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The Role of IFIs in the Development Agenda

Ulka Mahajan on the Context of the Role of IFIs in the Development Agenda

India paid over 600 crores between 2009-2015 to the IFIs for not using their loans

~ Maju Varghese

Every year, India pays an enormous amount of money as commitment charges to the multilateral institutions for not utilising the loans sanctioned by them. Investopedia defines commitment charges as the fee charged by the lender to a borrower for an unused or un-disbursed loan since it has set aside the funds for the borrower and cannot yet charge interest.

According to the CAG,  between 2009-2015 India paid commitment charges up to 602 crores to the external lenders. In 2014-15 itself, India was holding Rs. 2,10,099 crores of unutilised funds thus inviting a commitment charge of Rs. 110 crores. Finance Ministry had found that between 1991 and 2009, the government had paid approximately Rs 1,400 crores as the commitment charges for loans not utilised.

The commitment charges are coupled with interest while reporting by the ministry of finance which makes it difficult to understand the charges paid to different agencies in a fiscal year. The CAG observed that putting commitment charges under the head “interest obligation” is misleading as it does not reflect the nature of expenses.

Arun Jaitley, the Indian Finance Minister minister of India, has been raising the issue of commitment charges. In the 94th development committee of the World Bank, he raised the issue of commitment charges which is highest among multilateral development Banks and demanded its withdrawal. This was again repeated when the demand when the CEO of World Bank visited the country and met the Finance Minister. India is among the countries which are graduating from a low-income country to lower middle-income country resulting in loss of concessional finance from IDA loans.

World Bank charges a commitment charge of 0.25 per cent per annum on un-disbursed loans even if they are committed to be drawn in subsequent years. This is in addition to a front-end fee, a fee paid by the borrower to the lender before the loan offtakes, of 0.25 per cent on loan agreement amount (applicable on current loans). These commitment charges begin accruing 60 days after the loan agreement is signed. Despite resistance from the countries, the World Bank has stated that it will not be able to remove commitment charges due to its cost recovery guidelines.

According to the CAG, India had a total outstanding debt of 51,04,675 crores as on March 31, 2015. This increased to around 57,021,582 crores on August 15, 2016, which means a per capita debt of Rs 44,032. This comes to around 41 per cent of the GDP. To service this massive debt, India pays about 36,318 crores as interest payment every year. CAG further reports that in 2014-15, 77 per cent of the long-term internal borrowings and 73 per cent of the external borrowings were utilised for debt servicing, implying that a larger percentage of debt was being used for paying the existing debts. This, in turn, meant the lower percentage of debt was available for meeting developmental expenditure to promote growth.

Swatch Bharat and commitment charges

The World Bank had approved a US$1.5 billion loan for Swachh Bharat Mission-Gramin (SBM-G), Modi government’s much-hyped flag-ship campaign on Sanitation to support the government’s efforts to ensure all citizens in rural areas have access to improved sanitation. The loan sanctioned in 2015 is the Bank’s biggest lending in the social sector.

The mission has provision for incentivizing states on their performance in the Swachh Bharat Mission. The performance of the States will be gauged through an independent survey based measurement of certain performance indicators, called the Disbursement-Linked Indicators (DLIs). However, due to lack of independent verification of results, India missed the first disbursement of the loan. According to the media reports, India is likely to miss the second tranche too. Despite not receiving a single paisa, India has paid the commitment charge, interest, and front-end fees of USD 15.40 million so far.

The payment of commitment charges to the multilateral agencies because of governmental inability to plan and implement shows a lack of seriousness in using public money. CAG has mapped and pointed out the inefficiency of governments in utilising funds. The money that we pay as fine and commitment charges are a waste of public resources as pointed out by CAG in the reports from time to time. The proposal to set up a public debt and management agency for proper planning of external debt is still pending in spite of various statements by the finance minister.

Multiple CAG reports on debt need to be taken on a priority basis, and an oversight mechanism should be created within the parliament of India through a standing committee to look into external debt and also its investments abroad and making it transparent and accountable to the citizens of the country.

50 years of ADB – The Indian story of resistance

The Asian Development Bank was conceived in the early 1960s as a financial institution that would foster economic growth and cooperation in Asia. India was a founding member of the Asian Development Bank (ADB) and is now the fourth-largest shareholder. ADB commenced operations in India in 1986 and has approved 240 loans totalling $36.8 billion.

Asian Development Bank (ADB) has grown to be the third largest source of development finance in the Asia-Pacific region, next to the World Bank Group and the Japanese Government. Documents published in 2017 reveals that from a lending portfolio of just over $3 billion during the first decade, ADB has expanded its lending to $123 billion during the last 10 years.

However, the Mid-term Review (MTR) of ADB’s strategy for 2015 and 2020 have acknowledged that the Asia-Pacific region faces widening inequalities in income and access to economic and social opportunities. Increased investment in infrastructure has failed to provide inclusive growth and social protection to the vulnerable sections of the populations including the workers and women.

India had about 84 ongoing sovereign loans from ADB amounting to $11.9 billion at the end of 2015. Currently, we have about 170 active projects in the country of ADB alone. The massive Vizag-Chennai corridor, the numerous urban development projects across the country, the ReNew clean energy projects in Andhra Pradesh, Gujarat, Jharkhand, Madhya Pradesh, Telangana and Karnataka, are only a few of the 50 odd active and approved projects. Further 23 projects have been proposed to the ADB waiting for approval. These are just projects covered by ADB, adding them to the projects funded by all IFIs shows the extent of their influence in almost every sector – energy, infrastructure, health, etc. The scale of land grab, loss of livelihood, environmental destruction has been completely overlooked by both the IFIs and the government. The rampant privatisation of all the sectors, including health care, is going to affect all those who would not be able to afford health care. In such a time, holding the development banks accountable has become imperative for one’s survival with some modicum of dignity.

 

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ADB Investments in India. Source: Answer by the government to the parliament of India

 

ADB 50 campaign in India

The first week of May 2017 was marked by actions across the country against ADB and other IFIs. It coincided with ADB’s 50 years celebrations in Manila. The massive protest actions were intended to send a strong message to the ADB and other IFIs of the havoc their investments have caused. Thousands of people, in over 140 locations spread in over 21 states in India and over 80 organisations, came together to make this campaign a massive success. These protest actions are both a reminder of the reckless lending of ADB and hope to continue the struggle against the IFIs and their inequitable development model.

The coming together of so many organisations resulted in a wide range of programmes, including the public meeting, lectures, demonstrations, and human chains. Activists also made short video clips highlighting the impacts of the investments by IFIs. The protests actions raised concerns about investments of IFIs like World Bank; International Finance Corporation; Japan Bank of International Corporation (JBIC); Asia Infrastructure Investment Bank; New Development Bank; Exim Banks of Korea, United States, China among others. Many of these agencies are co-financiers, with increasing investments in the infrastructure and cross border projects, thus causing irreversible damage to the people and environment, while their policies to safeguard the harm caused by their investments are made opaque and watered down.

The actions mentioned above on the occasion of 50 years of ADB are a part of the continuous struggle of the people from all the regions that have been affected by the projects.

Budget Session of Parliament: An Overview

By Maju Varghese

The Constitution of India has accorded the Parliament the supremacy among the three organs of the Union government viz legislature, executive, and judiciary. Parliament not only makes the laws but also enables the citizens to participate in controlling the government. The Parliament applies various oversight mechanisms to ensure transparency and accountability in the system. The two mechanisms available in our country are questions and debates on the floor of the house and various committees which scrutinise the public finances and policies.

The budget session of the Parliament was held between January 31 and April 12, 2017. The session had a recess between Feb 10 and March 8, 2017, during which the standing committees examined the demand for grants from various ministries. The session was convened in the context of upcoming assembly elections and also of post demonetisation distress.

This session was important for many reasons. The budget was introduced on February 1 instead of the last working day of February as per the tradition.  The government claims that advancing the presentation will result in necessary legislative approval for annual spending plans and tax proposals could be completed before the beginning of the new financial year.  According to eminent economist Arun Kumar, early presentation of Budget will help the entire exercise to get over by 31 March, and expenditure, as well as tax proposals, can come into effect right from the beginning of new fiscal, thereby ensuring better implementation.

Besides advancing the date, the government decided from this year to merge Union Budget and Railway Budget.  Earlier, Railway budget was presented first followed by the general union budget.  Another interesting development this year is doing away with the distinction of the plan and non-planned expenditure in the budget-making monitoring difficult on capital infusion in developmental planning.

The budget session held 29 sittings for 178 hours in total in which 24 bills were introduced, and 23 bills were passed.  Members raise 560 starred questions and 6440 un-starred questions during this session.

Some Major debates in the Parliament

The budget session saw the introduction of some major bills and discussions around those.  These are: The Finance Bill, 2017; The Specified Bank Notes (Cessation of Liabilities) Bill, 2017; Bills related to Goods and Service Tax; The Payment of Wages (Amendment) Bill, 2017; the Maternity Benefit (Amendment) Bill, 2017; the Mental Health Care Bill, 2017; and the Employee’s Compensation (Amendment) Bill, 2017.

Analysis of Questions in Parliament

During the budget session, about 6440 un-starred questions and 560 starred questions were admitted in the parliament.  However, the lack of interest in the functioning of the IFIs was evident as just 7 questions asked on the topic in Lok Sabha out of 5203 questions, and 7 in the Rajya Sabha from the total 5064 questions.  The break-ups of the questions are given below.

IFI Name Lok Sabha Rajya Sabha
World Bank 6 3
ADB 1 2
AIIB 0 2
NDB 0 0

Rising NPA’s and Parliament

The debate on Non-Performing Assets continued to be debated in the parliament with many parliamentarians raising the issue through questions. There were about 18 questions asked in the Rajya Sabha and 21 questions in Lok Sabha. K.V Thomas, then chairman of the standing committee on public accounts, said that the current non-performing assets stood at 6.8 lakh crore or 6.8 trillion of which 70% are those of big corporate houses. There were debates on the bad bank and how the banks could be cleared of the mounting NPAs. Interestingly, the same bankers who were asking the state to take care of their bad debts came against debts being waived off for farmers who are facing an acute crisis due to a variety of reasons leading to suicide deaths.

New trend of undermining  democratic institutions

The Parliament is witnessing a new trend of bypassing Rajya Sabha in important matters including amendment of acts where both Lok Sabha and Rajya Sabha is responsible. The introduction of the Finance Bill[1] first with 10 amendment of acts and later to change 40 different acts including Reserve Bank of India Act as well as the Representation of the People Act was according to opposition first in the history of Parliament itself.  This act has robbed the Parliament its right to refer the bill to a standing committee or to scrutinise it clause by clause as to every amendment and the power of Raja Sabha to discuss, propose and incorporate amendment.

The very fact that the finance bill is a money bill gives the option of not incorporating Rajya Sabha view in the bills. All the five amendments passed in the Rajya Sabha was not incorporated into the finance bill, and it was passed as such.  Centre has got 22 Money bills passed in Lok Sabha ignoring the Rajya Sabha, and this has kept a bad president for the functioning of the democracy as such.

Executive legislation through Ordinance rather than legislation

The ordinance is an independent legislation brought out by the Executive; it is the wisdom and authority being exercised by the Executive. An Ordinance can only be done in extraordinary situations when the houses are not in session or a critical condition.  The Ordinance encroaches the right of the parliament in law making.

The government seems to issues ordinance after ordinance despite the fact that this could be brought before the parliament for legislation in the first instance. According to the PRS Legislative, the government in the last three years has promulgated 27 ordinances, including the ones on land acquisition, demonetisation, payment of wages bill, etc. Many of the ordinances were promulgated multiple times. It is interesting to read the observation of the Constitution Bench of the Supreme Court observation in Krishna Kumar Vs State of Bihar delivered on January 2, 2017, that promulgation of ordinances is a fraud on the Constitution and a subversion of democratic legislative processes. The latest subversion is the Banking Ordinance, on which the finance minister refused to share details of the ordinance before Presidential assent.

While there were interesting debates in the parliament this session, it seems some of the issues are not being captured in the discussions.  This includes life and livelihood issues of people who are getting displaced/ affected by development projects, investments of bilateral and multilateral agencies including World Bank, Asian Development Bank, IFC and new development banks like New Development Bank, Asia Infrastructure Investment Bank, etc.  A point to make in this regard is about New Development Bank, a multilateral Bank initiated by BRICS nations.  There seems to be no real engagement of the Parliament in influencing the nature of the Bank given that Mr K. V. Kamat is the chief of the Bank.  The Bank is in the process of developing its policies with regards to the environmental and social framework, disclosure policy, etc in their lending.

The other major lack of oversight is on negotiations in the trade policy.  India is Negotiating a free trade agreement, Regional Comprehensive Economic Partnership – RCEP [2] in the Asia Pacific region.  According to India FDI Watch, “In the past four years and to this day, no text has been made available to members of the public, parliamentarians, civil society or media,”. The trade negotiations are happening under a veil of secrecy where Parliament and parliamentarians are kept in the dark.

Parliament does not have an institutional space like Standing Committee where trade negotiations, Indian investment abroad and Multilateral and Bilateral investments to India and its effects on Indian policy environment is being discussed.  The failure of the Standing Committee to come out with a report on the demonetisation in this session with full facts and figures were a let down on the process particularly when it was announced that it would come out before the end of the budget session.

[1]          The finance bill is for ordinarily introduced to give effect to financial proposals of the Government of India for the following fiscal year and not to make permanent changes in the existing laws unless they are consequential upon or incidental to the taxation proposals.

[2]          RCEP is a 16-nation trade pact that includes the Association of Southeast Asian Nations (ASEAN), along with China, Australia, India, Japan, South Korea and New Zealand, a region that accounts for 46 percent of the world’s population and that produced nearly 30 per cent of global GDP in 2016.

 

Media Coverage

Netindia123.com: Medha Patkar demands more transparency in ADB projects
(May 9, 2017)

Webindia123.com: Medha Patkar demands more transparency in ADB projects
(May 9, 2017)

The Statesman: Call for nationwide protests against ADB’s projects in India
(May 8, 2017)

Business Standard: Medha Patkar demands more transparency in ADB projects
(May 8, 2017)

 Eenadu: Medha Patkar demands more transparency in ADB projects
(May 8, 2017)

Sify.com: Medha Patkar demands more transparency in ADB projects
(May 8, 2017)

The CEO Magazine: Medha Patkar demands more transparency in ADB projects
(May 8, 2017)

Orrisadiary.com: ADB’s 50 years greeted with mass protest at Bhubaneswar, Odisha
(May 8, 2017)

Sambad: ଏସିଆ ବିକାଶ ବାଙ୍କ ବିରୋଧରେ ଆନ୍ଦୋଳନ (May 7, 2017)

The Shillong Times: ADB’s 50 years greeted with nationwide protests (May 6, 2017)

Navratnanews.com: 50 years of Asian Development Bank Destruction, Displacement and Exploitation of Natural resources (May 6, 2017)

Mumbainewsnetwork: ADB’s 50 years greeted with nationwide protests (May 5, 2017)

Daily O: ADB celebrates 50 years, but there’s a problem with development institutions (May 5, 2017)

The Ecologist: Asian Development Bank must end its 50 year addiction to coal!
(May 4, 2017)

The Telegraph: Protests against ADB projects (May 4, 2017)

Emaatimes.com: पटना: टुकड़ों में बंट कर रह गयी बिजली कंपनियां, गरीबों से दूर हो गयी बिजली
(May 3, 2017)

Janjosh.com: अगेंस्ट ADB की बैठक हुई सम्पन्न (May 3, 2017)

TwoCircles.net: Marking Asian Development Bank’s 50 years, protests to take place in over 100 places in India this week (May 2, 2017)

MattersIndia.com: ADB’s 50 years: Protests to take place in several places (May 2, 2017)

National News Analysis: Marking Adb’s 50 Years, Protest Actions To Take Place In Over 100 Places In India This Week (May 2, 2017)

Governance Now: ADB’s 50th anniversary, civil society’s 100 protests (May 2, 2017)

Counterview.org: Anti-ADB protests begin across India: Planks include loss of livelihood of indigenous people, eco-destruction (May 1, 2017)

Ecologise.in: ADB@50, Resistance@50 (April 28, 2017)

Counterview.org: 50 actions of resistance in India at 50 places against ADB’s 50 year of inequitable policies
(April 28, 2017)

 

Press Release

(May 8, 2017) New Delhi: People across India united to resist anti-people policies of ADB and other IFIs
English              हिंदी              

(May 7, 2017) Bhubaneswar:
English              ଓଡ଼ିଆ ଭାଷା              

(07 May 2017) Jhabua: Protest in Meghnagar, Jhabua against ADB and other IFIs
Hindi

(May 6, 2017) Bilaspur: ADB Stop Violating Human Rights and Rights of Indigenous, tribal and forest communities: Stop Supporting Militarisation of our Territories
English

(May 5, 2017) New Delhi: People across India united to resist anti-people policies of ADB and other IFIs
English              हिंदी              

(May 5, 2017) Nagpur: Workers and Hawkers Stages Protests Against Privatisation of Civic Services
English

(May 5, 2017) New Delhi: ADB’s 50 years greeted with nationwide protests
English

(May 1, 2017) New Delhi: Marking ADB’s 50 years, Protest Actions to take place in over 100 places in India this week.
English              हिंदी              ಕನ್ನಡ

Parliamentary Supremacy Undermined? An Analysis of Parliamentary Debates in India on International Financial Institutions (1984-2009)