Asian Development Bank (ADB) has decided to increase its lending to India as part of efforts to support the country’s new initiatives that target higher growth and reduced poverty.
From being an average $ 3 billion annual lender, ADB will move towards annual lending of $ 4 billion to India in next few years, the visiting ADB Bank President Takehiko Nakao said.
The Modi-led Government’s new initiatives that would be supported by ADB under the enhanced lending would include Make in India, Skill India, Clean India (Swatch Bharat Mission), Smart Cities and Atal Mission for Rejuvenation and Urban Transformation (AMRUT).
“In India, ADB aims at increasing its sovereign and non-sovereign lending from the present $7-9 billion in three years from 2015-17 to $10-12 billion between 2016 and 2018 using ADB’s expanded lending capacity”, Nakao told a press conference after meeting Finance Minister Arun Jaitley here on Tuesday.
ADB’s annual lending capacity is expected to increase to as much as $20 billion a year from the current level of $13 billion based on the merger of its Asian Development Fund lending operations with its ordinary capital resources balance sheet.
When compared with other Asian countries, India is good place to increase lending using the ADB’s increased capacity, Nakao said.
“India is a good borrower for us and they (India) have never missed a repayment. If India follows the right policies, there are good opportunities for it to grow faster”, he said.
In March this year, ADB had forecast India GDP growth at 7.8 per cent in 2015-16. It had projected China’s growth at 7.2 per cent this calendar year.
The India growth forecast will get updated in July when the ADB releases its new report, Nakao said, while declining to comment on whether the growth rate will be revised upwards or downwards.
“India is already looking at several good reforms like GST, labour market reforms, removing energy subsidies. If it continues to follow right policies, it has potential to grow faster than China”, Nakao said.
He also did not see international oil prices climbing up to $100 per barrel levels anytime this year.
Asked if he saw any impact of the likely US Federal Reserve rate hike on the Indian economy, Nakao said there could be some “hiccups” or volatility.
“It (US monetary policy normalisation) will not cause a major problem as people are already expecting it”, he said.
Emerging markets like India should take advantage of the sustained low real interest and inflation conditions (around the world) in the coming years.
On interest rates in India, Nakao saw some room for policy rates to come down further given that there are no concerns about inflation.
“The 7.25 percent policy rate is still not excessively low. If inflation rate is lower, of course interest rates can come down further. I don’t want to predict monetary policy of India. My view is interest rate should be adjusted to the economic conditions of the country”, he said.
Nakao - who is on his second visit to India this year - on Tuesday evening travelled to Jaipur as part of a two-day visit to Rajasthan.
Besides meeting the Rajasthan Chief Minister Vasundhara Raje, he will also visit the ADB-supported projects in the State.