ASIAN DEVELOPMENT BANK (ADB)

6th July, 2023 International News

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Context

The Asian Development Bank (ADB) has approved USD 200 million in additional financing for the Rajasthan secondary towns development sector project to improve water supply and sanitation systems.
The aim is to support the enhancement of urban resilience and heritage living in India.

Asian Development Bank (ADB)

About

The Asian Development Bank (ADB) is a regional development bank that provides loans and equity investments for development projects in its member countries.

Vision

ADB’s vision is to achieve a prosperous, inclusive, resilient, and sustainable Asia and Pacific while sustaining its efforts to eradicate extreme poverty.

Establishment

The bank was set up in 1966 under the auspices of the United Nations organization now known as ESCAP (Economic and Social Commission for Asia and the Pacific) and leadership of Japan as one of the first industrialized states in Asia.

Headquarters

Ortigas Center located in the city of Mandaluyong, Metro Manila, Philippines.

Field Offices

The bank also maintains 31 field offices around the world to promote social and economic development in Asia.

Members

From 31 members at its establishment, ADB now has 68 members.
Out of 68 members, 49 are regional members and 19 are non-regional members.
The regional members are geographically situated in Asia and are primary beneficiaries of the bank’s programs, whereas the non-regional members primarily from Western countries, mainly Europe and North America, are contributors of capital to the bank.

Admission of Members

The bank admits the members of the UN Economic and Social Commission for Asia and the Pacific (UNESCAP, formerly the Economic Commission for Asia and the Far East or ECAFE) and non-regional developed countries.

Main Partners

ADB's main partners are governments, the private sector, nongovernment organizations, development agencies, community-based organizations, and foundations.

Main Instruments

Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance.

Decision making

The decision-making process at the Asian Development Bank is like that of the World Bank.
The number of votes controlled by a member is commensurate with the number of shares held by that member.
Today, Japan controls the highest number of shares, which is about 15.5% of the ownership of the bank.

The following figure summarizes the ownership structure and the voting power of member states:

Areas of Focus

The bank focuses on the key areas of development that are aligned with the World Bank’s sustainable development goals (SDGs). These key areas are:

- Education
- Health
- Transport
- Energy
- Finance Sector
- Climate Change
The ADB aims to provide for sustainable and inclusive economic growth by financing projects in areas like education and health, while also helping improve the capital marketsand business infrastructure in target countries.
There are other more specialized areas as well, such as Public-Private Partnerships (PPPs), Information Technology, Regional Cooperation and Integration, etc., which serve as secondary capacity-building programs.

India and ADB

India is a founding member of ADB and the bank’s fourth-largest shareholder.
Since commencing operations in 1986, ADB has aligned its operations in the country to the government’s developing priorities. This approach will be pursued through the forthcoming country partnership strategy, 2023–2027.
ADB remains committed to reinvigorating India’s economy to generate more formal jobs, help address climate challenges, and assist lower-income states.
ADB operations also promote private sector development, gender empowerment, regional integration, knowledge solutions, and capacity development.
To date, ADB has committed 605 public sector loans, grants, and technical assistance totaling $52.6 billion to India.
Cumulative loan and grant disbursements to India amount to $40.71 billion. These were financed by regular ordinary capital resources, and other special funds. ADB’s sovereign portfolio comprises 66 loans totaling $15.4 billion.

The first two are important...

In 2022, ADB committed over $1.8 billion in sovereign loans to India.
ADB extended $15.64 million in technical assistance and $16.41 million in grants under the sovereign portfolio.
The bank continued to support India’s metro network expansion through a $350-million loan to improve connectivity in the city of Chennai while enabling transit-oriented development and first- and last-mile connectivity.
ADB committed a $350-million loan to help develop Maharashtra’s road network in 10 lagging districts, improve rural communities’ access to health and social services, and reduce transportation costs for small businesses.
Other projects included a $300-million loan for upgrading state highways and major district roads in Assam and a $110-million loan to upgrade state highways in Rajasthan.
To support government reforms in India’s logistics sector, ADB approved a $250-million loan to develop an institutional and policy framework for incentivizing private sector participation in multimodal logistics projects.
The bank also provided a $220-million loan to Tripura to improve energy security and supply quality, and to build the sector’s resilience.
ADB committed a $125-million loan to provide climate-resilient sewage collection, drainage systems, and water supply in Tamil Nadu.
A $96-million loan will help provide safe, sustainable, and inclusive rural water supply and sanitation services in Himachal Pradesh.
ADB also committed funds to help plan and design projects for developing the infrastructure of industrial estates in Tripura, and for urban infrastructure development in Nagaland and Tripura’s capital, Agartala.
Non-sovereign operations: Total outstanding balances and undisbursed commitments of ADB’s nonsovereign transactions in India as of 31 December 2022 was $2.84 billion representing 22.2% of ADB’s total private sector portfolio.

In 2022, ADB signed six nonsovereign transactions in India with a total commitment of $208.1 million along with three regional transactions, with India allocations, totaling $185 million.

Further, ADB’s Microfinance Risk Participation and Guarantee Program supported new loans of $226 million. Some of the notable deals involve the electric mobility space, water sector, agribusiness sector, crop nutrition, and transport finance.

Operational challenges

ADB operations in India cover more than 20 states, requiring a differentiated approach across and within lower- and higher-income states. Support to lower-income states focuses on basic infrastructure and services to accelerate inclusive growth.
Support to higher-income states includes transformative projects marked by replicable innovation and good practices. Because of the spatial peculiarities across regions, ADB programs need to be calibrated to location-specific needs.
ADB has also been requested to support India’s medium- to long-term recovery by enhancing assistance to micro, small, and medium-sized enterprises, and to health, education, and social protection systems in the post-pandemic era.
ADB support to boost government infrastructure financing through non-sovereign operations will depend on the volume and type of private sector investment opportunities available.

Future Directions

ADB’s program for India from 2023 to 2025 supports the country’s priorities for robust, climate resilient, and inclusive growth, aligned with ADB’s Strategy 2030 and the forthcoming country partnership strategy, 2023–2027.
To help achieve greater inclusiveness, ADB will have to support India in strengthening its health care and social protection systems, and assist small- and medium-sized enterprises to bounce back from the pandemic.
ADB will have to increase investments in education, finance, and public sector management.
Support should be provided to help India meet its ambitious climate-action commitments.
ADB should strategically engage with higher- and lower-income states through a differentiated approach.
Other areas of support will include promoting gender equity, strengthening governance and institutions, increasing digitalization, and promoting regional cooperation and integration.
Innovative upstream strategic studies and financing approaches should be pursued to boost private sector investment.