![Country of Analysis
India, officially the Republic of India is a country in South Asia. It is the seventh-largest country by area,
the second-most populous country (with over 1.2 billion people), and the most populous democracy in
the world. It is bounded by the Indian Ocean on the south, the Arabian Sea on the southwest, and the
Bay of Bengal on the southeast. It shares land borders with Pakistan to the west;[f] China, Nepal, and
Bhutan to the northeast; and Myanmar (Burma) and Bangladesh to the east. In the Indian Ocean, India
is in the vicinity of Sri Lanka and the Maldives. India's Andaman and Nicobar Islands share a maritime
border with Thailand and Indonesia.](https://image.slidesharecdn.com/finalproject-170328173455/85/Financing-for-development-3-320.jpg)
Financing for development
- 2. Propose a financing solution that will increase private and/or public finance for development in a country of your choosing that uses the IDA PSW. Topic
- 3. Country of Analysis India, officially the Republic of India is a country in South Asia. It is the seventh-largest country by area, the second-most populous country (with over 1.2 billion people), and the most populous democracy in the world. It is bounded by the Indian Ocean on the south, the Arabian Sea on the southwest, and the Bay of Bengal on the southeast. It shares land borders with Pakistan to the west;[f] China, Nepal, and Bhutan to the northeast; and Myanmar (Burma) and Bangladesh to the east. In the Indian Ocean, India is in the vicinity of Sri Lanka and the Maldives. India's Andaman and Nicobar Islands share a maritime border with Thailand and Indonesia.
- 4. 1. Andhra Pradesh 10. Jammu and Kashmir 19. Nagaland 28. Uttarakhand 2. Arunachal Pradesh 11. Jharkhand 20. Odisha 29. West Bengal 3. Assam 12. Karnataka 21. Punjab A. Andaman and Nicobar Islands 4. Bihar 13. Kerala 22. Rajasthan B. Chandigarh 5. Chhattisgarh 14. Madhya Pradesh 23. Sikkim C. Dadra and Nagar Haveli 6. Goa 15. Maharashtra 24. Tamil Nadu D. Daman and Diu 7. Gujarat 16. Manipur 25. Telangana E. Lakshadweep 8. Haryana 17. Meghalaya 26. Tripura F. National Capital Territory of Delhi 9. Himachal Pradesh 18. Mizoram 27. Uttar Pradesh G. Puducherry Indian States & Union territories
- 5. 1.What is the problem? On the surface, India's economy looks solid heading into 2016, with third quarter 2015 growth up 7.4% over third quarter 2014. Industrial production also expanded by 9.8% in October compared to a year earlier. On the downside, inflation picked up in November 2015 to 5.4%, reaching a one-year high. The fiscal situation in India improved with the current account deficit falling to 1.3% of gross domestic product (GDP) in 2015 from 4.8% in 2013. The government did not succeed in prodding parliament to pass legislation implementing a goods and service tax to help reduce the deficit further, but that remains a goal. Heading into 2016, however, the economic challenges India faces are more deep-rooted, persistent and harder to solve.
- 6. 3 ECONOMIC CHALLENGES INDIA FACES IN 2016 Population Growth Crumbling Infrastructure Graft and Corruption Looking Forward India's economic growth looked good on the surface in 2015. However, it could come to a crashing halt in 2016 if a recession or stock bear market slams the world. Even without those added burdens, no one can reasonably expect much progress in solving India's deep-rooted economic problems in 2016. The solution timetable is very long and will consume many years of effort by more than one generation.
- 7. 2.WHAT ARE THE REASONS THAT THE GOVERNMENT, OFFICIAL AID PROVIDER OR PRIVATE SECTOR WOULD WANT TO PARTICIPATE? Potential Benefits Potential Risks Potential Benefits of Public Private Partnerships The financial crisis of 2008 onwards brought about renewed interest in PPP in both developed and developing countries. Facing constraints on public resources and fiscal space, while recognizing the importance of investment in infrastructure to help their economies grow, governments are increasingly turning to the private sector as an alternative additional source of funding to meet the funding gap. While recent attention has been focused on fiscal risk, governments look to the private sector for other reasons: Exploring PPPs as a way of introducing private sector technology and innovation in providing better public services through improved operational efficiency Incentivizing the private sector to deliver projects on time and within budget
- 8. Imposing budgetary certainty by setting present and the future costs of infrastructre projects over time Utilizing PPPs as a way of developing local private sector capabilities through joint ventures with large international firms, as well as sub-contracting opportunities for local firms in areas such as civil works, electrical works, facilities management, security services, cleaning services, maintenance services Using PPPs as a way of gradually exposing state owned enterprises and government to increasing levels of private sector participation (especially foreign) and structuring PPPs in a way so as to ensure transfer of skills leading to national champions that can run their own operations professionally and eventually export their competencies by bidding for projects/ joint ventures Creating persification in the economy by making the country more competitive in terms of its facilitating infrastructure base as well as giving a boost to its business and industry associated with infrastructure development (such as construction, equipment, support services) Supplementing limited public sector capacities to meet the growing demand for infrastructure development Extracting long-term value-for-money through appropriate risk transfer to the private sector over the life of the project – from design/ construction to operations/ maintenance
- 9. Potential Risks of Public Private Partnerships There are a number of potential risks associated with Public Private Partnerships: Development, bidding and ongoing costs in PPP projects are likely to be greater than for traditional government procurement processes - the government should therefore determine whether the greater costs involved are justified. A number of the PPP and implementation units around the world have developed methods for analysing these costs and looking at Value for Money. There is a cost attached to debt – While private sector can make it easier to get finance, finance will only be available where the operating cashflows of the project company are expected to provide a return on investment (i.e., the cost has to be borne either by the customers or the government through subsidies, etc.) .
- 10. Some projects may be easier to finance than others (if there is proven technology involved and/ or the extent of the private sectors obligations and liability is clearly identifiable), some projects will generate revenue in local currency only (eg water projects) while others (eg ports and airports) will provide currency in dollar or other international currency and so constraints of local finance markets may have less impact Some projects may be more politically or socially challenging to introduce and implement than others - particularly if there is an existing public sector workforce that fears being transferred to the private sector, if significant tariff increases are required to make the project viable, if there are signficant land or resettlement issues, etc There is no unlimited risk bearing – private firms (and their lenders) will be cautious about accepting major risks beyond their control, such as exchange rate risks/risk of existing assets. If they bear these risks then their price for the service will reflect this. Private firms will also want to know that the rules of the game are to be respected by government as regards undertakings to increase tariffs/fair regulation, etc. Private sector will also expect a significant level of control over operations if it is to accept significant risks
- 11. Private sector will do what it is paid to do and no more than that – therefore incentives and performance requirements need to be clearly set out in the contract. Focus should be on performance requirements that are out-put based and relatively easy to monitor Government responsibility continues – citizens will continue to hold government accountable for quality of utility services. Government will also need to retain sufficient expertise, whether the implementing agency and/ or via a regulatory body, to be able to understand the PPP arrangements, to carry out its own obligations under the PPP agreement and to monitor performance of the private sector and enforce its obligations. The private sector is likely to have more expertise and after a short time have an advantage in the data relating to the project. It is important to ensure that there are clear and detailed reporting requirements imposed on the private operator to reduce this potential imbalance
- 12. A clear legal and regulatory framework is crucial to achieving a sustainable solution (for more, go to legislation and Regulation) Given the long-term nature of these projects and the complexity associated, it is difficult to identify all possible contingencies during project development and events and issues may arise that were not anticipated in the documents or by the parties at the time of the contract. It is more likely than not that the parties will need to renegotiate the contract to accommodate these contingencies. It is also possible that some of the projects may fail or may be terminated prior to the projected term of the project, for a number of reasons including changes in government policy, failure by the private operator or the government to perform their obligations or indeed due to external circumstances such as force majeure. While some of these issues will be able to be addressed in the PPP agreement, it is likely that some of them will need to be managed during the course of the project.
- 13. 3.WHAT ARE THE MAIN OBSTACLES CURRENTLY STANDING IN THE WAY OF UNLOCKING FINANCIAL OPPORTUNITIES? HOW WOULD YOUR SOLUTION OVERCOME THEM? Opportunity Obstacle Expanding the range of products Political interference Financial education Inadequate regulatory framework for providers to the poor Client protection regulation Microfinance’s single-product approach Capacity building for microfinance institutions Lack of credit bureaus Credit bureaus Limited financial literacy
- 14. Operating at the epicenter of the events that have shaken microfinance, respondents from India are attempting to come to terms with the causes of and potential solutions to their crisis.a While the opportunities they see echo the worldwide view (product range, financial education, client protection regulation, MFI capacity building, and credit bureaus), the top obstacles might even be considered a self-diagnosis of what went wrong in Andhra Pradesh (Table 6). It’s no surprise that political interference leads the way, followed by inadequate regulation for microfinance and the monoproduct approach. There’s a succinct apportionment of blame: the crisis was caused by political interference made possible by inadequate regulation that channeled microfinance to take a single-product focus. The next five items (absence of a credit bureau, low levels of financial literacy, lack of understanding of client needs, inadequate client protection, and poor business practices) further laid the basis for the crisis. Other crisis-linked obstacles that scored significantly higher in India than in other regions include negative press image (10th) and unsustainable growth (12th). The top-ranked opportunities comprise a to-do list of priorities for building a more client-friendly microfinance industry: widening the product range, educating clients, improving client protection, creating credit bureaus, and strengthening the capacity of MFIs. (Though it is ironic to note that weak institutional capacity of MFIs, ranked globally in 2nd place, was only 16th in India.)
- 15. At the same time, Indian microfinance is attempting to better organize itself to patrol market conduct, ensure client protection, and interface effectively with regulators. Self-regulation and strengthened microfinance associations came in both at 9th among opportunities, much higher than in other regions. Only after dealing with these crisis-linked issues do the longer term opportunities and challenges in India arise. The top technology-assisted effort is national identification (in 6th place), which is linked to the pressing need for credit bureaus (4th). Self-help groups are also relatively high on the opportunity list (12th). On the obstacles side, India is one of the only places where transient and displaced populations (12th) appear as significant. Branchless banking through mobile phones (11th) and banking agents (12th) is still relevant, but these have fallen well below their rankings in most other regions. Finally, in a country where public sector banks dominate the financial landscape, and where the regulators have not hesitated to give banks mandates on how to operate, the respondents to this survey gave very low marks to government initiatives (state bank reform; no-frills account mandates), with the exception of matched savings and cash transfer schemes (18th). In the country where priority sector lending requirements have fueled microfinance growth, not one Indian respondent chose directed credit among the top ten opportunities, placing it at the very bottom rank.