BOOK REVIEW. A benevolent Shylock?

When the late UR Ananthamurthy, doyen of Kannada literature and Jnanpith award winner, was once asked why he didn’t write fiction in English, he reportedly said that he didn’t believe in writing in a language in which World Bank reports were written. This remark not only reveals the deep unease some Indian intellectuals had towards the dominance of the English language, it also shows a deeper antipathy towards the World Bank, which is often accused of pursuing its own agenda at the cost of the developing nations.

But no other country was studied more by the World Bank than India and Nagesh Prabhu in his voluminous book argues that it would not be an exaggeration to say that it is the World Bank that needed India more than the other way around.

Prabhu takes a more sympathetic, though by no means uncritical, view of the World Bank. India’s 70-year-old relationship with the global lender has had its ups and downs. The World Bank was not a great fan of the Nehruvian state-led model of development which was pursued with great vigour in India during the 1950s and 1960s. He makes an interesting observation on how India’s democracy and non-alignment foreign policy had attracted not only the Bank’s attention but other donors too. The major landmark for the World Bank in the 1950s was its role in brokering the Indus Water pact between India and Pakistan. Prabhu gives a detailed account of how the World Bank pushed for a greater role for the private sector in India’s industrialisation, despite the ideological differences the relationship remained cordial during this period.

But it ran into rough weather in the mid-1960s when India faced a serious balance of payments crisis on the back of two successive droughts. The World Bank lent $900 million a year but not before extracting a pledge of devaluation and liberalisation. Prabhu argues that the devaluation saga ‘visibly tarnished’ India’s relationship with the World Bank.

Indira Gandhi, the then Prime Minister, took a particularly dim view of the World Bank’s attempt at influencing India’s economic policies. According to Prabhu, what angered her more was “having put pressure on India to accede on devaluation, the US and the Bank were not forthcoming with the amount of aid for which they had given assurances” (page 96).

He rightly argues that this episode played a part in Indira Gandhi taking her ‘Left turn’ where the role of the state was intensified and banks were nationalised. But things improved in the 1970s when Robert McNamara became World Bank chief and adopted a (seemingly) more pro-poor strategy. Prabhu observes how the World Bank took a soft line on Indira Gandhi’s authoritarian Emergency rule — McNamara visited India during this period and even lauded its economic performance.

By the 1980s the relationship was largely mended with India approaching the IMF-World Bank for a massive loan in 1981 to manage the fallout of the second global oil shock. Despite the political heat generated, Prabhu argues, India seemed to have the upper hand in its negotiations with the IMF and even terminated the agreement without taking the full loan.

He rightly says that India then did not want to implement the reforms the IMF was pushing for as that would have been politically unpalatable then. The important political fallout of this episode, according to Prabhu, was Indira Gandhi’s shift from the ‘command-economy’ model towards a more growth-oriented, pro-business stance.

The 1980s was also the decade where the World Bank moved away from its pro-poverty, basic needs approach towards a more ideologically contentious pro-market stance.

For India, the World Bank specifically recommended the scrapping of the MRTP Act, cutting down import tariffs, removing price controls and subsidies, encouraging foreign investments and better targeting of pro-poor schemes.

But, despite this, Prabhu says the World Bank in the 1980s avoided pursuing policy adjustment in India “for fear of jeopardising a strong lending relationship with a sensitive client”.

Of course, India had to go in for wholesale reforms after the country was hit by the 1991 sledgehammer. Prabhu observes how the Fund-Bank pushed through reforms in 1990s with the help from its ‘natural allies’ in the policy establishment. Many of the key economists in the administration had worked in the World, Bank, IMF or the ADB hence “colonising the Indian state from within”.

He then goes on to discuss in detail the World Bank’s lending to the agricultural, infrastructure and social sectors and the important role it played in the Green Revolution. Some of the important individual projects are discussed in detail and not surprisingly some were successful and others were not and Prabhu analyses the reasons in great detail.

The most interesting section of the book is where the author discusses the World Bank’s lending to individual States or sub-national lending. He argues that this shift was a reflection of the political developments in the 1990s where one-party rule was replaced by coalition governments at the Centre with smaller regional parties having a bigger say in national affairs. The Centre also played a clever game of exposing the States to conditionalities imposed by external institutions.

The World Bank started out by lending to three ‘focus States’ — Andhra Pradesh, Karnataka and Uttar Pradesh — to carry out fiscal and administrative reforms. The impact of World Bank lending on State level lending was “somewhat mixed” with some hits, some misses.

But the key takeaway for Prabhu is the States beginning to embrace reforms and ‘good governance’.

To address the growing regional disparities in the reforms period, the World Bank embarked upon an ambitious plan of lending to ‘Lagging States’. Prabhu makes an interesting observation of how States with a closer relationship with the Centre got priority in lending and cites the example of Andhra Pradesh, and how Chief Minister Chandrababu Naidu leveraged his closeness to the Centre to receive one-third of all external assistance in 2001-03.

Some of the lagging States made impressive strides under the World Bank’s assistance but others did not. In terms of growth some of the poorer States — Bihar, Odisha and Uttarakhand — grew at impressive rates but human development indices compared with the Southern States were still poor. But one area where reforms failed consistently was in the power sector.

For the future of IMF and World Bank, Prabhu ends the book by saying, “The survival of these bodies depends on their becoming more genuinely inclusive, irrespective of the Western countries’ support… structures of its internal governance need to be democratised, in particular through a reform voting system”.

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