of GDP) c (2.3) (2.8) (2.8) (4.2) (4.8)

External debt service (% of exports of goods and services)c 4.4 5.8 4.4 6.0 5.9

External debt (% of GDP)c 20.3 18.2 17.5 19.7 21.2

Poverty and Social 1990 2000 Latest year

Population (million)d 846 [1991] 1,029 [2001] 1,217 [2012]

Population growth (annual % change)d 2.16 [1991] 1.97 [2001] 1.54 [2012]

Maternal mortality ratio (per 100,000 live births)e 437 [1991] 327 [2000] 212[2009]

Infant mortality rate (below 1 year/per 1,000 live births)e 80 [1991] 61 [2001] 44[2011]

Life expectancy at birth (years)e 58.4 [1990] 61.6 [2000] 66.1 [2010]

Female Life expectancy at birth (years)e 58.7 [1990] 62.6 [2000] 67.7 [2010]

Adult literacy (%)f 48.2 [1991] 61.0 [2001] 66.0 [2008]

Female Adult literacy (%)f 33.7 [1991] 47.8 [2001] 61.1 [2008]

Primary school gross enrollment (%)e 91.2 [1990] 93.8 [2000] 116.0 [2011]

Child malnutrition (% below 5 years old)f 59.5[1991] 44.4 [1999] 43.5 [2006]

Population below poverty line (%)g 45.3 [1993/94] 37.2 [2004/05] 21.9 [2011/12]

Population with access to safe water (%)f 62.3 [1991] 77.9 [2001] 85.5 [2011]

Population with access to sanitation (%)f 18 [1990] 25 [2000] 34 [2010]

Environment 1990 2000 Latest year

Carbon dioxide emissions (million tons)f 690.6 [1990] 1,186.7 [2000] 1,979.4 [2009]

Carbon dioxide emissions per capita (tons)f 0.8 [1990] 1.1 [2000] 1.6 [2009]

Forest area (million hectares)f 63.9 [1990] 65.4 [2000] 68.4 [2010]

Urban population (% of total population)d 25.5 [1991] 27.7 [2001] 31.3 [2011]

ADB Portfolio (sovereign loans, as of 31 December 2012) OCR ADF Total

Total number of loans 78 78 Net loan amount ($ million, cumulative) 11,175.2 11,175.2 Disbursements ($ million, 2012) 1,293.1 1,293.1

Total funds available for withdrawal ($ million) 6,975.1 6,975.1 Disbursed amount ($ million, cumulative) 4,200.2 4,200.2 Percentage disbursed (disbursed amount/net loan amount) 38.0 38.0

… = not available, ( ) = negative, * = based on balance of payments data, [ ] = latest year for which data are available, ADB = Asian Development Bank, ADF = Asian Development Fund, GDP = gross domestic product, M3 = broad money, OCR = ordinary capital resources. Sources: a

Government of India, Central Statistical Office, Ministry of Statistics and Programme Implementation. 2013. National Accounts (Press Releases & Statements). New Delhi.

b Government of India, Office of the Economic Advisor, Ministry of Commerce and Industry. 2013. Wholesale Price

Index Press Releases. New Delhi. c Reserve Bank of India. 2013. Reserve Bank of India Bulletin. Mumbai; Reserve Bank of India. 2013. Handbook of

Statistics on Indian Economy. Mumbai. d Government of India, Registrar General of India. 2012. Census of India: Sample Registration System. New Delhi.

e Government of India, Ministry of Finance. 2013. Economic Survey 2012–13. New Delhi.

f World Bank. 2012. World Development Indicators Online. Washington DC.

g Government of India, Planning Commission. 2013. Press Note on Poverty Estimates, 2011-12. New Delhi.

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I. DEVELOPMENT TRENDS AND ISSUES

A. Country Background 1. India is the world’s third-largest economy (in terms of purchasing power parity) and accounts for nearly 6% of global gross domestic product (GDP)—more than double its share in 1980. As a result of structural reforms, India’s economy experienced robust growth starting in the 1980s, following 3 decades of slow growth.1 2. India’s growth has been inclusive. In 1984, more than half of the population (56%) lived on less than $1.25 a day, but by 2010 the share shrank to 33%. The infant mortality rate, which was as high as 80 per 1,000 births in 1991, declined to 44 by 2011. Adult literacy rates rose from 48% in 1991 to 66% by 2008. 3. However, economic growth could be even more inclusive. For instance, although the economy grew by more than 5% a year on average during FY1993–FY2009, the $1.25 per day poverty rate fell only by 1 percentage point per year, which is low by emerging market standards. Furthermore, although access to safe water is high (86%), about two-thirds of the population still lacks access to sanitation. Similarly, while life expectancy and maternal mortality rates have improved relative to the past, they need to be improved further in absolute terms.2 Inequality is also a concern, and persists between and within states. Although the proportion of girls entering primary and secondary education is increasing rapidly, progress is slow in the case of tertiary education. 4. To sustain high and inclusive growth, India needs to expand and consolidate structural reforms, remove its infrastructure deficit, and improve the quality and coverage of basic social services. Environmental sustainability is also a priority because population growth, rapid urbanization, and economic expansion have placed unprecedented pressures on the country’s natural resources. India’s Twelfth Five Year Plan, covering FY2012–FY2016, lays out the government’s strategy to achieve growth that is faster, more inclusive, and sustainable.3 The midterm expenditure framework includes major capital and recurrent expenditure programs to attain the plan’s objectives. These programs include infrastructure as well as social services and safety net investments.4 B. Economic Assessment and Outlook 5. India’s growth has slowed since FY2011, as a result of tighter monetary policy to counter persistently high inflation, the adverse global economic situation, and the lack of consensus on some policy and regulatory issues. In addition, although a large budget deficit boosted aggregate expenditures, the composition of public expenditure tilted towards subsidies rather than the promotion of investment. Return to a high growth trajectory is possible, but this will require persisting with reforms and resolving some complex policy and regulatory issues,

1 Growth in GDP per capita was only 1.5% annually during the 1950s, 1960s, and 1970s, but then increased steadily:

annual growth rates averaged 3.5% in the 1980s, 3.7% in the 1990s, and 5.7% in the 2000s. 2 Life expectancy at birth in 1990 was 58.4 years and rose to 66.1 years by 2010. The maternal mortality ratio was

437 per 100,000 live births in 1991 and declined to 212 per 100,000 live births by 2009. 3 Government of India, Planning Commission. 2012. Twelfth Five Year Plan (2012–2017): Faster, More Inclusive

and Sustainable Growth. New Delhi. 4 For example, the government introduced the National Food Security Act in September 2013. The Act will provide

subsidized food grains for around two-thirds of India’s population.

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including those relating to land acquisition for industrial activity, environmental clearances, and allocation of licenses for natural resources. Resolution of these issues would invigorate the private sector, which has been vital to economic growth, employment generation, and capital formation. The private sector accounted for (i) 66% of GDP growth in the 1980s and 1990s, and more than 80% in the 2000s; (ii) more than 90% of employment since the 1980s; and (iii) more than 75% of domestic capital formation, making it the main driver of investment in India. C. Highlights of Previous ADB Country Strategy 6. Strategy and business plans. The 2009–2012 country partnership strategy (CPS) supported four pillars: (i) inclusive and environmentally sustainable growth, (ii) improved infrastructure and services, (iii) better portfolio management and knowledge, and (iv) greater regional cooperation and integration (RCI).5 The country operations business plans (COBPs) over this period focused on energy and transport. Support for public financial management and credit guarantees, and urban services (water supply and other municipal infrastructure and services) increased. Agriculture and natural resources remained a small part of the business. Lagging states became an important destination for ADB finance:6 their share of the sovereign program rose from 33% of the total assistance in 2000–2008 to almost 60% in 2009–2012.7 Private sector operations also continued to grow, with the Indian portfolio being ADB’s second largest in terms of approvals. The technical assistance (TA) program helped mainstream public-private partnerships (PPPs). Regional cooperation gained momentum, with a road project in lagging states and a cross-border information and communications technology project. 7. Resources. ADB’s yearly program was about $2 billion for sovereign operations and close to $400 million for nonsovereign operations over the 2009–2012 CPS period. The TA program amounted to about $7.5 million annually from the Technical Assistance Special Fund (TASF). In addition, significant additional TA resources were mobilized from third parties, including bilateral agencies from Japan and the United Kingdom. 8. Portfolio performance. The current portfolio has 78 projects valued at $11 billion. Performance has been generally good: annual disbursements increased from $875 million per year during 2003–2008 to almost $1.5 billion per year during 2009–2012. Quarterly tripartite portfolio review meetings (TPRMs) with the government and executing agencies, and a special project management “clinic” under the aegis of the Capacity Development Resource Center (CDRC) at ADB’s India Resident Mission, supported a results focus in portfolio management. In 2012, disbursement performance dipped slightly, mainly because of insufficient project implementation capacity in lagging states; this will be addressed by the new CPS. 9. The CPS final review validation report by ADB’s Independent Evaluation Department rated the overall CPS performance successful.8 The final review and validation reports stressed the need for (i) greater attention to good project management, including project readiness filters

5 Asian Development Bank. 2009. Country Partnership Strategy: India, 2009–2012. Manila.

6 Lagging states include the government’s special category states and low-income states with a high poverty

incidence. 7 In certain cases, lending to central government entities is for discrete state-level projects and can be disaggregated

by state. The share of total lending to lagging states was 77% during 2009–2012 when such lending is disaggregated by states.

8 The CPS Final Review and CPS Final Review Validation Report are accessible from the list of linked documents in

Appendix 2. The validation report rated strategic positioning satisfactory, and the program relevant, efficient, and effective, and likely sustainable with satisfactory sector impacts.

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and implementation supervision; and (ii) continued capacity development support for executing agencies, particularly those operating in difficult sectors and lagging states. The validation report recommended an increase in ADB staff resources at the field level; improvement in the monitoring of the CPS results framework and tracking of development impact and sustainability; and greater exploitation of multisector synergies.9

II. THE COUNTRY STRATEGY

A. Government National Strategy 10. India’s Twelfth Five Year Plan sets the context for ADB operations during the next 5 years. The plan seeks faster, more inclusive, and sustainable growth (Box 1).

Box 1: Key Features of India’s Twelfth Five Year Plan

Faster growth. The goal is to achieve an average gross domestic product growth rate of 8.2%, reaching 9.0% by the end of the plan. Agriculture is expected to grow by 4.0% while manufacturing sector growth is projected to increase steadily, reaching 10.0% in the last 2 years of the plan period. All states are expected to grow faster. This high growth trajectory will require:

(i) large investments in infrastructure, including energy, logistics and urban services; (ii) higher productivity in small and large public and private sector companies; and (iii) major reforms, and better planning and project management.

Inclusive growth. The focus will be on inclusion and sharing of growth benefits among all sections of society, particularly the very poor and socially disadvantaged groups (women, scheduled castes and tribes, and the disabled). Reducing inequalities between and within states is another priority. The government aims to create and issue skills certificates for 50 million new jobs in the nonfarm sector. Specific programs in education, health, and nutrition will feature:

(i) reforms to the secondary education curriculum and examinations; (ii) improved tertiary education and expanded skills development; (iii) use of information and communication technology to expand human capabilities and

distance education; (iv) child development services and an expanded health mission, in rural and urban areas; and (v) improved sanitation and drinking water coverage.

Sustainable growth. Rapid growth will put pressure on India’s already fragile natural resource base, especially water, land, and forests. The intensity of greenhouse gas emissions will be cut by 20%–25% by 2020 from the 2005 level, and 30,000 megawatts of renewable energy will be added. Key actions will focus on:

(i) improving the water management system, institutions, and regulations and pricing; (ii) increasing efficiency among users (industry, farmers, and city governments); and (iii) improving land acquisition and land management approaches, land titling, and leasing.

Source: Government of India, Planning Commission. 2012. Twelfth Five Year Plan, 2012–2017: Faster, More Inclusive and Sustainable Growth. New Delhi.

11. Development partners. In addition to ADB, the World Bank, the Department for

9 Refer to Country Partnership Strategy Formulation (accessible from the list of linked documents in Appendix 2) for

details on the specific recommendations of the validation report.

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International Development of the United Kingdom, the Japan International Cooperation Agency (JICA), Agence Française de Développement (AFD), and KfW are India’s major development partners.10 The World Bank lends a proportionally higher share for social services and rural livelihoods. JICA, AFD, and KfW focus predominantly on infrastructure. India does not expect external assistance to finance its social protection program, which is supported through national and state budgets. 12. The total finance extended by all of India’s development partners represents only about 0.5% of GDP. Specialization and focus, design quality, and high portfolio performance are therefore preconditions if the work of development partners is to add value. This is consistent with the government’s “Innovation Impulse with Investment" approach of screening projects funded by multilateral agencies. This calls for (i) leveraging best practice experiences to drive systemic transformations, (ii) innovating and piloting new approaches that can be replicated, and (iii) introducing innovative financing instruments and leveraging finance from third parties. B. ADB Country Strategy 13. The new CPS, covering 2013–2017, is guided by five basic principles: (i) respond to client demands, (ii) expand and incorporate lessons from past work that was done well, (iii) take advantage of ADB’s strengths and align with Strategy 2020 priorities, (iv) avoid duplicating work done well by others, and (v) ensure innovation and value addition.11 In line with the government’s development agenda and ADB’s Strategy 2020, the new CPS will support three strategic pillars: inclusive growth, environmental sustainability, and RCI; these were also central to the previous CPS, and remain valid in the new CPS.12

1. Thrusts

14. The new CPS will support the government’s vision of faster, more inclusive, and sustainable growth by emphasizing the following:

(i) Infrastructure development. Robust infrastructure development will support

more rapid growth, attract private investment, improve connectivity, and increase productivity, competitiveness, and access to services.

(ii) Job creation and access to jobs. Investments in infrastructure, logistics, urban services, and skills to support manufacturing and services, and the creation of supply chain networks along economic corridors as well as in urban centers, will create jobs and improve access to jobs.

(iii) Regional connectivity. Investments anchored on the South Asia Subregional Economic Cooperation (SASEC) program, with emphasis on lagging states and economic corridors with significant potential for expanding regional trade and investment, will boost regional connectivity.

(iv) Environmental sustainability. Investments in water resources management and introduction of new technologies and low-carbon solutions will enhance environmental sustainability.

(v) Synergies. Supporting the government’s efforts to develop economic corridors

10

Refer to Table 5: Development Coordination Matrix of the Country and Portfolio Indicators (accessible from the list of linked documents in Appendix 2).

11 ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 2008–2020. Manila.

12 They will be supported by the corresponding combination of programs elaborated in para. 26.

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along India’s east coast with integrated townships as well as multimodal regional connectivity will help boost synergies in infrastructure development, urbanization, and regional cooperation and integration.

15. Figure 1 describes how ADB’s areas of engagement support the government’s strategy for achieving faster, more inclusive, and sustainable growth. 16. ADB investments will continue to strengthen and promote gender equality and women’s empowerment through improved gender analysis and action plans, monitoring of key gender equality outcomes in design and monitoring frameworks, and documenting gender equality results. Through the design and implementation of its operations in India, ADB will support enhancing the capacity and ability of executing and implementing agencies to leverage the government’s gender-related policies, schemes, and programs. 17. The CPS gives increased importance to the government’s priority of improving project management, which will ensure timely disbursements and delivery of development outcomes. It also responds to the rising need to consolidate portfolio performance, which began to deteriorate in 2012. The CPS envisages investing more intensively in institutional strengthening and capacity development for more effective and efficient procurement and project management, with particular emphasis on lagging states. ADB will also tighten project readiness filters. ADB will reduce the number of sectors covered in lagging states, and link sector expansion to capacity development. Overall lending to lagging states will be around 40%–50% of total ADB lending to India. ADB will renew past partnerships with selected national agencies, many of which have significant operations in lagging states. 18. The CPS includes a strong knowledge program, which will be guided by a two-track approach, focusing on (i) project and sector-specific knowledge, and (ii) knowledge products directed at specific development issues.13 The first track will emphasize the capture and dissemination of knowledge embedded in operations. ADB’s CDRC will continue to promote cross-learning and sharing of best practices on project management in addition to sharing technical and non-technical knowledge. ADB will also establish closer partnerships with private sector associations, especially those dealing with new technologies in renewable energy and energy efficiency. Under the second track, ADB will work with the government and global partners to develop flagship knowledge products covering critical issues in India’s development, such as the development of economic corridors, capital markets, and regional cooperation. 19. Cofinancing. ADB will explore the establishment of long-term partnerships—with, for example, JICA, the European Investment Bank, KfW, AFD, some Middle East agencies, and export–import banks—focusing on specific sectors and themes. ADB will pilot a syndication program with selected agencies for projects exclusively assigned to ADB by the government.14 Strong financial and knowledge partnerships with official and bilateral agencies will be established to support regional cooperation and capacity development, particularly in lagging states.

13

Details on the two-track approach are provided in the Knowledge Management Action Plan (accessible from the list of linked documents in Appendix 2).

14 In the past, the government has not encouraged joint cofinancing between ADB and other agencies. The government has instead opted for specific project allocations to each agency.

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Figure 1

Faster Growth Inclusive Growth Sustainable Growth

Water resources management

(i) Irrigation

(ii) Reforms

(iii) Institutional

development:

planning, data

collection and

analysis

Infrastructure

(i) Energy: clean energy, energy

efficiency, access to energy

(ii) Transport: national, state,

district, urban, rural

(iii) Urban services: water, sanitation

and other municipal

infrastructure & services

(iv) Finance for infrastructure

(v) PPP advisory

(vi) Regional connectivity and

economic corridors

(vii) Project management

1. Water resources

management

2. Land management,

acquisition, titling, leasing

3. Clean energy and energy

efficiency

4. Greenhouse gas

emission containment:

Low carbon technology

1. Education: secondary,

tertiary, skills, ICT

2. Child development including

primary education

3. Health and nutrition

4. Food, employment and

other social security

programs

5. Water and sanitation

6. Gender empowerment

7. Focus on lagging states

1. Infrastructure: energy, transport and logistics, urban services

2. Structural change and

productivity growth

3. Reforms: public financial

management, project

management, regulatory

environment, and fiscal

consolidation

4. Science and technology to drive

innovation

Government strategy—priority investment and reform areas

Areas of ADB

engagement Human capital development

(i) Secondary education

(ii) Skills development

(iii) Urban health services

(iv) Gender action plans

Public sector management

Fiscal consolidation

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20. To leverage additional financing for investment programs, the CPS will target PPPs for projects and knowledge creation and innovation. In so doing, ADB will support the government’s agenda of reinvigorating PPPs and build on its work on PPP-related regulatory frameworks and associated capacity development. The emphasis will be on taking projects from identification to financial closure; introducing modalities such as performance-based construction contracts; introducing financial structures that encourage private sector participation in challenging sectors; and offering transaction advisory services on an as-needed basis. ADB support for PPPs will be complemented by initiatives promoting project bonds to tap capital market financing for infrastructure and services investments in brownfield and greenfield projects. ADB will also explore the establishment of a regional cooperation trust fund to support special cross-border infrastructure and trade facilitation projects.

2. Sector Activities 21. In enacting this strategy, ADB COBPs will focus on energy, transport, and urban services (water supply and other municipal infrastructure and services). Investment in these areas is expected to account for about three-fourths of ADB’s total program. ADB will selectively invest in special purpose vehicles (SPVs) for infrastructure financing, water resources management, skills development, and state-level fiscal reforms.15 India’s large size and the heterogeneity of its states require that some interventions in these sectors be maintained. However, the interventions undertaken will be innovative (as in SPVs for infrastructure financing) and/or play a catalytic role in the area of engagement (e.g., water resources management or skills development).

(i) Energy. The energy program will focus on expanding the availability of and access to energy by reducing losses, strengthening infrastructure, promoting clean energy, and increasing energy efficiency. Investments will target (a) transmission at the state and central levels; (b) distribution networks at the state level, including remote metering, feeder separation, and high voltage distribution systems; (c) renewable energy development, particularly solar; (d) demand side energy efficiency; and (e) new technologies such as smart grids.

(ii) Transport. The transport program will promote regional connectivity, particularly

around lagging states. It will also target better mobility in rural and urban areas, embedding low-carbon solutions in investments. The SASEC platform will expand road connectivity and trade facilitation between India’s northeastern states and neighboring countries. ADB will support port development and access roads in selected economic corridors, rural roads in lagging states, and mass transit systems in key urban centers.

(iii) Urban services (water supply and other municipal infrastructure and

services). The urban services program will focus on expanding the coverage, quality, and continuity of basic services. This will improve urban quality of life—e.g., through project components that contribute to an improvement in urban public health services—and environmental sustainability. The focus will be on city clusters and large and mid-sized cities. A priority will be reducing direct public sector project finance and increasing financial intermediation through the creation

15

Activities in water resources management, state-level fiscal reforms, and skills development are captured in the

agriculture and natural resources, public sector management, and education sector roadmaps, respectively.

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of specialist intermediaries. The urban services program will avoid areas where adequate funds are normally available through the Ministry of Urban Development.

(iv) Finance for infrastructure. ADB will work with national and international

institutions to create SPVs to tap capital market finance for infrastructure and social services projects. ADB will target both brownfield and greenfield projects through loans and equity finance, investment funds, credit lines, and guarantees.

(v) Water resources management. ADB will demonstrate solutions to the challenge

posed by water scarcity and climate change. ADB will promote efficient and sustainable water management in agriculture, cities, and industry, with a focus on investment projects, but including advice on policy and institutional reforms.

(vi) Public sector management. ADB will work selectively with states that propose

fiscal consolidation programs—mirroring efforts undertaken recently in West Bengal—in an effort to move from current expenditure to capital investment, increase revenue collection, and improve service delivery.

(vii) Skills development. ADB will support India’s skills development program, in an effort to increase the supply of qualified labor to industries and services essential to growth. The government is rolling out a national program at the state level. ADB will pilot specific training schemes defined jointly with the business community and aligned with the national program.

22. Nonsovereign operations. ADB’s nonsovereign operations will be in line with the CPS priority areas, and will continue to support the infrastructure and finance sectors by undertaking selective stand-alone and PPP projects for physical and social infrastructure (such as renewable energy, transport, agriculture, water, waste management, health care, and education) and financial infrastructure (such as investment funds, capital market institutions, banks, housing finance, insurance companies, and small and medium-sized enterprise financing). Nonsovereign operations are dynamic and driven by demand from the private sector. Recognizing the diverse and evolving needs of the Indian economy, ADB will selectively diversify into other areas to meet the development needs of India and its private sector. New initiatives will include a program for rupee bond development (both onshore and offshore).

III. STRATEGY IMPLEMENTATION A. Indicative Resource Parameters 23. The resource envelope for sovereign operations is about $2 billion per year for the next 5 years. India will remain ADB’s largest single country borrower. The TA program will amount to about $8 million per year from TASF. Additional resources beyond India’s country allocation—e.g., from ADB’s Results Delivery Scheme—will be prioritized for projects that promote RCI. 24. Cost-sharing between ADB and India was on an 80:20 basis during the 2009–2012 CPS period. In December 2011, the government introduced new guidelines proposing a minimum counterpart share of the government of 50% for central projects, 30% for general category state projects, and 20% for special category states. With this change, and given ADB’s significant presence in lagging states and an internal analysis of the portfolio, ADB proposes a new cost-sharing ratio of 75:25 for the loan portfolio during the 2013–2017 CPS period.

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B. Program Overview 25. Three-quarters of the 2013–2015 COBP will be devoted to energy, transport, and urban services. The remainder will be spread among finance, public sector management (state-level reforms), agriculture and natural resources management (water resources management), and education (skills development). States will account for about three-quarters of the program; around 40%–50% of total annual lending will be in lagging states. 26. The program will contribute to inclusive growth through projects that (i) expand economic opportunities through infrastructure investments in economic corridors, urban and rural areas, and cross-border connectivity; and (ii) broaden access to economic opportunities through projects that increase access to energy, connectivity, and skills development. About 60% of the business plan will promote environmental sustainability through initiatives involving clean and renewable energy (including solar, hydro, and wind energy); energy efficiency (e.g., feeder separation, smart grids, and efficient pumps); sustainable transport systems; and improved water resources management. SASEC projects that improve regional transport connectivity via strategic roads, facilitate trade, and expand energy cooperation will promote RCI.

IV. RESULTS MANAGEMENT A. Monitoring 27. The CPS country and sector results frameworks will be used by ADB and the government to track progress on the achievement of targeted results indicators. The CPS results framework will be updated annually during the TPRMs and preparation of the annual COBPs.16 ADB will also conduct detailed analyses of successful programmatic and sectoral interventions from the perspective of scalability and replication, as well as selective impact evaluation studies. The direct and indirect contributions to inclusive growth of ADB’s interventions will be assessed when evaluating outcomes.

B. Risks 28. Notwithstanding recent volatility in capital inflows and a large current account deficit, India’s external outlook remains reasonably healthy. India manages its financial system well, maintains sufficiently large foreign exchange reserves along with a flexible exchange rate, and its economy retains strong fundamentals. Given that India also has robust public financial management systems and strong procurement, governance, and anticorruption arrangements and monitoring institutions, the risk to the ADB assistance program in these areas is low. 29. Risks relate primarily to project implementation, and in particular slow procurement and weak project management. This results mainly from capacity gaps at the executing agency level and within ADB. Project implementation is also seriously affected by difficulties with land acquisition, resettlement, and environmental, forestry and other clearances. These risks will be managed in several ways. First, the government is working to decrease the time needed for internal clearances. Second, TPRMs will continue to provide a platform to discuss and resolve implementation issues associated with all ongoing projects. Third, the introduction of new

16

At the end of the CPS period, the achievement of CPS objectives will be monitored and assessed in the CPS Final Review.

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project readiness filters will shorten the time required to move projects from approval to full implementation mode (physical implementation). Fourth, the government’s screening committee has introduced greater discipline at the executing agency level. All projects require 30% of the procurement packages to be completed before their approval. Fifth, the CDRC will continue to serve as the focal point for training executing agency staff on ADB procedures related to procurement, consultant selection, disbursements, and safeguards compliance. Finally, the introduction of additional streamlined business processes and procurement reforms within ADB will speed up project implementation. 30. India has a strong record of managing assets created with its own funds, as well as projects financed by external parties. The sustainability of projects, which is often a problem in other countries in the region, has not been a major issue in India. Nonetheless, operations in lagging states face greater risks than elsewhere, especially with regard to operation and maintenance. The same applies to rural and district roads. ADB will work closely with the states and central government to ensure that sustainability remains a priority.

Appendix 1 11

COUNTRY PARTNERSHIP STRATEGY RESULTS FRAMEWORK Country Development Goals

1. Faster growth—attain average GDP growth of 8.2% per annum during the Twelfth Five Year Plan period 2. More inclusive growth—generate 50 million new work opportunities in the non-farm sector 3. Environmentally sustainable growth—reduce emission intensity of GDP in line with the target of 20%–25% reduction by 2020 compared with 2005 levels 4. Poverty reduction—reduce the poverty head count ratio by 10 percentage points by 2017

Sectors Selected for ADB Support

Government Sector Objectives

Sector Outcomes that ADB Contributes to and Indicators

ADB Areas of Intervention ADB Indicative Resource Allocation in the Next Pipeline

and Thematic Priorities

1. Energy (Strategy 2020 Core Areas 1: Infrastructure, and 2: Environment)

Strengthening and expansion of transmission and distribution network

Expansion of efficient power generation from renewable sources such as wind power, solar thermal, and solar photovoltaic

Increased and efficient use of energy, including renewable energy.

Aggregate technical and commercial losses reduced to 20% in 2017 (2011 baseline: 26%)

100% of villages have access to electricity by 2017 (2012 baseline: 93.8%)

Renewables account for 1.43% of commercial energy used by 2017 (2012 baseline: 1%)

11,000 MW of savings achieved through demand-side management and energy efficiency during 2012–2017 (2012 baseline = 0 MW)

Solar, small hydro (20 MW and below), subsector development and other renewable electrical power transmission, electrical power distribution, distribution loss reduction, energy efficiency, clean development mechanism, policy and regulation, PPPs and privatization

$1,948 million or 28.5% of the total 2013–2015 lending, of which: ENV: 100% GEN + EGM: 19% PSD: 74%

2. Transport and ICT (Strategy 2020 Core Areas 1: Infrastructure, 2: Environment, and 3: RCI

Universalization of rural connectivity

Expansion of rail infrastructure

Improvement of connectivity within India and of the northeast region―through rail, road, air―and with the neighboring countries

Development of state core network

Strengthening of urban mass transit, including highways, metro rail, electric buses, and trams in underserved urban centers

Increased, more efficient and sustainable movement of people and goods.

100% of villages (of population >1,000) have access to all-weather roads by 2017 (2000 baseline: 90%)

Road freight traffic increased to 1.8 trillion ton-km in 2016 (2011 baseline: 1.2 trillion ton-km)

Road pass-km increased to 11.4 trillion in 2016 (2011 baseline: 7.4 trillion pass-km)

Railway freight traffic increased to 927 billion ton-km in 2016 (2011 baseline: 640 billion ton-km)

Railway pass-km increased to 1,760 billion in 2016 (2011 baseline: 1,062 billion pass-km)

Modal share of public transport increased to 50% in 2017 (2008 baseline: 27%)

Border crossing time in at least two checkpoints along SASEC corridors reduced by 20% by 2017 (2012 baseline: 3–4 days)

Permanent way infrastructure (track and signaling), national roads, state roads, district and rural roads, ports, public transport, urban transport planning and reforms, PPPs, and multimodal transport facilities

$2,275 million or 33.2% of total 2013–2015 lending, of which: ENV: 24% GEN + EGM: 35% PSD: 24% RCI: 15%

3. Water Supply and Other Municipal Infrastructure and Services (Strategy 2020 Core Areas 1: Infrastructure, and 2: Environment)

Provision of basic amenities such as safe drinking water, sewage, waste management, and sanitation facilities in urban agglomerations at affordable cost to the urban poor

Improvement of water management including recycling of waste water

More people enjoy improved supply of drinking water and sanitation services.

100% of urban households have access to safe drinking water (tap, hand pump or tube well) by 2017 (2011 baseline: 91.4%)

100% of urban households have a latrine facility within their premises by 2017 (2011 baseline: 81.4%)

100% of urban households have minimum levels of solid waste collection (2011 baseline: 72%)

Drinking water system, sanitation systems, industrial wastewater, wastewater management, tariff policy and sector development urban governance, urban planning, urban environmental policies, PPPs, and urban health care

$1,125 million or 16.4% of total 2013–2015 lending, of which: ENV: 100% GEN + EGM: 94% PSD: 25%

12 Appendix 1

Government Sector Objectives

Sector Outcomes that ADB Contributes to and Indicators

ADB Areas of Intervention ADB Indicative Resource Allocation in the Next Pipeline

and Thematic Priorities

in large cities and new townships

4. Finance (Strategy 2020 Core Area 4: Finance Sector Development)

Promotion of PPPs in infrastructure finance

Achievement of greater financial inclusion

Increased infrastructure (economic and social) investment to sustain high growth

Infrastructure investment as a percentage of GDP increased to 9% in FY2016 (FY2011 baseline: 6.5% )

Share of private sector in infrastructure investment increased to 48% during 2012–2017 (11th Plan baseline: 38%)

Infrastructure investment funds, finance sector policies and strategies, and PPPs

$400 million or 5.8% of total 2013–2015 lending, of which: PSD: 100%

5. Agriculture and Natural Resources (Strategy 2020 Core Areas 1: Infrastructure, and 2: Environment)

Faster farm sector growth to benefit poor farmers (many of whom are women) through higher levels of public and private sector investment

Improvement in water resource management through improved governance and micro irrigation schemes

Linking small producers with markets

Increased agricultural (or food) production and efficient use of water and natural resources.

Annual average growth rate of agriculture increased to 4% during 2012–2017(11th Plan baseline: 3.3%)

Food grain production growth rate increased to 2% per year during 2012–2017 (11th Plan baseline: 0.65 %)

Horticulture crop production growth rate increased to 6.5% per year during 2012–2017 (11th Plan baseline: 3.1%)

Water use efficiency increased to 36% in 2017 (2011 baseline: 30%)

Farm production enhancement, agribusiness, crop and non-crop value chain infrastructure and investments, surface and groundwater irrigation, irrigation systems management, flood protection, flood-risk management, ecosystem management, marine ecosystem and coastal resources, and PPPs

$551 million or 8.1% of total 2013–2015 lending, of which: ENV: 85% GEN + EGM: 100% PSD: 44%

6. Public Sector Management (Strategy 2020 Core Area 4: Other Operational Area)

Consolidate governments’ finances and increase investment in social and economic infrastructure

Efficient use of public finances.

Consolidated fiscal deficit as % of GDP declined to 6.9% in 2015 (2011 baseline: 8.1%)

Public expenditure and fiscal management, revenue mobilization, reforms and restructuring

$400 million or 5.8% of total 2013–2015 lending, of which: ENV: 50%

7. Education (Strategy 2020 Core Area 5: Education)

Improve training and skills development through PPPs in the sectors with high youth employment potential

Develop sector-based approach to address the training requirements

Increased educational attainment of skilled labor force.

25% of workforce has formal skills in 2017 (2011 baseline: 12%)

20% of males and 15% of females aged 15–29 have received and/or are receiving formal vocational training in 2017 (2004–2005 baseline: 9% [men] and 6% [women])

100% gross enrollment rate in secondary education (class IX–X) in 2017 (2011 baseline: 66.7% [boys] and 58.5% [girls])

Vocational training, formal skills development, informal skills and technical training, system reforms and policies, PPPs, and secondary education

$150 million or 2.2% of total 2013–2015 lending, of which: GEN + EGM: 100% PSD: 100%

ADB = Asian Development Bank, EGM = effective gender mainstreaming, ENV = environmental sustainability, GEN = gender equity, ICT = information and communication technology, km = kilometer, MW = megawatt, pass-km = passenger kilometers, PPP = public–private partnership, PSD = private sector development, RCI = regional cooperation and integration, ton-km = ton-kilometers.

Sources: Government of India, Planning Commission. 2012. Twelfth Five Year Plan. New Delhi; Government of India, Planning Commission. 2011. Faster, Sustainable and More Inclusive Growth: An Approach to the Twelfth Five Year Plan (2012-17). New Delhi; Government of India, Planning Commission. 2011. Mid-Term Appraisal for the Eleventh Five Year Plan, 2007–2012. New

Delhi.

Appendix 2 13

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/CPS/?id=IND-2013

1. Economic Analysis (Summary)

2. Poverty Analysis (Summary)

3. Gender Analysis (Summary)

4. Environment Assessment (Summary)

5. Private Sector Assessment (Summary)

6. Sector Assessment (Summary): Energy

7. Sector Assessment (Summary): Transport and Information and Communication Technology

8. Sector Assessment (Summary): Water Supply and Other Municipal Infrastructure and Services

9. Sector Assessment (Summary): Finance

10. Sector Assessment (Summary): Agriculture and Natural Resources

11. Risk Assessment and Risk Management Plan (Summary)

12. Country and Portfolio Indicators

13. Country Cost-Sharing Arrangements and Eligible Expenditure Financing Parameters

14. Country Partnership Strategy Formulation

15. Country Partnership Strategy 2009–2012 Final Review

16. Country Operations Business Plan 2013–2015

17. Country Partnership Strategy 2009–2012 Final Review Validation

Supplementary Documents

18. Sector Assessment (Summary): Public Sector Management

19. Sector Assessment (Summary): Education

20. Knowledge Management Action Plan