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economic, Thematic,and Ssector Work

ANNUAL REPORT

2005

SOUTH ASIA

ANNUAL REPORT

2005

SOUTH ASIAeconomic, Thematic,and sector wwwwwww wWork

© 2006 Asian Development Bank

All rights reserved. Published 2006.Printed in the Philippines.

Cataloguing-in Publication DataPublication Stock No. 111706

Asian Development BankAnnual Report of the South Asia Department, Asian Development Bank1. Asian Development Bank2. Economic, Thematic, Sector Work

The views expressed in this book are those of the authors and do not necessarily refl ect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent.

ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use.

Use of the term “country” does not imply any judgment by the authors or ADB as to the legal or other status of any territorial entity.

FOREWORDEconomic, thematic, and sector work (ETSW) produces knowledge products that are

fundamental to the preparation, design, implementation, and ultimate impact of the

Asian Development Bank (ADB) lending and nonlending operations. The Strategy

and Action Plan of the South Asia Regional Department (SARD) stresses the need to

strengthen ETSW and knowledge management.

Documenting and disseminating the huge amount of ETSW being undertaken

in SARD is critical for improving ETSW and knowledge management. Thus, I am

pleased to introduce the fi rst 2005 Annual Report, SARD Economic, Thematic, and

Sector Work, which has been prepared by the South Asia Country Coordination and

Regional Cooperation Division (SAOC). The Annual Report provides an overview of

SARD’s analytical work on the South Asian region. This edition contains abstracts of

103 major ETSW studies completed or published by SARD in 2005.

ETSW contributions by SARD staff not covered in this report include chapters in

the Asian Development Outlook (ADO) and ADO Update, and country economic

reports, most of which are published on a periodic basis by resident missions. This

ETSW is extremely important as it provides up-to-date information and analysis on

current economic developments in the individual developing member countries

(DMCs) of South Asia.

I hope that the ETSW Annual Report will lead to greater dissemination of the studies

undertaken by SARD and further the understanding of current issues in South Asia,

promote policy dialogue among stakeholders, and facilitate development reforms

and development management.

Finally, we would like to thank the authors and the ETSW focal points from the

resident missions and the sector divisions of SARD and the Central and West Asia

Department of ADB who coordinated with us in the submission and compilation

of the abstracts: Piyasena Abeygunawardena, Anna Maria Alipio, Suzanne Barbin,

Johanna Boestel, Ruby Boidya, Sekhar Bonu, Alain Borghijs, Sheila Bulanhagui, Bruno

Carrasco, Fe de Leon, Angelica Luz Fernando, Ayako Inagaki, Rezaul Khan, Hiranya

Mukhopadhyay, Joel Nave, Safdar Parvez, Dong Soo Pyo, Shreejana Rajbhandari,

Narhari Rao, Bisma Rout, Bipulendu Singh, Paolo Spantigati, and Nimali Hasitha

Wickremasinghe. The report was conducted under the overall guidance of Richard

Vokes and Naved Hamid. The production of this report was led by Toan Quoc

Nguyen, assisted by Jane de Ocampo and Sharlene Lu-Quintana.

Kunio Senga

Director General

South Asia Regional Department

iii

Table of Contents

FOREWORD iii

INTRODUCTION 1

BANGLADESH 2

BHUTAN 8

INDIA 14

NEPAL 40

PAKISTAN 46

SRI LANKA 56

REGIONAL 60

INDEX OF ECONOMIC, THEMATIC, AND SECTOR WORK 65

A. Theme 65

B. Sector 68

C. Division and Resident Mission 71

v

ADB ABBREVIATIONS

Organization Code Division/Resident MissionSARD South Asia Regional DepartmentAFRM Afghanistan Resident MissionBRM Bangladesh Resident MissionINRM India Resident MissionNRM Nepal Resident MissionPRM Pakistan Resident MissionSAAE Agriculture, Environment,

and Natural Resources DivisionSAEN Energy DivisionSAGF Governance, Finance,

and Trade DivisionSANS Agriculture, Natural Resources,

and Social Services DivisionSAOC Country Coordination and

Regional Cooperation DivisionSAOD Offi ce of the Director GeneralSASS Social Sectors DivisionSATC Transport and Communications

DivisionSAUD Urban Development DivisionSLRM Sri Lanka Resident Mission

Country Code CountryAFG AfghanistanBAN BangladeshBHU BhutanIND IndiaMLD MaldivesNEP NepalPAK PakistanSRI Sri LankaREG Regional

Sector Code SectorAG Agriculture and Natural ResourcesED EducationEN EnergyFI FinanceHL Health, Nutrition, and

Social ProtectionIN Industry and TradeLW Law, Economic Management,

and Public PolicyTC Transport and CommunicationsWS Water Supply, Sanitation,

and Waste ManagementMS Multisector

Theme Code ThemeECG Sustainable Economic GrowthISD Inclusive Social DevelopmentGAD Gender and DevelopmentENV Environmental SustainabilityGOV GovernanceREG Regional CooperationPSD Private Sector DevelopmentCAD Capacity DevelopmentMT MultiTheme

vi

List of Abbreviations

ABT Availability Based TariffAIBP Accelerated Irrigation Benefi ts ProgramBOT build operate transferBPRSP Balochistan Poverty Reduction Strategy BRMP Balochistan Resource Management

ProgramCAP Common Action PlanCAREC Central Asia Regional Cooperation CEB Ceylon Electricity BoardCEDAW Convention on the Elimination of All

Forms of Discrimination against Women CERC Consumer Education and Research CenterCCPs Captive Power PlantsCSATTF Central and South Asia Transport

and Trade Forum CSP country strategy and programCSPU country strategy and program update CST Central Sales Tax CDP Corridor Development PlanDCs developed countriesDMCs developing member countries FDI foreign direct investment FSA Financial Sector AssessmentFYP Five-Year PlanGDP gross domestic productHIPC Highly Indebted Poor Countries IDA International Development AssociationIFIs international fi nance institutionsIIDP Integrated Irrigation Development Project IPPs Independent Power ProducersIMF International Monetary FundIT information technologyIWAI Inland Waterways Association of Ireland IWRM integrated water resources management JBIC Japan Bank for International CooperationLDCs less-developed countries MDGs Millennium Development Goals NARES National Agricultural Research Education

and Extension System NEP National Employment ProgrammeNGOs nongovernment organizations NPV net present value

NTBs Nontariff barriers NWFP North–West Frontier Province O&M operation and maintenanceOCR ordinary capital resourcesOECF Overseas Economic Cooperation FundPFC Provincial Finance CommissionPFI private fi nance initiative PFMA Public Finance Management Assessment PPP public/private partnershipPPTA project preparatory technical assistancePRS Poverty Reduction StrategyPRSP Poverty Reduction Strategy Plan PSDS private sector development strategyPSEs public sector enterprises PSU public sector undertakings PUC Public Utilities CommissionRBI Reserve Bank of India RETA regional technical assistanceRMSE root mean squared errorSMEs small- and medium-sized enterprisesSWITRS Statewide Integrated Traffi c

Record System TA technical assistance UPHCP Urban Primary Health Care Project

viiNote: In this publication, “$” refers to US dollors.

Table 1: 2005 SARD ETSW AnalysisCATEGORIES CODE NUMBER PERCENTAGE (%)

Resident Missions vs. DivisionsRM Resident Missions 80 77.7

SD Sector Divisions 23 22.3

Total 103 100

Division/RM breakdown

BRM Bangladesh Resident Mission 7 6.8

INRM India Resident Mission 49 47.6

NRM Nepal Resident Mission 6 5.8

PRM Pakistan Resident Mission 16 15.5

SANS Agriculture, Natural Resources, and Social Services Division 6 5.8

SAGF Governance, Finance, and Trade Division 2 1.9

SAOC Country Coordination and Regional Cooperation Division 13 12.6

SAUD Urban Development Division 1 1

SATC Transport and Communications Division 1 1

SLRM Sri Lanka Resident Mission 2 1.9

Total 103 100

Regional vs. Country-specifi cREG Regional 8 7.8

DMC Country-specifi c 95 92.2

Total 103 100

DMC breakdown

BAN Bangladesh 7 7.4

BHU Bhutan 7 7.4

IND India 52 54.7

MLD Maldives 0 0

NEP Nepal 8 8.4

PAK Pakistan 17 17.9

SRI Sri Lanka 4 4.2

Total 95 100

Sector

AG Agriculture and Natural Resources 5 4.9

ED Education 0 0

EN Energy 8 7.8

FI Finance 3 2.9

HL Health, Nutrition, and Social Protection 7 6.8

IN Industry and Trade 12 11.7

LW Law, Economic Management, and Public Policy 36 35

MS Multisector 21 20.4

TC Transport and Communications 10 9.7

WS Water Supply, Sanitation, and Waste Management 1 1

Total 103 100

Theme

CAD Capacity Development 0 0

ENV Environmental Sustainability 17 16.5

GAD Gender and Development 0 0

GOV Governance 6 5.8

ISD Inclusive Social Development 22 21.4

MT MultiTheme 2 1.9

PSD Private Sector Development 4 3.9

REG Regional Cooperation 7 6.8

ECG Sustainable Economic Growth 45 43.7

Total 103 100

1

2005 Annual Report South Asia Economic, Thematic, and Sector Work

The provision of technical advice is an important function of the Asian Development

Bank (ADB). Thus, ADB supports nonlending activities, including economic, thematic,

and sector work (ETSW). This ETSW Annual Report contains abstracts of the South

Asia Regional Department’s (SARD) Economic, Thematic, and Sector Work that were

completed in 2005. The abstracts comprise (i) macro- and microeconomics studies;

(ii) thematic work; and (iii) sector work, including sector-specifi c analyses of ADB.

Regularly published ETSW, such as contributions to the Asian Development Outlook

(ADO), ADO Update, Annual Reports, and periodic country economic updates, are

not covered in this report.

Table 1 summarizes the main statistics on the 103 ETSW studies SARD completed

in 2005. Most of the ETSW was undertaken by the resident missions (78%). In

2005, most of the ETSW studies focused on country-specifi c issue. Regional studies

accounted for less than 8% of the total. Of the 95 country-specifi c studies, about

55% pertained to India, 18% to Pakistan, 8% to Nepal, 7% to Bhutan and

Bangladesh each, and less than 5% to Sri Lanka and Maldives combined.

The main theme of SARD’s ETSW in 2005 centered on sustainable economic growth,

accounting for about 44% of total ETSW. The second and third most frequent themes

were inclusive social development and environmental sustainability, accounting for

21% and 17%, respectively, of the ETSW. Private sector development, governance,

and regional cooperation together accounted for about 19% of total ETSW studies.

The remaining studies pertained to multitheme, capacity development, or gender

and development.

The most frequently studied sectors were law, economic management, and public

policy, with 35%; industry and trade, with 12%; and transport and communications,

with 10%. About 20% of the studies were multisectoral. Health, nutrition, and

social protection accounted for 7% of total ETSW. The remaining 16% are studies

on the following sectors: agriculture and natural resources, fi nance, and energy.

Each of these sectors has less than 10 ETSW studies.

This report is organized by abstracts by country. Each abstract contains a summary of

the ETSW, the names of the authors, and the staff that coordinated the ETSW. Readers

who are interested in ETSW belonging to a particular theme, sector, and divisions

and resident missions can consult the lists of ETSW classifi ed by themes, sectors, and

divisions and resident missions after the main section of the report. The fi nal section

of the report lists on-going and planned ETSW for 2006–2008 classifi ed by countries,

divisions and resident missions, and themes. ADB staff can also download the ETSW

studies from SARD’s intranet website (http://sard.adb.org).

Introduction

BANGLADESH

3

1. Bangladesh Rice Price Policy Author: N. Chowdhury

Staff: Rezaul Khan

Bangladesh’s policy of diffusing high-yielding rice varieties; large investments

in rural infrastructure, including irrigation; and ready availability of fertilizer

triggered a sharp increase in rice supply, especially in the post-liberalization

period. After liberalization, the role of the public food grain distribution system

was substantially reduced. During 1981–2004, the annual growth rates in rice

production (2.98%) and food grain production (2.7%) were faster than the rate

of population growth, and led to an increase in per capita rice and food grain

availability.

The liberalization of agricultural input and output markets has had a salutary

effect on rice production. In per-capita terms, the supply of rice grew by 1.3%

per annum during 1981–2004, while the supply of food grains increased by

0.91% per annum. The share of boro rice, which is mainly a cash crop, has

increased in proportion to the total output, while the share of aman rice has

declined.

There is no apparent need to roll-back measures taken to liberalize agriculture

because of the sharp price increase in 2004–2005. As 2005 came to an end,

real rice prices and real wheat prices started a downward trend. The overall

seasonal components of rice and other food grain prices are falling, and

although Bangladesh is entering the lean supply months, there is no evidence

of upward price spikes. Moreover, while the incomes of the average farmer are

less than the median income in Bangladesh, the farm community has become

more commercially oriented, fl exible, and dynamic over time. Although the

Government continues to support a high-cost public procurement program, the

markets have continued to deliver food at an affordable and globally competitive

price yet again in 2004–2005.

2. Borrowing Capacity Assessment Author: Steven Tabor

Staff: Rezaul Khan and Mohammad Hossain

A public sector debt sustainability model is developed for Bangladesh and is

constructed to be consistent with the International Development Association/

International Monetary Fund (IDA/IMF) guidelines on analyzing debt sustainability.

The baseline forecast in this model incorporates the amortization and debt service

schedules from existing loans, and the macroeconomic assumptions used are

consistent with the medium-term macroeconomic outlook presented in the draft

Poverty Reduction Strategy Plan (PRSP).

4

The robustness of the debt sustainability outcomes are tested by simulating

debt dynamics under anticipated (i.e. base case) conditions, in a case in which

the Government rapidly pursues state-enterprise and national commercial bank

reforms, and also under a series of simultaneous export, growth, fi scal and

exchange rate shocks (i.e. stress case). In the base case simulation, public sector

debt indicators improve steadily over time. The ratio of public debt to gross

domestic product (GDP) is forecast to continue to decline, from 48% in 2004

to some 45% in 2010 and to 43% of GDP by the end of the forecast period in

2023. Throughout the next 2 decades, the ratio of public debt to GDP remains

well within the debt ceiling (i.e. Net Present Value [NPV] of debt to GDP of 45%)

that World Bank estimates would apply for Bangladesh.

A major fi nancial restructuring of the distressed state enterprises and

national commercial banks would not put public sector borrowing on an

unsustainable debt trajectory. Even in a “worst case” scenario, there is little

risk that Bangladesh’s public sector borrowing requirements would become

unsustainable. The simulation models show that concessionary sources of

external fi nance will meet less than half of Bangladesh’s fi scal gap fi nancing

requirements in the decade to come.

Given crowding-out concerns, the high carrying costs and short duration of

domestic debt and given reasonable assumptions about the devaluation risk,

borrowing on ordinary capital resources (OCR) terms is both economically and

fi nancially advantageous compared with domestic debt to help close the fi scal

gap, even though OCR borrowing is not as concessionary as the Overseas

Economic Cooperation Fund (OECF) or other soft loans. Borrowing on OCR

terms is also certainly better than borrowing abroad on commercial terms,

which the Government is also expected to do, at least up to the limit posed by

the current IMF agreement. Hence, if there are worthwhile public investments

to be fi nanced, it is unambiguously advisable to borrow OCR to help close the

fi scal gap, compared with domestic borrowing and/or borrowing abroad on

commercial terms.

3. Data for Monitoring and Evaluation (M&E) of PRSP of Bangladesh: A Review of National Data Sources, Problems, and SuggestionsAuthors: Rushidan Rahman et al.

Staff: Mohammad Hossain

Monitoring and evaluation of PRSP implementation are critical to poverty reduction

through materializing policies and measures suggested in the document. An

effective M&E will track progress of PRSP implementation and provide feedbacks

for timely policy revisions and introduction of supplementary programs or

strengthening of interventions. Central elements in the M&E framework are

There is little risk that

Bangladesh’s public

sector borrowing

requirements would

become unsustainable.

BANGLADESH

5

generation and analyses of data that correspond to the set of input, output, and

impact indicators for M&E contained in PRSP.

The paper (prepared under TA 4303-BAN: Strengthening Capacities for Poverty

Monitoring and Evaluation) identifi es data sources for the types indicators; examines

the quality, usefulness, and adequacy of data for poverty assessment; and suggests

ways for improvements.

Specifi c focus is devoted to examination of the Household Income and Expenditure

Survey (HIES) and Poverty Monitoring Survey (PMS) dealing directly with poverty

estimates. Also analyzed is the quality of data on wages and other labor market

processes, since employment-related data are important intermediate indicators for

PRSP. Data on national accounts and prices and CPI series, which provide important

inputs into poverty measurement, are also examined. The paper also recommends

measures for improving the data collection systems and institutional strengthening

of key data-generation agencies, such as the Bangladesh Bureau of Statistics (BBS).

4. Macroeconomic Impact of Oil Price Increase in BangladeshAuthors/Staff: Rezaul Khan and Mohammad Hossain

The impact of higher oil prices on the economy has been signifi cant, but manageable,

due to strong growth in remittances and exports. A major mitigating factor is the

abundance of locally produced natural gas, which meets nearly 60% of commercial

energy requirements. Natural gas is increasingly being used by the domestic

industries and is being substituted for petroleum products in the transport sector.

As a result, the overall adverse impact of fuel price increase on economic growth,

which usually acts through an increase in business cost and aggregate demand,

has so far been quite limited. However, the oil price shocks may have medium- to

longer-term consequences for economic growth.

The key challenge for the Government is to mobilize suffi cient external fi nancing

to ensure that foreign exchange is available in the market—both for oil and for

other essential imports—so that excessive pressures are not placed on the exchange

rate or on the country’s foreign reserves. If domestic oil prices are not increased at

pace with international prices (and subsidies reduced), the other policy options are

fi nancing the operating losses through bank borrowing or slashing development

spending.

Opting for such hard choices would have much more adverse implications in terms

of macroeconomic management and growth. Financing the oil subsidy through

bank borrowing as is currently done in Bangladesh contributes more to infl ation and

crowding-out than does passing the cost of higher oil imports to consumers.

The impact of

higher oil prices on

the economy has

been signifi cant, but

manageable, due

to strong growth in

remittances and exports.


6

5. National Urban Sector Policy PaperAuthors: Sarwar Jahan et al.

Staff: Mohammad Hossain

The urban areas in Bangladesh suffer from acute infrastructural problems in terms of

poor housing and transportation, shortage of safe drinking water, and inadequate

drainage and sanitation. Chaotic urban development—with massive unemployment

and environmental degradation, a lack of basic services, crime, and proliferation

of slums—is seen as a huge obstacle to human development. The rapid pace of

urbanization in Bangladesh has made the task of managing the country’s urban areas

diffi cult and challenging.

On the contrary, a strong positive correlation exists between urbanization and the level

of socioeconomic development. Well-managed urban growth can, thus, contribute to

rapid economic progress and reduced poverty, underscoring the need for sound urban

policies for effi ciently managing the country’s ongoing and irreversible urbanization.

The paper (prepared under TA 4003-BAN: Supporting Urban Governance Reform)

examines the nature and pattern of urbanization in Bangladesh and suggests policies

for sound urban management and sustainable urbanization encompassing inter-

relationships among all human settlements in the country: from small towns to

metropolises and between the urban centers and the adjoining rural areas. The

suggested urban sector policies cover the economic, social, and environmental aspects

of urban life aimed at ensuring a livable urban environment for the urban residents.

The paper stresses the need for good urban governance for sustainable urbanization

and balanced urban and rural development. A key argument in the paper is for

managing the urbanization process in ways that help balanced distribution of the

onrush of people away from the only few large cities into other urban centers.

The paper focuses on strengthening the fi nancial and administrative capabilities of

municipalities—as the key actor in urban development—for effi cient urban service

delivery and discharging local development responsibilities. The paper recommends

policy reforms for creating environment for developing small towns and other urban

centers for nonfarm production activities. The paper also suggests establishment of

integrated multidisciplinary urban planning systems with effective coordination for

urban planning, project implementation, and urban management.

6. Private Sector StrategyAuthor: Shafi quer Rahman

Staff: Rezaul Khan

Private Sector Assessment (PSA) is required for country strategy and program (CSP)

preparation. The PSA was prepared based on the methodology suggested by ADB.

Major constraints for private sector development (PSD) in Bangladesh include

unfavorable macroeconomic environment, weak governance, lack of diversifi cation

Strengthen fi nancial

and administrative

capabilities of

municipalities—as the

key actor in urban

development—for

effi cient urban service

delivery and discharging

local development

responsibilities.

BANGLADESH

7

in industrial growth and export performance, shortage of skills, constraints for

small- and medium-sized enterprises (SMEs) development, weak infrastructure, and

underdeveloped fi nancial sector. Better infrastructure, public policies, regulatory

environment, and improved governance will be needed for PSD. To be most

effective, ADB private sector operations should constitute an integral part of its

assistance strategy for Bangladesh.

7. Reforming Bangladesh RailwayAuthor/Staff: Rezaul Khan

Bangladesh Railway (BR) is one of the largest government undertakings in

Bangladesh, employing 34,200 staff. BR operates passenger and freight services on

a mixed broad gauge and meter gauge network containing 2,855 route-kilometer

(km) (4,443 track-km). BR carried 43.4 million passengers and 3.5 million tons of

freight during the fi scal year (FY)2004.

BR’s organizational structure comprises a head offi ce with functional departments

overlaid on two geographically defi ned zones (east and west zone) separated

by the Jamuna River. BR has reached a critical juncture in its performance and is

close to a cycle of decline experienced by many other countries’ railways services,

that is, lower revenue leading to a lack of maintenance and investments, causing

poor services and further contributing to reduced revenue.

The weaknesses in the railway are manifested in declining market share, adverse

operating indicators, and reduced revenue generation. Their underlying causes

are the policy, institutional, and organizational arrangements for the railways,

which are based on the idea of running railways as a social and economic arm of

the Government rather than as a business. However, railways have the potential

to be an effi cient form of transport for certain critical market segments. In order

to seize the new opportunities in terms of increased domestic and cross-border

demand for railway services, BR has no option but to adopt a more commercial

focus.

Reforming BR by lines of business, and progressing in stages toward the

ultimate goal of transforming BR into a corporate entity is the key to enhancing

its effi ciency and improving the quality and level of services. The main elements

of reform initiatives would include restructuring BR into passenger, freight, and

other lines of business; improving BR’s fi nancial governance; improving the

human resource governance system; improving operational and maintenance

practices and performance; and transforming BR into a corporate entity.

Reforming Bangladesh

Railway by lines of

business, and progressing

in stages toward

the ultimate goal of

transforming BR into a

corporate entity is the key

to enhancing its effi ciency

and improving the quality

and level of services.


BHUTAN

9

8. Debt SustainabilityAuthor: Steven Tabor

Staff: Abid Hussain

Bhutan has been able to sustain its external debt level without resorting to infl ationary

fi nance or violating its currency peg. But with a rapid expansion of external borrowing

anticipated, aid terms hardening, and the level of grant assistance uncertain, a

fi scal management strategy that relies on signifi cant borrowing to fi nance public

investment does entail some risk.

A debt sustainability model has been developed for Bhutan, consistent with IDA/

IMF guidelines on analyzing debt sustainability. The baseline forecast in this model

incorporates the amortization and debt service schedules from existing loans as

forecast by the Department of Aid and Debt Management, and is consistent with

the medium-term macroeconomic outlook presented in the Poverty Reduction

Strategy addendum to the 9th Five-Year Plan (FYP).

In the baseline forecast, the ratio of NPV of public sector debt to GDP peaks at

58% of GDP in FY2005–2006 and declines to 38% of GDP by FY2011–2012.

Similarly, NPV of public sector debt peaks at nearly 200% of export earnings in

FY2005–2006, but declines rapidly to less than 100% of export earnings after the

Tala project comes on stream.

This implies that the Government’s external debt stock is forecast to remain relatively

small compared with the carrying capacity of the economy, and that an expansion of

external borrowing to $45 million–$50 million per annum could be accommodated

without risking excessive indebtedness. Total debt and debt service requirements

are somewhat higher, peaking at 16% of exports in FY2007–2008 and declining

steadily to about 10% of export earnings by FY2011–2012.

9. Environment AssessmentAuthor: Maunsell Limited

Staff: Abid Hussain

This study discusses key environmental issues, including the need to reduce land

degradation, preserve biodiversity, protect water resources, and manage/mitigate

the environmental effects of urbanization and industrial development (air and water

pollution, solid waste management, loss of agricultural land).

Addressing these issues to achieve sustainable development is a major challenge to

the country. The challenge involves taking advantage of all opportunities to maximize

economic development through strategic environmental planning and integration

of cross-sectoral considerations. It also involves establishing and implementing

environmental regulations and controls on all development activities.

10

While the environmental regulatory framework is sound and has been insti-

tutionalized within government agencies, there are some policy weaknesses. One

weakness involves the need to review the Land Act to remove inconsistencies with

other laws and remove impediments to activities that would facilitate sustainable

agricultural development. Another weakness is the sectoral focus of much legislation

as opposed to a more suitable intersectoral approach, which refl ects the cross-

sectoral nature of environmental issues. These issues are currently being addressed

by the Royal Government of Bhutan.

10. Gender Assessment Author: Maunsell Limited

Staff: Abid Hussain

Bhutan has a unique set of enabling factors that are contributing to real progress

in the area of gender and development. These include the high status of women in

Bhutan compared with that of other women in the region in general; high public and

government recognition of both gender issues and the contribution of women to

Bhutan’s development; a strong commitment to education and increasing women’s

political participation; open-minded people willing to be challenged by new

information and best practices; and considerable momentum built up in response

to Bhutan’s commitments to The Convention on the Elimination of All Forms of

Discrimination against Women (CEDAW) and the Beijing Platform of Action.

Constraints include pervasive traditional views of women as less capable than men,

low status of women in certain ethnic groups, and the high degree of illiteracy and

isolation of many rural women. There is also a critical institutional problem at the

only women’s organization, the National Women’s Association of Bhutan, with an

existing rural network to implement the strategies and programs that will come out

of the Gender Action Plan.

Although the Royal Government of Bhutan has adopted a moderate path

of development, key local stakeholders in the development community feel

development is, in fact, progressing at a rapid pace, making it diffi cult to continue

building the skills required for timely mainstreaming of gender safeguards.

11. Governance/Institutional AssessmentAuthors: Gambhir Bhatta and Kunzang Yonten

Staff: Abid Hussain

The focus of the country governance assessment is on three sectors: infrastructure,

energy, and fi nance. It covers an institutional assessment, public expenditure

management, and transparency/corruption assessment of the three identifi ed

sectors. Other areas of governance assessment covered include the Government’s

political commitment to reforms, machinery-of-government processes, outcome

orientation, and strategic orientation in agencies.

BHUTAN

11

A review of the auditors’ reports of the fi nancial institutions within the last 3 years

shows only very few cases where embezzlement of funds by staff members have

been reported (the amounts are not very signifi cant, and the matters have always

been properly handled by management). As for other forms of corruption, the

Royal Audit Authority’s audits show that fi nancial institutions, by and large, suffer

from the same types of managerial lapses that are evident in other government

departments, including lapses in overpayment, or lack of adherence to specifi c

requirements, etc.

12. Poverty AssessmentAuthor: Steven Tabor

Staff: Abid Hussain

A few decades ago, to be poor in Bhutan meant that a family would likely experience

hunger, either chronic or seasonal. Today, poverty implies that a family has little

cash income and is unable to fully fi nance their children’s schooling, provide basic

clothing, and meet expected ritual expenses. Assessment of poverty conditions

has been diffi cult, partly because the nature of absolute poverty is changing and

partly because of gaps in statistical coverage and reporting. It was only in 2004 that

a rigorous survey of living standards was conducted, an offi cial poverty line was

estimated, and poverty incidence was offi cially assessed.

The severity of poverty can be measured by the poverty gap and the poverty

severity index. Using these measures, income poverty in rural Bhutan is found to

be both deeper and more severe compared with that in urban areas. Poverty is

also found to be deeper and more severe in the eastern region than in the other

parts of the country.

No offi cial estimate is available of the proportion of the population that would be

classifi ed as poor using international comparators, such as proportion with incomes

below $1 per day in purchasing power parity terms. At the prevailing market

exchange rate, however, two thirds of the population reported per capita incomes

below the 2003 $1 per day poverty line.

13. Private Sector Assessment Author: Janet Tay Consultants Pte Ltd

Staff: Abid Hussain

Bhutan 2020 declared that the private sector should play an increasingly

important role in fostering economic growth and as a source of employment,

with the Royal Government seeking to create the conditions that make it

possible for the private sector to become the main engine of the nation’s future

economic growth. The growth of the private sector is also essential for the

enlargement of the nation’s tax base.


12

To achieve this, the Government has liberalized the fi nancial system with measures,

such as the establishment of a stock exchange, interest rate liberalization, and the

lifting of foreign exchange restrictions on current account payments and transfers,

privatization and corporatization of public sector enterprises; development of

cottage and small-sized industries, construction of industrial estates and established

industrial service centers, and establishment of special credit programs for small-

and microenterprises.

While some of these initiatives have yielded positive results, their overall impact

has so far been modest and the response of the private sector to liberalization has

so far been sluggish. Given current rates of private sector growth, especially in the

crucially important manufacturing sector, it may take longer than expected before

it can assume the role of engine of growth and is able to create the productive

employment required to absorb a rapidly growing workforce.

Problems include cumbersome licensing arrangements, the lack of required

physical infrastructure in some parts of the country, the lack of semi-skilled and

skilled labor, the small and still fragmented size of the domestic market, the low

purchasing power of the population, nonexploration of markets other than India

and Bangladesh, and severe diseconomies of scale in production and distribution.

These translate into high production costs, especially when compared with those

of neighboring countries.

14. Sources of Growth Author: Steven Tabor

Staff: Abid Hussain

Generating growth that provides employment is one of Bhutan’s key development

challenges. A major challenge, therefore, will be to diversify the sources of growth

to generate productive employment for the 50,000 new entrants to the labor force

anticipated during the 9th FYP period, and an estimated 20,000 youth who are

likely to migrate from rural to urban areas. This will require nurturing sources of

growth that are more labor-intensive, and draw on Bhutan’s unique comparative

advantages.

Viewed over a span of the last 25 years, the contribution of agriculture to output

has declined from 57% in 1980 to 32% in 2003, and the share of industry has

increased from 12% in 1980 to 36% in 2003. From 1993 to 2003, hydropower

(i.e., electricity) and the related sectors of construction, mining, and manufacturing

accounted for 35% of total real economic growth between 1995 and 2003,

compared with agriculture, which contributed 21% to total growth.

The productivity of capital investment in Bhutan has been rather low, but is improving

in recent years. Labor productivity growth has also been rather low. The low

productivity of capital and labor are the most serious impediments to private sector

Given current rates of

private sector growth it

may take longer than

expected before it can

assume the role of engine

of growth and is able

to create the productive

employment required to

absorb a rapidly growing

workforce.

BHUTAN

13

development. In the long run, better economic infrastructure and social services will

boost returns to all forms of investment and are essential to building the skills base

and market access needed to support export-led growth. But infrastructure and

social services alone are only useful if a viable private sector is ready to make use

of them. More private sector-friendly policies economy-wide and in key sectors are

needed to reduce the costs of establishing and doing business.


15

15. Agricultural Research and Extension: Priority Setting and Institutional DevelopmentAuthors: C. Ramasamy and K. N. Selvaraj

Staff: Hiranya Mukhopadhyay

This policy paper studies the current status of National Agricultural Research

Education and Extension System (NARES) in India and indicates strategies and

action plan to improve its functioning to match the requirements of agricultural

development, which focuses on food security, poverty reduction, sustainable use of

natural resources, and improved agricultural production environment in the context

of globalization of the Indian economy. The paper also proposes an action plan and

suggests a set of reform measures to address the key issues.

The role of Research and Extension in the generation and transfer of appropriate

farming technologies needs to be constantly improved to achieve further increases in

production. To meet these challenges, research systems must undergo institutional,

management, and funding reforms and strengthen linkages with clients and improve

accountability and effi ciency.

For India, livelihood security of the rural poor is at the center stage of the development

process, with agriculture and rural development woven into it. Important priorities

in agriculture in this regard include enhancing effi ciency, promoting stability-

based technology and production systems, sustainability, addressing interregional

disparities, and facilitating value addition. Food and nutrition security, which

includes food availability, accessibility, and absorbability, is a critical plank of overall

development—both urban and rural.

16. An Agenda for Financial Sector Reform for Stimulating Investment and Economic Growth Author: Sugata Marjit


The purpose of this paper is to provide a broad theoretical mechanism through

which fi nancial sector reforms affect investment and growth and then follow it

up with some discussions on the post-liberalization investment scenario and its

implication for growth in India.

The general observation is that typical reform measures in the fi nancial sector are

refl ected in a decline in the nominal borrowing rates, smooth operation of stock

market and providing fl exibility for the fi rms to raise resources at home and abroad

can work up to a limited extent.

Substantial public investment or public-private joint ventures are needed to boost

infrastructural facilities. This, in turn, will guarantee a signifi cant jump in the rate of

16

investment. However, increase in the rate of investment per se does not increase the

growth rate. It is important to control for productivity in such assessment. It is well

recognized through remarkably extensive cross-country empirical work that impact

of investment on growth, controlling for associated productivity increase, seems to

be less signifi cant than derived via an uncontrolled exercise.

17. Anticorruption Framework for ProjectsAuthor/Staff: Sekhar Bonu

The objective of the anticorruption framework for project/program design is to assist

project teams to proactively seek and mainstream anticorruption measures organically

into the various components of a program/project design. While there are a number

of policies/strategies on anticorruption, very few tools or guidelines are readily

available for a project team to operationalize policies/strategies on anticorruption

into a project/program design or during program/project implementation.

The anticorruption framework for project/program design attempts to fi ll the major

gaps by consolidating fragmented efforts and evidences from various development

agencies on anticorruption measures and build a simple, logical, and implementable

framework of anticorruption that can assist a project design team.

18. Borrowing, Debt Management, and Contingent LiabilitiesAuthor: Rajendra Vaidya


This paper studies the debt position and contingent liabilities of states and suggests

some policy measures that are likely to help evolve a good debt management strategy.

The paper argues that a prudent debt management strategy will help states provide

infrastructure and other services over a shorter time span which, in turn, would help

create an investor-friendly environment and increase growth prospects.

The main diffi culty is to create an institutional environment in which the incentives

faced by state governments are such that they are not attracted toward or

inadvertently pushed toward unsustainable debt. In the medium term, a rule-based

control on state government borrowing seems to be a workable option. Rules

that would prohibit states from raising loans to fund current expenditures and a

maximum specifi ed debt service-to-revenue ratio seem to be particularly attractive.

This paper also argues that making the entire system of fi scal transfers more

transparent and predictable can substantially reduce the uncertainty about the exact

amount of resources a state would have at its disposal in the future. Doing away

with the distinction between plan and nonplan assistance to states is a possible way

of achieving this. The fi ndings and recommendation of this paper will help states

achieve debt sustainability.

Substantial

public investment or

public-private joint

ventures are needed

to boost infrastructural

facilities.

INDIA

17

19. Capital Flows and the Absorptive Capacity of the Indian EconomyAuthors: Pami Dua and Partha Sen


This paper examines the relationship between the real exchange rate, level of capital

fl ows, volatility of the fl ows, fi scal and monetary policy indicators, and the current

account surplus. It is found that the real effective exchange rate is co-integrated

with the level of capital fl ows, volatility of the fl ows, high-powered money, current

account surplus, and government expenditure.

This relationship is statistically signifi cant. Each of the above determinants Granger

causes the real effective exchange rate. The generalized variance decompositions

show that determinants of the real exchange rate, in descending order of importance,

include net capital infl ows and their volatility (jointly), government expenditure,

current account surplus, and the money supply.

20. Critical Issues in Services-led GrowthAuthor: Rashmi Banga


The paper identifi es critical issues in India’s services-led growth and reviews studies

that attempt to resolve these issues. The issues identifi ed fall under four categories:

conceptualization of services, role of services in growth process, trade in services,

and foreign direct investment (FDI) in services.

The paper presents different ways of categorizing services and examines the

performance India’s services sector in terms of its share in GDP, employment, trade,

and FDI. It then addresses the issue of sustainability of jobless growth in India’s

services sector. Theories of trade and FDI in services are discussed along with barriers

to trade and determinants of FDI in services. With this in the background, external

and domestic barriers to India’s trade in different services are discussed and the

identifi ed constraints to trade are tabulated. Specifi c policy directions that emerge

from the review are then discussed.

21. Crop Diversifi cation and Value Addition to Agriculture Author: P. K. Joshi


A sustained economic growth, rising per capita income, and growing urbanization are

causing a shift in the consumption patterns in favor of high-value food commodities,

such as fruits, vegetables, dairy, poultry, meat, and fi sh products from staple

food, such as rice, wheat, and coarse cereals. The changing scenario of

The generalized variance

decompositions show

that determinants of

the real exchange rate,

in descending order of

importance, include

net capital infl ows and

their volatility (jointly),

government expenditure,

current account surplus,

and the money supply.


18

agriculture has forced the farming community and policymakers in agriculture

to search for a more remunerative and viable production portfolio.

This paper addresses these issues by (i) examining the extent, nature, and

pace of crop diversifi cation; (ii) quantifying the role of diversifi cation in

agricultural growth; (iii) identifying the key drivers of crop diversifi cation; and

(iii) documenting policy constraints in accelerating the speed of agricultural

diversifi cation.

The analysis has found that smallholders benefi t immensely from agricultural

diversifi cation because the high-value food commodities yield regular, quick,

and high returns and provide income security. The labor-intensive production

of these commodities generates the needed employment opportunities for

small farmers in the rural areas. However, the small marketable surpluses

and high transaction costs constrain the smallholders, limiting the speed

of agricultural diversifi cation toward high-value food commodities. In the

absence of appropriate integration of production, markets, and consumption,

exploiting the market potential of these commodities in domestic and global

trade is not possible.

Strengthening production-market-consumption integration is a way to promote

the production of high-value food commodities, whose demand has been

growing fast. Linking production, markets, and processing in the high-value

food sector favors the emergence of innovative institutions. These institutions

are involving smallholders and are reducing their transaction costs. They are

also minimizing (sometimes sharing) their production and marketing risks.

22. Decentralization and Issues of Local Government Finance: The Workings of State Finance CommissionAuthor: Ravikant Joshi


The paper examines three major aspects of decentralization: the framework for fi scal

decentralization, the status of decentralization in India, and the operation of State

Finance Commissions. It studies the performance of State Finance Commissions of

various states and explains their differential performance.

The paper also indicates policy options to improve the functioning of the future

State Finance Commissions in addressing local fi nance issues and taking forward

decentralization. Policy recommendations for a more effective fi scal decentralization

are offered in the study based on a detailed analysis of the system and good

international practices.

Linking production,

markets, and processing

in the high-value

food sector favors the

emergence of innovative

institutions.

INDIA

19

23. Design of a System for Recording Road Traffi c Data on a Continuous BasisAuthors: H. M. Shivanand Swamy, M. P. Raju, and Pradeep Kumar


The scarcity of data on the profi le of road traffi c in India has hampered meaningful

research in this sector and, consequently, the development of sustainable and

rational policies in consonance with ground realities.

The paper proposes the design of a system for continuous recording of road traffi c

data. The development of a web-based Statewide Integrated Traffi c Record System

(SWITRS) for India is recommended. Further, efforts to explore the need and/or

the potential for developing indigenous technology in India, given the scale of

requirements, should also be made.

24. Determinants of Capital Infl ows in the Indian EconomyAuthor: Soumyen Sikdar


The 1990s witnessed a strong upsurge in fi nancial fl ows all across the globe

owing chiefl y to fi nancial deregulation in both developed countries (DCs) and less-

developed countries (LDCs). In this context, this paper analyzes various issues and

constraints associated with capital infl ows in India. This paper proposes several

policy recommendations to minimize the problems associated with capital infl ows.

25. Economic Policies for Augmenting Remunerative Rural EmploymentAuthor: Brajesh Jha


The study reviews the trend of rural employment in India. It argues that increase of

remunerative employment in construction, trade, and services is not sustainable on

a large scale without suffi cient growth in agriculture and manufacturing sectors.

The strategies for growth in rural employment, therefore, focus on these two sectors

and assume that growth in these sectors is a precursor for employment growth in

other sectors of rural economy.

26. Energy PricingAuthors: Prem Kumar Kalra, Rajiv Shekhar, and Nasser Munjee


The paper examines critical issues in energy pricing: generation, transmission, and

distribution. The electricity industry, historically dominated by regional monopolies,

is moving into an era of greater competition. This transformation, properly termed as


20

restructuring, involves all aspects of the industry. Restructuring involves overcoming

a number of diffi cult problems and one of the most controversial problems is the

development of an effi cient transmission pricing methodology.

In this report, the consultation paper of Central Electricity Regulatory Commission

(CERC) on transmission pricing, Electricity Act 2003 on open access policies, and

charges and tariff regulations are discussed in details. International experiences on

transmission pricing and reactive power management are also presented.

The methodology of calculation of UI charges is discussed with the actions necessary

to introduce intrastate Availability Based Tariff (ABT). The role of distributed resources

to improve the power system reliability has also been highlighted.

In addition, this report examines the issues affecting Power Trading in India that

include lack of proper market mechanism, inadequate transmission capacity, lack of

statutory provisions for direct sale by Independent Power Producers/Captive Power

Plants (IPPs/CPPs) licensees outside the state, grid indiscipline, and fi nancial viability

of state utilities, among others in details. Finally, an action plan and a set of reform

measures to address the key issues are presented.

27. Energy SecurityAuthor: R. K. Pachauri


The paper looks at the economic impacts of sudden oil price increases and addresses

the challenges of energy security. This paper views that the operation of a free

market in the energy sector is not necessarily detrimental to energy security. At the

same time, while the role of the Government cannot be minimized, it is important to

have a coherent government policy that does not inhibit the free market operating

in the sector.

The paper also identifi es the issues that are linked to the energy security. How a

government chooses to resolve these issues depends on the prevalent economic

thinking in the country, the state of development of the economy, and other

factors.

The cardinal principles defi ning energy policy in the future may be summed up by

stating that the country should keep the dependence on oil imports to a level that

does not jeopardize the country’s security in strategic and economic terms; maximize

the use of indigenous energy resources, particularly those that are renewable in

nature to enhance energy security and minimize adverse environmental impacts;

create an economic structure and policy framework by which the country enhances

the effi ciency of energy use across the entire economy; and build in appropriate

measures, including strategic petroleum reserves, such that any short-term crises

can be dealt with effectively.

INDIA

21

28. Environmental Aspects of Power DevelopmentAuthor: P. V. Sridharan


The paper looks at the environmental impact of various supply side options of

generating electricity. In terms of choice of energy sources for power development

in the next 25–50 years, the availability of domestic fuel for thermal generation will

become critical and other options, such as hydro, fuel cells, and renewable energy

sources especially solar and wind, have to be fully explored to sustain the power

development programs.

In the long-term scenario, hydropower development has to be expedited to meet a

larger share of the power demand and the environmental objectives. India has the

option to import hydroelectricity from Bhutan and Nepal, which have a substantial

hydro potential. Thus, regional trade in hydropower promises large economic gains.

To improve environmental and social aspects of energy development, the country

has to gradually shift its focus from most-impact to least-impact sources of energy.

In terms of the effect of reforms on state-level emissions, the paper concludes

that electricity reforms have indirectly benefi ted the environment unintentionally.

Environmental concerns have not been a specifi c driver during the reform process.

Thus, there is a case of alignment of the electricity and the environmental markets.

29. Food Security and Better Nutrition for the PoorAuthor: V. M. Rao


The paper looks at ways to eliminate hunger and the attainment of food security

in the Indian context. It then provides an action plan for reorienting agricultural

policies, reforming the public distribution system to attain the goals set out in the

paper. Agricultural policies in India have brought about a veritable revolution in

the physical and technological aspects of agriculture. Their benefi ts, however, have

been shared very unequally by the farming and rural communities who ought to

have been the chief benefi ciaries of agricultural development. This synthesis paper

traces this outcome to the inegalitarian social structure.

It is argued that, given this structure, policymaker has neither willingness nor ability

to move beyond programs that do provide some relief to the poor and the backward

but are incapable of bringing them within the mainstream of development.

However, the changing political context would make it increasingly diffi cult to the

policymaker to continue to operate in the relief mode. The groups now enjoying

disproportionate benefi ts would have to yield ground to those left out and who

are now becoming politically aware and mobilized. This means, at the policy-maker

level, genuine decentralization to give the poor and the backward voice, resources,

and full partnership in the development processes.

To improve

environmental and

social aspects of energy

development, the country

has to gradually shift its

focus from most-impact

to least-impact sources

of energy.


22

30. Global Experiences of Public-Private Partnerships in Highway Development Author/Staff: Shunso Tsukada

Faced with massive infrastructure development needs, private fi nance initiative (PFI)

has gained a renewed attention of the developing community. Between 1990 and

1999 alone, the private sector invested $61 billion for 279 projects in 26 developing

countries, covering 34,000 km of highways.

A noticeable trend is that PFI is more prevalent in developing countries than in

developed countries. This is due, in part, to severe budgetary constraints those

governments are facing and, also due in part, to main cost elements (labor, materials,

and land) that are still low-priced in developing countries, while unit construction

costs per km have already been prohibitively high in developed countries.

However, strong skepticism still exists on the viability of the PFI approach,

particularly in Asia. This is largely due to intrinsic diffi culties associated with toll

road development: (i) risks associated with land acquisition and construction;

(ii) lumpy initial investments and resultant long gestation period; and (iii) diffi culties

in traffi c forecast and associated uncertainties in future revenue fl ow. This has led

to diffi culties in (i) securing long-term loans from banks; (ii) delay in construction;

and (iii) cash fl ow problems during the initial few years of operations when debt

services are high, but toll revenue is low.

Addressing these problems requires government interventions through the

provision of (i) annuities to the project companies or minimum revenue guarantee;

or (ii) subsidies for initial capital investments so as to reduce the size of initial

investments to the level manageable by the investors, under the public/private

partnership (PPP).

The objectives of this study are to (i) provide a quick overview of PPP schemes currently

in practice in the world; (ii) summarize PPP experiences of several countries; and (iii)

draw key lessons from these experiences. The study was conducted as part of the

preparation for the planned workshop on PPP development of highways in India and,

thus, a focus was placed on the applicability to India.

31. Globalization, Poverty, and InequalityAuthor: Rajat Acharyya


This paper reports the fi ndings of background research on the impact of liberal

trade policies on poverty and income inequality in India, and discusses the trade

policy recommendations from such fi ndings. It is through the acceleration of

GDP growth that trade liberalization can have most pervasive and sustained

favorable impact on poverty.

It is through the

acceleration of GDP

growth that trade

liberalization can have

most pervasive and

sustained favorable

impact on poverty.

INDIA

23

With changing world demand in favor of the more skill-intensive, high-

technology goods, the production pattern and export composition should adjust

accordingly to make the export-led growth effect stronger for India. To ensure

this, we have to remove both supply and foreign demand constraints on exports

of goods, such as leather and leather manufacture, cotton fabric, and textiles,

which are the potential source of demand for unskilled workers.

32. Growth and Fluctuations in the Indian EconomyAuthor: N. R. Bhanumurthy


This paper builds a GDP forecasting model for India. For the purpose, the paper

considers the use of different alternative forecasting techniques, which include the

univariate Beveridge-Nelson (1981) procedure, modifi ed Beveridge-Nelson method,

and the automatic leading indicator method.

Apart from GDP growth forecast based on alternative forecasting techniques, the

paper also attempts to arrive at the best method to be used among these techniques

based on root mean squared error (RMSE) criterion. These methods are used from

a number of univariate and multivariate forecasting techniques. Further, this paper

also compares the forecast performance of chosen model with the performances of

other existing forecasting models in the country.

33. Human Development in India: The 1990sAuthor: Bhaskar Dutta

Staff: Sujatha Viswanathan and Hiranya Mukhopadhyay

The decade of 1990s has arguably been one of the most signifi cant periods

for the Indian economy. There has been a complete overhaul of the economic

policy environment in the country, with the economy taking giant strides toward

liberalization and integration with the global economy. At an aggregate level,

the economy has performed remarkably well, recording one of the highest

average growth rates among all countries.

However, the welfare consequence of these policy changes has been a matter of

intense controversy. The proponents of economic reforms claim that the decade

has witnessed unprecedented improvements in living standards. Other group

has claimed that the reforms have led to huge increases in inequality, with the

rich garnering all the benefi ts of growth at the expense of the vast majority who

have experienced a sharp deterioration in their well-being.

This debate has been conducted almost entirely in terms of trends in the levels

of poverty during 1990s. This is in conformity with a long tradition in economics

that equates goals of development almost entirely in terms of levels of income or

consumption. However, it is being increasingly recognized that in any evaluation

It is being increasingly

recognized that in

any evaluation of the

performance of an

economy, incomes and

similar expenditure-

based indicators need to

be supplemented with

broader indicators of

well-being that include

achievements in health

and education.


24

of the performance of an economy, incomes and similar expenditure-based

indicators need to be supplemented with broader indicators of well-being that

include achievements in health and education.

The main purpose of this paper is to describe how the major Indian states

have fared during the 1990s in terms of criteria, such as the percentage of the

population completing different stages of education, infant and child mortality

rates, as well as the more traditional income-based criteria.

34. Infrastructure and Institutional Constraints in the Development of Coastal ShippingAuthor: Sunder Jaiswal


India’s coastline provides opportunities for developing coastal shipping into a

viable and environment-friendly mode of domestic transport and a feeder to

export-import trade. However, the development of coastal shipping has not

taken off due to a variety of bottlenecks. The research seeks to address some of

the main constraints.

Given the inherent advantages of coastal shipping, promoting the growth of

this sector is an urgent requirement. Providing the necessary support through

appropriate policy initiatives and fi scal and fi nancial incentives is essential. Some of

these recommendations include review of sabotage laws, exemption of customs

duties on spares and bunker fuel, extend tonnage tax to coastal shipping, review

the manning norms and consider reduction in required qualifi cations, review

design specifi cations for coastal ships, etc.

35. Investment vs. Maintenance: Lessons in Maintaining and Managing Physical Infrastructure (Excluding Power)Author: A. Narender


The paper outlines a strategy for improving physical infrastructure with limited

fi nancial resources through well-planned maintenance. The paper shows that

there has been an excessive emphasis on capital investments in infrastructure

without having a systematic approach toward operation and maintenance.

The systematic approach includes designing and implementing the policy and

sectoral reforms for improving the overall resources for maintenance and improving

the quality of revenue expenditure in favor of maintenance. It also includes regular

allocations for maintenance, putting in place a good asset management system.

Governance reforms for improving the sectoral effi ciency and encouraging private

sector and community participation are keys to correcting this imbalance.

INDIA

25

36. Issues in Sustainable Water UseAuthor: K. V. Raju


This paper illustrates the availability of water resources, its historical development,

growing constraints, and reforms attempted in recent years. The paper argues

for required policy modifi cations and effective implementation arrangements to

achieve the Millennium Development Goals. The global challenges of sustainable

development also refl ect India’s sustainable water use. The challenges are also faced

by governments—both at the national and state levels—and institutions concerned

with developmental assistance.

Future policies, programs, and investments should not only support economic

development but also a) distribute more equitably the gains of development, with

focus on reducing poverty; b) avoid sacrifi cing the interests of future generations

to meet the needs of the current generations; and c) build on emerging global

consensus on sustainable management of natural resources and other valuable

environmental assets.

37. Issues Regarding Privatization and DisinvestmentAuthor: R. Nagaraj


This study reviews the Indian experience on privatization and examines the policy

options. While the contribution of the public sector enterprises (PSEs) to national

development is widely acknowledged, their poor fi nancial return has been a matter

of deep and enduring concern, especially since the mid-1980s when, for the fi rst

time, the central government’s current revenues were found inadequate to meet

its current expenditure. Though studies of PSEs at the fi rm and industry levels

have often highlighted gross ineffi ciencies and poor profi tability, many of them

have also suggested their unquantifi able (or diffi cult to quantify) noneconomic

benefi ts.

However, macroeconomic discourse in India has largely focused on the “crowding-

in” effects of public investment and the need for institutional structures to

insulate PSEs from political and bureaucratic interference to improve their fi nancial

returns.

While disinvestment and privatization necessarily lead toward stock market-based

discipline, the paper argues that history and theory do not seem to support it

to be the superior alternative. The study favors the Japanese and German style

interlocking of ownership of complementary PSEs tied together with a bank that

enforces greater managerial accountability, and encourages long-term outlook of

output growth and acquisition of technological capabilities.

Macroeconomic

discourse in India has

largely focused on the

“crowding-in” effects of

public investment and

the need for institutional

structures to insulate

PSEs from political and

bureaucratic interference

to improve their fi nancial

returns.


26

38. Land Reforms: What Next?Author: R. S. Deshpande


This paper characterizes critical issues pertaining to land policy in India beginning

with the emergence of the policy in a historical context and from a viewpoint of

differential provincial policies. Among the key areas for land reform, legalizing

the tenancy market, contract farming, and wasteland development are more

important. The implementation issues relate to the political economic aspects

of these reform measures and setting right the institutions for the purpose of

achieving these.

39. Legal Impediments to Rural Development Author: Sandeep Shastri


This paper fl ags a few major legal roadblocks on the path to rural development

in India. After a broad overview of issues, the second section examines the rural

development initiatives in light of the `democratic engineering’ agenda, as well

as the strategies for empowerment. In section three, the implications and the

impact of the 73rd constitutional amendment on the `structural and institutional

design’ for rural development is assessed. In the fourth segment of the paper, the

changes that have been triggered off by the process of economic reforms and

liberalization and their immediate implications for rural development strategies

and initiatives are assessed. The fi fth section develops a comprehensive approach

toward rural development by proposing a holistic strategy of empowerment. The

concluding section summarizes the major arguments developed in the paper

and outlines the major policy recommendations aimed at overcoming the legal

bottlenecks to rural development.

40. Management of Disasters and Crises Situations for the Poor Authors: Katar Singh and Vishwa Ballabh


This paper characterizes various types of disasters and crises and examines current

policies and strategies for disaster management. It studies the effects and impacts

of disasters and documents various technological and institutional innovations for

disaster management.

To achieve this, the paper identifi es and discusses the strategies adopted by various

agencies involved and the current practices for convergence and coordination of

disaster management programs. Finally, the paper outlines an action plan and a

long-term approach toward effective disaster and crises management.

INDIA

27

41. Marketing and Rural Finance for Strengthening AgricultureAuthor: S. S. Acharya


The objectives of this paper are to review the existing status of agricultural marketing

and rural credit systems and document the policy framework for functioning of

agricultural markets and rural credit. Areas of further policy reforms for strengthening

Indian agriculture are also identifi ed. Attempts to strengthen Indian agriculture must

address not only farm production (farmers) but also processing, marketing, trade,

and distribution. We must link farmers to markets and, in this endeavor, marketing

and rural credit systems are extremely important.

42. Medium-term Fiscal Management: A Program for Reform Authors: Shashanka Bhide and Kanhaiya Singh


This paper provides an analysis of India’s comprehensive government budget

components (state plus central government) and their impact on private sector

investment, private consumption expenditure, and export performance.

The results of the paper have some important but indicative policy prescriptions.

First, the fi scal policy geared toward direct taxes for generating revenue rather than

indirect taxes is likely to generate greater output effect. Second, decentralization

of expenditure process appears to induce greater output level as compared

to centralized expenditure. And third, the so-called “capital expenditure” in

the government budget or the “development expenditure” does not promote

investment spending by the private sector. These fi ndings indicate the need for

greater care in implementing capital expenditure.

43. Nature of Macroeconomic Development and Determinants of Growth in the Indian Economy: Pre- and Post-ReformAuthor: Pulapre Balakrishnan


The paper examines the role of macroeconomic policy in determining the extent

and stability of growth in the period immediately after the reforms, the decade

of the 1990s. It establishes that no statistically signifi cant increase in the growth

rate of the economy can be found after 1991 and that growth has not been much

more stable in this period. There may not have been suffi cient macroeconomic

policy support to growth. In particular, the declining budgetary support to capital

formation, especially in agriculture, and the bizarre care of a missing monetary

policy was identifi ed.

We must link farmers

to markets and, in this

endeavor, marketing and

rural credit systems are

extremely important.


28

It is often assumed that macroeconomic policy is merely to be called into play

during crises just to stabilize the economy as it were. The growth experience of the

1990s shows that macroeconomic policy is indispensable even in peace time. Poor

macromanagement might render ineffective even the most sophisticated road maps

for structural change, usually termed ‘economic reforms’.

44. Nontariff and Other Barriers to TradeAuthor: Rajesh Mehta


This paper identifi es the type of nontariff barriers (NTBs) facing India’s exports in

developed country markets. The paper emphasizes the proliferation of NTBs and

its growing menace to India. Despite developing countries’ campaign at various

rounds of trade negotiations on eliminating/reducing NTBs, not much has been

accomplished. It is necessary to have a coherent negotiating stand taking note of

both NTBs, as well as tariffs, because sectors with NTBs also face tariff peaks and

concealed high tariffs in the form of specifi c duties.

45. Nontax Revenues, User Charges, and Subsidies Author: Arindam Das-Gupta


The study defi nes the scope and classifi es nontax (and nondebt) revenue

and its relationship with subsidies. The study begins by reporting and then

extending earlier work that attempts to defi ne the scope and classify nontax

(and nondebt) revenue. Heads of accounts in state government budgets for

different nontax sources are then identifi ed in a table.

This is followed by a discussion of economic principles governing these

revenue sources and a review of institutional options for provision of different

goods and services or for public asset management. Next, the relationship

between nontax revenue and subsidies is discussed. Following this, principles

for optimally pricing goods and services in which the Government has market

power are reviewed.

The paper also attempts to devise a framework for assessing nontax revenue

performance, drawing on the conceptual discussion in the paper. A case study

of a public sector undertaking (PSU), a public sector road transport corporation,

is then presented. Institutional arrangements in eight selected sectors that

are of current or potential importance for nontax revenue in Indian states,

together with four case studies, are presented. Brief discussion of tourism

revenue and revenue from husbandry services is also included.

Limitations of the current study are identifi ed and suggestions for further

work are then made in the penultimate section. Suggestions for strengthening

The growth experience

of the 1990s shows that

macroeconomic policy

is indispensable even

in peace time. Poor

macromanagement might

render ineffective even

the most sophisticated

road maps for structural

change, usually termed

‘economic reforms’.

INDIA

29

revenue performance and improving management, as well as the identifi cation

of possible new areas with nontax revenue potential, conclude the paper.

46. Optimizing Lessons of Effi cient Social Service DeliveryAuthor: Narayan Valluri


This paper is one of four research papers being prepared under the thematic

cluster “State Government Budget Constraints and Social Services,” as part of

a project entrusted to Administrative Staff College of India by ADB. Under the

broad rubric of social services, this paper will focus on issues of governance and

delivery of publicly provided services in the education and health sectors. The

adequacy and quality of education and health services in different states are also

looked into, keeping in view the MDGs.

While one may provide legal or constitutional rights to education and health,

enforcing them could be fraught with administrative complications and

interpretational confl icts. However, the importance of access to healthcare

and education cannot be overemphasized, more so in the contemporary world

where these are a sine qua non for economic advancement.

47. Policy Framework for Enhancing the Quality of Trucking ServicesAuthor: K.L. Thukral


The research covers current market structure, technology status, and government

policy measures in the sector. It is found that larger fl eet sizes are in a position

to provide better service levels for the users. However, the policy environment,

specifi cally the Motor Transport Worker’s Act and fi nancing guidelines for lending

institutions, do not favor amalgamation of fl eet and continue to push the industry

structure toward single-truck owner/operators.

48. Policy Framework for Facilitating the Development of an Optimal Modal Mix for Urban Passenger TransportAuthor: Geetam Tiwari


This research aims to develop a model that would indicate the optimal modal

mix for urban passenger transport. Choices in the modal mix would need to

include nonmotorized and personal transport. Irrespective of city size and other

characteristics of the population, a large part (50%) of trips are less than 5 km

long. Together with the fact that a large segment of the population cannot


30

afford any kind of motorized transport, it is worthwhile for any urban transport

system to provide for pedestrian and bicycle traffi c.

49. Prerequisites for Capital Formation in Agriculture: Public-Private Partnerships for Enhancing Rural InfrastructureAuthor: S. Bisaliah


This paper looks at the major concerns and controversies in issues relating to capital

formation in agriculture. Policy directions/reforms aiming at public investment,

private corporate in vestment, and private farm household investment in agriculture

are derived from the paper’s major conclusions. The focus of the present study

is to analyze investment growth cycle, compositional shifts in capital formation

in/for agriculture, investment behavior of public and private sectors, debate on

complementarity hypothesis, state-wise disparities in investment intensity, capital-

use effi ciency, and capital formation and agricultural growth.

50. Priorities for State Fiscal ConsolidationAuthor: Tapas Sen


This paper analyzes the key challenges of fi scal consolidation at the state level

and provides a set of recommendations in the areas of tax, expenditure, and

debt restructuring. Several steps to improve state fi nances have been taken

in the recent past, but their impact has been limited. The Medium-Term Fiscal

Reform Plans originating in the National Development Council and later given

shape by the 11th Finance Commission, the Fiscal Responsibility legislations

enacted by some States are all designed to achieve the same objective of

improving state fi nances.

Unfortunately, alongside these initiatives, practices, such as free power to

farmers and lax collection of water rates, still result in inadequate resources,

with a substantial part of the revenue expenditures being accounted for by

wages and salaries and interest payments only—leaving very little for real

developmental work. Leakages from the small developmental government

expenditures continue unabated.

The last elections have set fi scal reforms back due to the association of electoral

reverses with some reforms and reversal of these reforms in the post-election

scenario. It is, therefore, necessary to redouble efforts at convincing the State

governments and their citizens about the reform imperatives.

INDIA

31

51. Promoting Energy Effi ciency and ConservationAuthors: Sanjeev Ahluwalia and Alok Goyal


This paper examines the structure of energy supply and the effi ciency with which

energy is used in India, the regulatory arrangements, and the prospects for

reducing energy intensity. The paper also reviews the energy resource-use pattern

in India. Adoption of the open economy framework with liberalization, economic

reform, facilitation of private management and fi nance and reorientation of public

investment to areas of market failure and social development are the hallmarks of

future development patterns. In tandem with these principles, energy effi ciency also

will be market driven.

However, appropriate interventions through policy, regulations, and effi ciency

standards would still be necessary to address the areas of market failure and to

integrate social costs into the private cost-benefi t framework.

52. Rationalization of Allocation of Landing Rights for Civil AviationAuthor: Tulsi Kesharwani


This paper sets out the road map for landing rights for civil aviation in India. Despite

signifi cant positive developments, presently civil aviation in India is still facing a

number of challenges. In the case of airlines, the major challenges are rationalization

in the allocation of landing rights with a view to (i) fully meeting the demand for air

travel and (ii) achieving full or near full utilization of landing or traffi c rights granted

to India under the bilateral agreements.

Other challenges in the case of airlines include enhancing the capacity of Air India

and Indian Airlines to meet the demands placed on them and developing a level

playing fi eld for them vis-à-vis private domestic airlines thereby enabling them to

offer effective competition. Privatization of Air India and Indian Airlines and the

extent of foreign participation in Indian carriers, higher fuel prices and taxes,

operation on uneconomic routes, making air transport affordable for common man,

etc. are other challenges.

There is an urgent need for a clear long-term civil aviation policy, preferably as a part

of integrated transport policy, including all modes of transport. This is essential as

with the emergence of no-frill, low-fare airlines, the competition between upper-

class rail travel and air transport may increase signifi cantly in the future.

There is an

urgent need for a clear

long-term civil aviation

policy, preferably as a part

of integrated transport

policy, including all modes

of transport.


32

53. Recent Developments in the Regulatory Framework for the Private SectorAuthors: Narasimha Rao and Subhashish Gupta


This paper reviews two aspects of regulation: institutional effi cacy, which includes

primarily autonomy, capacity, and accountability; and the mode of regulation, or

the regulator’s functional scope. Specifi c lessons and practical recommendations for

regulatory frameworks on institutional issues, regulatory accountability and process,

and regulatory scope and function are provided.

Infrastructure industries in India are dominated by state-owned entities. They

have been undergoing transformation. Regulation has been, and will continue to

be, essential to bring credibility, certainty, and sound rationale to the terms and

conditions of private sector involvement and market development, while also

insulating them from government interference.

On this front, recent experience reveals a strong degree of bureaucratic interference

in regulation to protect incumbents. This has stymied the reform process and

reduced regulator autonomy. Where privatization and private investment takes

place, the contract negotiation process is often politicized and opaque. There are

insuffi cient checks and balances in the current regulatory framework to protect

consumer interests. Regulatory procedure needs to be better formalized into a more

transparent and accountable process of governance, both in old-style government

regulation and with independent regulators.

54. Reforming the State Tax System: Taxes Other than Sales TaxAuthor: J. V. M. Sarma


The paper reviews the performance of major taxes at the state level during the last

2 decades to identify the major sources and factors that led to the decline in the

revenue performance. Levying of registration on transfer of immovable property

at high and differentiated rates has led to widespread evasion of the stamp duties

by undervaluing the value of the property transacted. Lack of proper information

system and administrative machinery to implement taxes is a general shortcoming in

all the states. There is hardly any cooperation between one tax department of a state

and another, much less between central and state tax departments. Complications

in the tax system also add to complexity in administration.

Regulation has been,

and will continue to

be, essential to bring

credibility, certainty, and

sound rationale to the

terms and conditions

of private sector

involvement and market

development, while also

insulating them from

government interference.

INDIA

33

55. Reforming the State Tax System: Transition to Value-added Tax (VAT)Author: R. Kavita Rao


This paper examines various issues related to the design of state VAT in India and

proposes some changes. It begins with an assessment of this design of VAT. The

proposed design and coverage of VAT leaves out two components critical for

defi ning a comprehensive VAT at the subnational level in India. It then discusses the

issues and options in the case of taxation of services, and provides an assessment of

an intrastate VAT with continuation of Central Sales Tax (CST) in its present form on

interstate trade. The options for reform of taxation of interstate trade are studied.

Finally, the paper explores the reasons for opposition to the new tax and, in the

process, highlights the role of appropriate publicity and effective dissemination of

information.

56. Regulatory Mechanism and Policy Coordination Across SectorsAuthor: S. L. Rao


This paper focuses on energy regulation using the experience of the regulation

of electricity, the only sector so far to have independent regulatory authorities. It

evaluates effectiveness of regulatory agencies, weaknesses in their functioning

that Regulatory Commissions must attend to, the shortcomings in government

functioning at the central and state levels in performing their duties and in relation

to Regulatory Agencies, defi ciencies that need to be corrected in the law, and

institutional changes and corrections that are required.

The paper studies three stages: the present situation, the transition as the Electricity

Act 2003 and other reforms begin to take effect, and the situation in 2025 as

it might develop. Finally, the paper proposes an action plan and a set of reform

measures to address the highlighted key issues.

57. Review of Accelerated Irrigation Benefi ts ProgramAuthors: Gautam Pingle and R. Sakthivadivel

Staff: Kenichi Yokoyama

Following the inclusion of a project preparatory technical assistance (PPTA) for

an irrigation sector loan in 2004 country strategy and program update (CSPU)

for India upon request from the Government, the subject sector work was

undertaken to identify, assess, and consult on the potential scope, including the

geographical coverage of the proposed loan in consultation with the interested

states and the Government.


34

The study covered (i) irrigation sector review at the national level; (ii) analysis of issues

and constraints in key irrigation interventions, including the Accelerated Irrigation

Benefi ts Program (AIBP) and enabling environments in the selected states; and (iii)

assessment of intervention options for possible ADB assistance.

The study noted critical sector issues, including (i) enormous portfolio of unfi nished

irrigation schemes, including AIBP; (ii) serious underutilization of created irrigation

potentials; and (iii) weak management capacities of state irrigation departments

(IDs). These pose signifi cant challenges to the country’s water sector, which faces

increasing water scarcity in many river basins.

Improving irrigation performance is critical, yet possible ADB loan should generate

commensurate impacts on agriculture productivity and increase in state revenues,

which call for signifi cant improvements at the state level in (i) enabling policy/

institutional framework, (ii) capacities of IDs to deliver and sustain the intended

outputs, and (iii) individual project planning and implementation. Exploring an

alternative institutional modality, such as a corporate model, was also recommended

as an option in this context. The study then identifi ed possible scopes for ADB

assistance, which focuses on the enhanced utilization of existing irrigation systems

with farmer participation and associated institutional reforms.

A PPTA for the Orissa Integrated Irrigated Agriculture and Water Management

Project (IIDP) was prepared in consultation with the central and the concerned state

governments. The PPTA and the ensuing loan will support the further state-level

policy and institutional reforms and priority investments.

58. The Rehabilitation and Management of Tanks in IndiaAuthors: Pratima Dayal, Kavita Iyengar, R. Saktivadivel, and P. Gomathinayagam

Staff: Pratima Dayal

Tanks have been the main source of irrigation in many parts of India for centuries.

An extensive system of rainwater-harvesting structures consisting of tanks and

ponds had been built and maintained by the Indian people. However, after

independence, there was a decline in tanks—both in their relative importance

vis-à-vis other modes of irrigation, as well as a decline in the area irrigated by them—

which was attributable to silting, encroachments, interruptions in catchments, and

poor maintenance. During the last 2 decades, external funding agencies, state

governments, and nongovernment organizations (NGOs) have actively taken up

rehabilitation of tanks.

The study examines livelihood options under different scenarios and gender-related

issues in 60 rehabilitated tanks under different models in Tamil Nadu, Karnataka,

Pondicherry, and Orissa. A comparative analysis of tank institutions is made, and

a protocol for tank rehabilitation is developed with lessons learned from the case

INDIA

35

studies. The policy changes and legal support required to implement the protocol

are also elaborated on. This report concludes that taking equity issues into

consideration, improvement of livelihood for the rural community by increasing

the gross tank product needs to be the objective of future tank rehabilitation and

rejuvenation projects.

59. Role of Fiscal Policy in Stimulating Economic Activity and GrowthAuthors: Sunil Kumar Sinha and Devendra Kumar Pant


This paper provides a review of the fi nances of the central and state governments

in India in the context of fi scal reforms that aim to bring about greater degree of

control over budgetary defi cits. There is overwhelming evidence that solvency of

government debt cannot be taken for granted.

Thus, the goal should be to stabilize or reduce the debt-to-GDP ratio for which

generating primary fi scal surplus would be crucial. The focus of fi scal reform,

therefore, should be on cutting primary defi cit, without reducing capital expenditure.

Reduction in primary defi cit will then automatically mean reduction in revenue

defi cit. At the current juncture, resource mobilization by augmenting tax revenue,

earning economic return on past government investment should be a priority.

In the context of growth, fi scal adjustment needs to be tailored to reverse the

declining trend in infrastructure investment and basic social services and to improve

the productivity of the resource used in public sector. These measures will not only

be benefi cial for promoting growth in the long run but would also be critical in

ensuring the fi scal health of the Government.

60. Role of Small-scale Industries in the Age of LiberalizationAuthors: Sebastian Morris and Rakesh Basant


This paper focuses on the role that small-sized fi rms would play in the Indian

economy as it transforms itself. The evolution of the small-scale sector in India is

placed in the context of the experiences of the late industrializing countries. Data

on the growth of small-sized fi rms in India shows that the growth of the small-

scale sector in recent years has not been very remarkable. The paper argues that

macroeconomic, trade, and exchange rate policies have constrained the growth of

the small-scale sector in India.

Apart from the need to correct the distortions in these policies, the comparison with

the East Asian economies highlights the importance of the linkages between small-

and large-sized fi rms for generating a dynamic small-scale sector. These linkages in

The goal should be to

stabilize or reduce the

debt-to-GDP ratio for

which generating primary

fi scal surplus would be

crucial.


36

the current context can emerge in clusters with signifi cant scope for domestic and

international interfi rm alliances. These can also emerge in specifi c sectors where

Indian small- and medium-sized fi rms have built signifi cant capabilities over the

years. The success of the Indian effort in gaining out of the increased tradability of

knowledge industries would depend crucially on the success of such clusters as in

information technology (IT), pharmaceuticals, and auto components.

Given these possibilities, the paper brings out the situation and potential with regard

to knowledge clusters in which small- and medium-sized fi rms can play a seminal

and advancing role. In addition, since conventional subcontracting can still play

an important role in creating dynamic small-sized fi rms, the factors that facilitate

subcontracting relationships are also discussed. This helps identify areas for policy

and strategic action. Finally, attention is drawn to the key policy issues, and change

suggestions that can lead to a fast-growing economy in which small-sized fi rms play

their natural and seminal roles.

61. Rural Electrifi cation: Access and Quality Aspect Author: T. L. Sankar


The study sets out the new deal to rural electrifi cation program mandated

in the Electricity Act 2003. It fi rst traces the stages of growth of the Indian

power sector and explains the causes for current status of the sector with its

continuing shortage of supplies and deteriorating fi nancial position of the

electrical utilities.

The study further examines the power sector reforms in selected developing

and developed countries and shows that all developing countries are searching

for solutions to the problem of universalizing power supply and making such

supplies affordable to the poor. It then examines the fi nancial and technical

feasibility of each element of the new proposed Rural Electrifi cation Policy and

concludes that fi nancial needs for fulfi lling the targets could be raised by the

governments.

If subsidy is targeted properly to the poor among pump set farmers and small

households the needs of subsidy would be small and could be arranged through

small cross subsidy from industrial and commercial consumers without undue

pressure on state government budgets. Alternative institutional arrangements

to ensure the effi cient implementation and operation of the rural electricity

systems with consumer participation are explored.

The study also discusses the pros and cons of the alternative models and makes

out a case for integrating rural electricity operations with water management

and agricultural development plans and also for integrating the electricity plans

with rural industrial development programs.

INDIA

37

62. Scope of Transfer of Railway Activities (Core and Noncore) to Private SectorAuthor: P. K. Malik


The paper looks at the possibility of transferring noncore activities of the Indian

railways to the private sector. It examines the restructuring efforts of the railways

in six countries, namely, People’s Republic of China, France, Germany, Japan,

United Kingdom, and United States. The paper concludes that having regard to the

practicality of the situation, the prime candidates for the transfer of noncore activities

are production units, catering, on-board services, and schools and colleges.

Indian Railways needs to critically examine its current portfolio and decide which of

its many businesses are core and which should be spun off. The study also elaborates

on the rationale and the need for transferring the production units to bring home

the point that it is a feasible proposition, which will benefi t the Indian Railways.

63. States’ Fiscal Performance and Assessment of Multilateral Assistance for Fiscal ConsolidationAuthors: M.G. Rao and Pinaki Chakravarti


Large and increasing subnational fi scal imbalance is a matter of serious policy

concern in India. Uncontrolled subnational defi cits and contingent liabilities have

made the task of macroeconomic stabilization much more diffi cult and complex.

This paper deals with three such important issues. The fi rst relates to the concept and

measurement of fi scal imbalance itself. Secondly, while the fi scal stress in the states

in the recent past has been a common problem, some states have attempted to

achieve fi scal correction better than others. This shows the importance of economic

and political constraints in achieving fi scal consolidation. The third important issue

relates to the extent to which recent interventions by multilateral institutions through

their structural adjustment lending have succeeded in hastening the process of

subnational fi scal consolidation.

The fi ndings of this paper will help in further understanding the nature and causes

of fi scal stress in the states and, therefore, will also help design an effi cient plan for

achieving sustained fi scal consolidation.

Indian Railways

needs to critically examine

its current portfolio

and decide which of its

many businesses

are core and which

should be spun off.


38

64. Status of the Indian Financial System in the Global ContextAuthors: B. B. Chakrabarti and Mritiunjoy Mohanty


This paper discusses the impact of institutional change on fi nancial intermediation.

An analysis of the intermediation process would better assess the health of India’s

fi nancial system.

The paper indicates that the Indian fi nancial system, as a result of the reform process,

has improved in terms of effi ciency and operational parameters. The banking

system is less fragile and more profi table. Stock market liquidity has improved,

and a reasonably deep and liquid government bond market is in place. Monetary

policy is conducted through open market operations and both the call and term

money markets have improved in terms of products, intermediaries, and liquidity.

As a result, a short- and long-term yield curve is in place, making it possible for the

Reserve Bank of India (RBI) to use the bank rate as a more effective instrument.

65. Transport Sector StrategyAuthor/Staff: Shunso Tsukada

India’s transport network is extensive, but performs poorly overall. Infrastructure

capacity is inadequate and service operations are outmoded. These defi ciencies

have become a major constraint to the continued economic growth of India and

undermine the Government’s efforts to reduce income disparities between the rich

and the poor and between fast- and slow-growing states.

Beyond what it has already done to address these issues, the Government must act to

(i) increase infrastructure capacity; (ii) reform policy and institutional arrangements;

and (iii) minimize adverse social and environmental impact. Addressing the challenges

of the transport sector requires sustained policy dialogue with relevant government

agencies and with other major stakeholders. This sector strategy is intended to

contribute to the policy dialogue and provide broad guidance for the development

of future lending and technical assistance programs of ADB.

66. Viability of Inland WaterwaysAuthors: Narayan Rangaraj and G. Raghuram


The research examines the parameters that could make inland water transport a viable

infrastructure. The potential of freight and passenger movement by water is suffi cient

to justify a national body, such as the Inland Waterways Association of Ireland (IWAI),

with a sharp role in nurturing the sector. But its current sustenance needs to be judged

in current India’s economic context in the case of each waterway system.

The Government should

invest in a measured

manner, given the

considerations of a

possible primary driving

cargo and specifi c

geographic potential.

INDIA

39

The sector investment by the Government in the 9th plan and in the 10th plan

(proposed) does not appear to be commercially or economically viable, even with

projections of the growth of traffi c, barring in a few sectors. The Government

should invest in a measured manner, given the considerations of a possible primary

driving cargo and specifi c geographic potential. A tie-up with the industrial location

policy to drive demand would be essential. The paper identifi es several areas

where the Government may invest in waterway and port interface. The paper also

describes government policies on instruments, institutions, and issues concerning

key stakeholders.


41

67. Ethnic and Caste Diversity: Implications for Development Authors: Rajendra Pradhan and Ava Shrestha

Staff: Sungsup Ra

The social and cultural values, indigenous and acquired through adaptation,

assimilation, local references, and market forces represent both strengths and

challenges in the development process. The social forces have been overlooked

or underestimated in the design and development programs, which results in

inappropriate delivery mechanisms and limited participation.

The study synthesizes existing studies on social and cultural diversity. It analyzed how

ethnicity and caste have infl uenced access to power and development benefi ts. The

study makes recommendations to promote sensitivity to issues of cultural diversity

and gender in policy, program, and projects, and increased participation of hitherto

excluded groups for more socially inclusive development. It then provides guidance

to ADB for better understanding of the needs, demands, capacities, and constraints

of different ethnic and caste groups while designing projects, country strategy, and

poverty reduction interventions.

68. Managing the Debt: An Assessment of Nepal’s Public Debt SustainabilityAuthors: Sungsup Ra and Chang Yong Rhee

Staff: Sungsup Ra

This paper examines the debt sustainability of Nepal using a more theoretically

consistent analysis. Unlike previous studies, in which macroeconomic variables were

predicted independently, this debt sustainability analysis is based on the predicted

values of macroeconomic variables from the Nepal Macroeconometric Model.

Given the current magnitude and structure of debt, Nepali public debt appears to

be sustainable. This debt sustainability analysis shows that the debt-to-GDP ratio

over the next 5 years will be stable at the current level. The stress test results indicate

that the impacts of external shocks on the debt-to-GDP ratio are generally modest.

69. Measuring the Economic Costs of Confl ict: The Effect of Declining Development ExpenditureAuthors/Staff: Sungsup Ra and Bipulendu Singh

This paper measures the economic costs of confl ict, focusing particularly on the

impact of continued decline in development expenditures on GDP growth. The

Nepal Macroeconometric Model is used to estimate GDP growth under different

confl ict and no-confl ict scenarios of development expenditures.

42

Scenario analysis indicates that if development expenditures decline at the current

rate (4.2%), the total GDP growth loss is 8.3% for the period between the fi scal

years 2005 and 2009, or an average loss of 1.7% of growth per annum. If the

confl ict intensifi es and development expenditures decline at twice the current rate

(8.4%), total GDP growth lost is 10.3%, or an average loss of 2.1% of growth

per annum.

70. Nepal Macroeconometric ModelAuthors: Sungsup Ra and Chang Yong Rhee

Staff: Sungsup Ra

This paper describes a medium-sized Keynesian income-expenditure model of the

Nepalese economy. The model consists of fi ve building blocks: fi nal demand, prices,

credit and money, government, and the balance of payments. The model is useful

for policy simulations, economic planning, and debt sustainability analysis. The

forecasting performance of the model, both within-sample and out-of-sample, is

evaluated and found satisfactory. A baseline scenario and two additional scenarios

consistent with the 10th Plan are examined.

71. Nepal Public Debt Sustainability AnalysisAuthors: Mohiuddin Alamgir and Sungsup Ra

Staff: Sungsup Ra

In Nepal, public debt, both domestic and foreign, has played an important role in

fi nancing overall budget defi cit and public development expenditure. Hindered by

the escalating insurgency that has directly contributed to a slowdown in tourism

and other economic activities throughout the nation, economic growth has been

signifi cantly lower than envisaged by the 9th Five-Year Plan (FY1997–2002) and

the 10th Five-Year Plan (FY2003–2007). This could exacerbate the already narrow

base for domestic resource mobilization. It is, therefore, imperative to continuously

monitor the sustainability of public debt of Nepal.

The study on Nepal Public Debt Sustainability Analysis was undertaken by ADB in

2001. The outcome of the study was intended to improve debt management by

the Government of Nepal and to provide inputs for the 10th Five-Year Plan and

other long-term perspective plans. It was also intended to assist ADB to articulate its

lending policy for Nepal based on country risk analysis.

Although a few years have elapsed since the study was completed, the fi ndings

are still relevant as Nepal reviews its eligibility for Highly Indebted Poor Countries

(HIPC) initiatives. Nepal should seek more concession aid while closely monitoring

the evolution of the stock of debt, debt service burden, and the development of

fi scal and external payment capacity. A number of other policy actions are also

recommended for both Nepal and ADB.

NEPAL

43

72. Public Finance Management Assessment (PFMA)Author: Para Suriyaarachchi

Staff: Bruno Carrasco and Kyung-Nam Shin

This study reviews recent efforts to improve public fi nancial management in Nepal

over the last few years. It evaluates progress achieved so far, and makes practical

recommendations for improving fi scal management against a background of

political and institutional constraints.

The objective of PFMA is to identify key constraints and propose recommendations

across a spectrum of selected topics of public sector management. These include

(i) the overall budget framework, revenue mobilization, and the medium-term

expenditure framework; (ii) constraints across treasury and debt management; and

(iii) key issues in fi scal decentralization.

The key conclusions are that (i) in the last 2–3 years, Nepal has achieved signifi cant

progress in improving its public fi nancial management, despite frequent changes in

governments and the escalation of the Maoist insurgency; (ii) these efforts have built

a good base which future reformers can build on to further reduce poverty in Nepal;

(iii) the greatest source of uncertainty is whether there will be an early resolution to

the confl ict and, ultimately, a return to political stability; (iv) Nepal needs to take early

actions to address short-term budget management problems, as well as to improve

effi ciency/effectiveness of public spending; and (v) efforts to improve resource

mobilization, limit spending, and improve effi ciency of spending are needed.

The recommendations will serve to strengthen Nepal’s public resource management

policy and institutional framework with the goal of realigning public resources to

policy priorities to better fulfi ll the Government’s economic and social development

objectives. More concretely, PFMA will provide general guidelines for future ADB

assistance in the public sector management activities.

With a small but growing private sector, the Government will continue to play an

important role in socioeconomic development and poverty reduction in Nepal. While

the budget crisis has served as a catalyst for important budget reforms, the Government

has become increasingly dependent on external aid to an unusual extent. Thus, Nepal

is currently facing both short-term problems of budget management, as well as more

medium- to longer-term challenges of strengthening its fi scal management.

73. Regional Strategy for DevelopmentAuthor: Harka Gurung

Staff: Sungsup Ra

Balanced regional development has been one of the agendas of the Government

since the Fourth Plan, covering fi scal year (FY1970–1975). However, progress has

been limited. Regional disparity is much more prevalent, intense, and severe in rural

While the budget crisis

has served as a catalyst

for important budget

reforms, the Government

has become increasingly

dependent on external

aid to an unusual extent.


44

areas and the mountainous zone. Government efforts for regional development

have not been effective mainly due to an inadequate policy framework to implement

the concept.

The introductory chapter deals with the study approach, clarifi cation on regional

concept, as well as the hierarchy of regions in Nepal. Chapter II provides a review

of past experiences of regional approach in Nepalese planning. Chapters III and

IV portray the magnitude of disparity, both at the levels of the fi ve development

regions, and their 15 subregional components. Chapter V is devoted to some

important aspects that determine spatial development. Chapter VI is focused on

decentralization with some suggestions on administrative consolidation and resource

sharing. Chapter VII examines the asymmetric economic relationship of Nepal with

its immediate neighboring countries. The concluding chapter enumerates 20-point

recommendations for effective operationalization of regional strategy.

74. Social Protection StudyAuthors: Chris Butel et al.

Staff: Axel Weber

The study provides a comprehensive analysis and elaboration of the sector and

social protection strategy for Nepal. The following activities were undertaken: (i)

situation analysis and needs assessment; (ii) inventory of existing programs and

projects, including nonformal and traditional arrangements of social protection;

(iii) identifi ed involvement of nongovernment organizations (NGOs) and bilateral

and international development partners; (iv) identifi ed gaps; and (v) elaborated on

recommendations for strategic interventions.

The study emphasizes the need for institutionalized discussion forum in the fi eld

of social protection to bring together stakeholders and increase ownership. It

recommends establishment of National Employment Programme (NEP) as a form

of temporary social safety net to assist poor rural households, and establishment of

District Welfare Funds to provide adequate fi nancial support to the target groups.

The Social Protection Report highlights policy issues and possible areas of future

social protection interventions in Nepal.

NEPAL

PAKISTAN

47

75. Agricultural Growth and Rural Poverty: A Review of the EvidenceAuthor: Sohail J. Malik

Staff: Naved Hamid and Safdar Parvez

The paper examines the relationship between agricultural growth and rural poverty,

and reaches some conclusions on the structure of the sector in Pakistan and the

consequent implications for poverty. It explores the reasons why the benefi ts of

agricultural growth in the 1990s could not be translated into poverty reduction. The

study also examines regional variations in rural poverty.

One of the paper’s main contributions is the analysis of income sources in rural

Pakistan: wages/salaries, transfer income, crop income, rental income, and livestock

income. The dynamics of rural poverty, i.e., the movement into and out of poverty,

is also studied. With respect to the agricultural growth and poverty nexus, the study

shows that the estimates of agricultural growth reported by the Pakistan Economic

Surveys during the 1990s were highly overstated. The skewed land distribution is

found to be one of the obstacles hindering the rapid reduction of rural poverty.

76. Assessment of ADB’s InterventionsAuthor: Khaleel Tetlay

Staff: Safdar Parvez

This report assesses the interventions of ADB in Pakistan by examining four projects

undertaken by the bank in the last 10 years. The projects are Bahawalpur Rural

Development Project (BRDP), NWFP Barani Area Development Project (BADP),

Punjab Rural Water Supply and Sanitation Project (PRWSSP), and Khushab Salinity

Control and Reclamation Project (KSCRP). This report aims to analyze the design

and implementation of ADB interventions by examining these projects through

fi eldwork and review of project documents.

The introductory section outlines the methodology used for the assessment of projects,

followed by section 2 providing a brief description of the selected projects based on

project RRPs. The main goals, target population, implementation arrangements, and

expected benefi ts of each project are highlighted for cross-project comparisons in

approach and design. Section 3 illustrates a basic conceptual framework that provides

the main points of analysis in this study. The idea of socioeconomic heterogeneity

along the lines of social status, access to economic endowments, and gender in rural

areas is introduced and its existence in the project areas is discussed.

Project outcomes are discussed in Section 4, which draws upon fi eldwork carried

out for this study. Lessons learned from each project, including identifi cation of

good practices, are also reported here. Section 5 summarizes the policy-oriented

fi ndings of the study and suggests possible directions of change for improving the

poverty-reduction potential of ADB interventions in rural areas.

48

77. Building Civil Society Coalitions for Governance ReformsAuthors/Staff: Sandra Nicoll and Waqas-ul-Hasan

A critical problem in Pakistan is that citizen-consumers are not effectively engaging

with the state to demand access to justice, to hold public offi cials accountable, to

obtain redress for their grievances, and to create a litigation environment conducive

to justice.

This project has three main outputs: (i) insaaf.org.pk: this bilingual and interactive

website provides information on laws and citizens’ rights vis-à-vis public bodies and

is developed into an alternate and independent grievance redress channel with

relevant links for the citizens to access and activate the appropriate online offi cial

public grievance websites; (ii) Insaaf, a bilingual monthly newsletter: intended to ff

inform citizens about signifi cant developments and critical issues pertaining to the

justice sector in Pakistan; (iii) information booklets (Insaaf series), including series of

issue papers, published on three topics to date, such as public servant immunity tort

law reforms, independent prosecution service, and public grievance redress.

78. Fiscal and Financial Management in BalochistanAuthors: Shahid Kardar and Faisal Bari

Staff: Naved Hamid and Safi ya Aftab

The paper is volume 1 of the Background Paper series produced under TA

4230-PAK: Preparing the Balochistan Resource Management Program (BRMP)

hereafter referred to as the BRMP series. The paper reviews the issues in fi scal and

fi nancial management facing the Government of Balochistan and the actions it

has already taken to address those issues. The paper also proposes a number of

reforms for achieving the objectives of poverty reduction and economic growth

through improved allocation mechanisms, better management of resources,

greater transparency, and good governance.

The key fi scal issues relevant to Balochistan can be summarized as follows:

(i) large, ineffi cient, untargeted explicit and implicit subsidies on wheat and

agricultural tube-wells, and poor cost recovery against provision of economic

services, such as water for irrigation; (ii) infl exibility of expenditures owing largely

to overstaffi ng and overextension of the provincial government, which has resulted

in annual debt servicing obligations that absorb a substantial portion of recurrent

budgetary allocations; and (iii) inadequate revenues even from own instruments to

satisfy functional responsibilities.

PAKISTAN

49

79. Governance Impediments to Pro-Poor Change in PakistanAuthor: Ali Cheema


The main aim of this study is to analyze governance impediments that reinforce

poverty in Pakistan. The study is motivated by asking two simple but important

questions: (i) What constrains the poor, women, and marginalized groups from

holding the state and state functionaries accountable? (ii) What impediments to pro-

poor accountability exist in the electoral and service delivery spheres. By addressing

these questions, this study aims to identify and analyze important determinants

of antipoor ‘accountability failures’ and processes that underlie the persistence of

these determinants in Pakistan.

Section 2 presents a conceptual framework to analyze governance failures. This is

followed by a section detailing the empirical strategy and research design, which

also introduces the main questions that will be tested and analyzed in order to

determine the nature and causes of pro-poor governance failures in Pakistan.

Section 3 describes the changes in the governance framework brought about by

Pakistan’s recent devolution reforms. It highlights the need to interpret fi ndings of

this study within this particular context and also sharpens the hypotheses introduced

in the previous section.

Section 4 describes the nature of the data used and introduces the reader to the

fi eldwork methodology. Sections 5 and 6 present the resulting observations on how

well pro-poor governance is working in Pakistan, and identify the impediments that

continue to constrain the poor, women, illiterate, and socially marginalized citizens

from holding the state accountable. Section 7 summarizes the fi ndings of the study,

which includes some initial recommendations regarding the drivers of pro-poor

governance in Pakistan.

80. Improving Devolved Social Service Delivery in North–West Frontier Province and PunjabAuthors: Tim Williamson, Samantha Smith, and Masroor Ahmad

Staff: Douglas Porter

The paper, a collaboration between ADB and the United Kingdom’s Department for

International Development (DFID), is a follow-up on to the Devolution in Pakistan

study produced by ADB, DFID, and the World Bank in 2004. The paper looks at

the state of developed social service delivery—of education, health, water, and

sanitation—in the North–West Frontier Province (NWFP) and in Punjab. It assesses

the problems and issues in delivery of these services by local governments, and

examines successful on-going initiatives. The report makes recommendations for

how problems could be overcome and devolved service delivery improved.

This study aims to identify

and analyze important

determinants of antipoor

‘accountability failures’

and processes that

underlie the persistence

of these determinants in

Pakistan.


50

Five initial areas of focus addressing the fundamental underlying incentives that

undermine service delivery are identifi ed as follows: (i) a culture of zero-tolerance

for staff absenteeism needs to be inculcated in public services; (ii) shifting power

and resources to communities and service providers; (iii) developing sector policy

statements and guidelines, and informing the public; (iv) promoting effi ciency

through a formula-based grant system; and (v) ensuring stability in local government

management and building capacity.

81. Integrated Water Resources Management in BalochistanAuthor: Shahid Ahmad


The paper is volume 4 of the BRMP series. Ineffi cient water use, wastage of surface

water, and indiscriminate exploitation of groundwater, together with water scarcity,

make water management a complex and diffi cult task in Balochistan. The paper

gives an overview of Balochistan’s environment and water resources and analyzes

the situation and issues concerning the use and management of water resources in

Balochistan. Finally, the paper adopts an integrated water resources management

(IWRM) approach in the design of Balochistan provincial water policy and action

plan that consists of 16 ‘policy thrust’ areas.

82. Labor Sector Reforms in BalochistanAuthor: Aliya H. Khan


The paper is volume 6 of the BRMP series. The labor sector forms a critical input to

private sector-led sectoral growth. The paper gives an overview of the labor force

profi le of Balochistan and presents an institutional framework for the labor sector in

Balochistan, which includes labor and manpower department, mines and minerals

department, and labor judiciary.

The paper summarizes the fi ndings of the consultative process that was held with

all stakeholders, especially tripartite social partners (government, workers, and

employees) to seek proposals for labor sector reform in Balochistan. A private sector

development strategy (PSDS) for labor sector reforms in Balochistan is discussed.

Specifi c labor reform issues identifi ed in the sectors with potential for high growth

illustrate the link between the PSDS and labor sector reforms. Growth sectors include

the minerals, fi sheries, and agribusiness sectors.

Finally, capacity building in the context of labor sector reform is considered from

the point of view of institutional strengthening, training, and knowledge base for

decision-making.

Capacity building in the

context of labor sector

reform is considered

from the point of

view of institutional

strengthening, training,

and knowledge base for

decision-making.

PAKISTAN

51

83. Pakistan Punjab Economic Report Toward a Medium-term Development StrategyAuthors: Salman Zaidi et al.


The report, which is a result of the collaboration between the Government of

Punjab, ADB, DFID, and the World Bank, seeks to provide an analytical and policy

underpinning for Punjab’s development strategy. The report starts with an overview

on the challenges facing Punjab. It discusses issues and recommends actions to

promote job creation in the nonfarm sectors and accelerate growth in the agriculture

sector.

The report also examines generic issues of service delivery in a centralized setting,

summarizing some of the reforms the Government of Punjab is considering, and

making suggestions as to next steps in the reform process in the context of primary

education and health. Finally, the report presents recommendations on how the

Government can create the additional fi scal space it needs over the medium term

to achieve its development objectives.

84. Public Resource Management in Balochistan: Policy Lessons and Emerging ChallengesAuthors: Sara F. Afzar and Sara Mahmood


A number of technical studies were carried out under the BRMP series to support

the design of a reform strategy. The objective of BRMP is to support the creation of

an enabling environment to bring about poverty reduction, human development,

and economic growth in Balochistan, through a program of reforms for poverty-

focused development planning and effective use of public resources.

This summary report consolidates the analysis of the technical reports produced by

the Project Preparation Consultant Team. The fi ve components of the report are

(i) poverty in Balochistan; (ii) economy, resources, and employment; (iii) key fi scal

and fi nancial issues; (iv) public service delivery: institutional and fi nancial overview;

and (v) opportunities and challenges.

85. Public Service Delivery in Balochistan, Part IAuthors: Reza Ali and Nayyar Iqbal


The paper is volume 2 of the BRMP series. The paper starts with an overview of

poverty in Pakistan and issues regarding poverty situation in Balochistan. It then

discusses the public service delivery issues in Balochistan that include education,

health, and water and sanitation. Analysis of public service delivery budget, including

provincial and district government expenditure and budget, is presented.

The objective of BRMP

is to support the

creation of an enabling

environment to bring

about poverty reduction,

human development,

and economic growth

in Balochistan, through

a program of reforms

for poverty-focused

development planning

and effective use of public

resources.


52

Opportunities for improvement are also discussed. The strategy, and policy and

actions to address issues and problems of public service delivery are categorized under

four broad areas: (i) sustaining the architecture of devolved public service delivery; (ii)

enhancing frameworks for partnerships with civil society and the private sector; (iii)

maintaining transparency and public disclosure; and (iv) obtaining TA and capacity-

building support, both for the design of actions and their implementation.

86. Public Service Delivery in Balochistan, Part IIAuthors: Reza Ali and Tanawwur Hyder


The paper is volume 3 of the BRMP series. The paper presents an overview of

provincial government revenue and expenditure, with a focus on provincial

expenditure (recurrent and capital) on public service delivery in Balochistan. It

then assesses the Provincial Finance Commission (PFC) and the PFC awards, or

actual intergovernmental transfers, made during FY2004, and future strategy for

PFC award. The report also analyzes district government expenditures, revenue,

fi nancial management, and budgets. A grant design for conditional grants to

local governments is provided. Finally, the report includes the development of a

computerized database and an analytical module that analyzes district government

public service delivery expenditures.

87. Rural Economy and LivelihoodsAuthor: Haris Gazdar


The paper aims to investigate the correlates of poverty and drivers and constraints

to poverty reduction using a “village study” approach to represent rural poverty

in Pakistan. The description of a variety of features of village life—including

demographics, physical and social infrastructure, economic and livelihood

strategies, the signifi cance of common property resources, access to land, types

of labor demand, gendered segregation of work, and kinship groups—contribute

to a clearer identifi cation of the lines of comparison across and within villages. The

paper utilizes qualitative and quantitative data collected in seven primary research

sites to better understand patterns and dynamics of poverty within and across

villages in different agroecological zones and sociocultural regions.

This paper is divided into seven sections. Sections 1–3 provide a quantitative

summary of the fi eldwork fi ndings based on the extended village census in seven

“village study” sites. These three sections provide mostly quantitative descriptions

of the fi eldwork sites with respect to population and infrastructure (Section 2), land

and labor (Section 3), and kinship groups (Section 4). Section 4 reports the results

of poverty analyses and identifi es some of the main correlates of poverty within

and across fi eldwork villages. The paper also estimates the correlation between

kinship group and well-being after taking economic endowments into account. The

PAKISTAN

53

next two sections provide qualitative dimensions, respectively, on two of important

emerging issues: labor (Section 5) and land (Section 6). Sections 5 and 6 focus

on institutional arrangements and dynamics of change. The concluding section

(Section 7) evaluates the signifi cance of some broad categories of potential drivers

of poverty.

88. SME Development in Pakistan: Analyzing the Constraints to GrowthAuthors: Faisal Bari, Ali Cheema, and Ehsan-ul-Hque

Staff: Naved Hamid and Safdar Parvez

The paper provides a broad, strategic direction for growth and investment revival

strategy for the industrial sector, based on a rigorous analysis of the factors

constraining fi rm-level growth and investment in Pakistan. These constraints

include lack of access to credit, excessive government regulation, an arbitrary and

exploitative tax administration system, a weak technological base, and the lack of

business support services. The study places emphasis on removing the constraints

on small- and medium-sized enterprises (SMEs) growth and investment.

The study uses a survey of fi rms to ascertain the costs associated with fi rm-level

growth and investment, with a special emphasis on SMEs. In particular, it identifi es

and analyzes the policy, regulatory, and market constraints on fi rm-level growth and

investment in Pakistan. This analysis sets a road map for policies and institutional

interventions to address such constraints to promote SME growth for greater income

generation and employment creation.

89. Structural Issues in Poverty Reduction in BalochistanAuthor: Haris Gazdar


The paper is volume 5 of the BRMP series. The paper aims to assist in the

implementation of the Balochistan’s strategy for poverty reduction by analyzing

structural issues in poverty and proposing a framework for poverty reduction in the

province. The report is based on a review of the data and literature, interviews with

key informants, and fi eld visits.

Balochistan is the poorest province of Pakistan. There is need for an analysis of

structural issues in relation to poverty in the province. This report makes a contribution

in these respects. The paper analyzes the implications of geography for poverty and

poverty reduction in Balochistan. Five relevant issues are identifi ed: (i) remoteness,

(ii) environmental fragility, (iii) ecological diversity, (iv) livelihood strategies, and (v)

drought. It then focuses on the province’s distinctive social structures and the ways

in which they produce forms of poverty and social exclusion. Three dimensions of

the social structure receive specifi c attention: (i) ethnicity, (ii) tribes and hierarchy,

The paper aims to assist

in the implementation of

the Balochistan’s strategy

for poverty reduction by

analyzing structural issues

in poverty and proposing

a framework for poverty

reduction in the province.


54

and (iii) patriarchy. Finally, the paper proposes a framework for poverty reduction in

Balochistan in light of the structural constraints identifi ed in previous sections. It is

expected that a policy menu will emerge from the design and implementation of a

poverty reduction strategy by the Government of Balochistan.

90. Social Protection Strategy Development StudyAuthors: Keith Ogborn et al (Part I) and Ahsan Sadiq (Part II)

Staff: Axel Weber

The study carries out a comprehensive assessment of the elements of social protection.

It also includes a feasibility study evaluating the possibility of a health insurance in

Pakistan for population groups not covered by existing arrangements and who have

problems accessing adequate health care due to high costs of treatment. The study

recommends health insurance, a targeted employment creation scheme in the rural

areas, and access to microinsurance as the main priorities for new social protection

programs in the informal economy. In extending social protection to the informal

sector, priority should be given to those services that people want most or are able

to contribute to. This will mean health insurance and microinsurance to protect

against some interruptions to earnings.

The study also concludes that there is a need to build up policy and research capacity on

social protection issues. This may be best achieved by developing centers of excellence

in social protection research and analysis in one or two current tertiary institutions.

The Government needs to articulate a medium-term strategy for social protection to

identify the main target groups and the programs that would be made available to

them. The review of all national plans involving social protection will help identify the

extent to which they have been implemented, the reasons for nonimplementation,

and the steps that could be taken to make the policies credible.

91. Social Structures in Rural PakistanAuthors: Haris Gazdar and Shandana Khan Mohmand


This paper attempts to explain social structures in rural Pakistan by presenting a

snap-shot of seven villages in seven districts, and then using a comparative analysis

to determine the impact that social structures have on determining and maintaining

poverty. The empirical focus in this paper is on specifi c villages and communities,

and relations of power, hierarchy, and solidarity among groups in these villages and

communities.

The basic premise of this paper is that social inequalities lead to the social exclusion of

certain communities and, in so doing, perpetuate and reinforce the conditions that

keep these communities poor. The major driving force behind these causal linkages

is the ability of certain dominant groups to maintain their infl uence and power and,

the limited ability of other groups to challenge their subservient positions.

PAKISTAN

55

This paper is divided into fi ve sections. Section 1 elaborates the conceptual

framework for the study. A detailed description of the social structures in the seven

primary survey sites is provided in Section 2. Section 3 identifi es some of the main

dimensions and delineations of social exclusion in the survey sites. A more dynamic

picture of power relations, agency, and change in the survey sites is provided in

Section 4. Patriarchy as a social structure is discussed in Section 5. The fi nal section

offers concluding observations.


SRI LANKA

57

92. Financial Sector Assessment Author: Andreson Gideon Wilson, A. Michael Andrews

and Associates Ltd, and William Knight Associates

Staff: Bruno Carrasco

The study contributes to ADB’s support to private sector development and fi nancial

markets governance in Sri Lanka. The Financial Sector Assessment (FSA) aims to

provide an objective assessment of the state of the fi nancial sector in Sri Lanka with

a focus on (i) identifying structural reform issues in support of long-term fi nance

ial market development; and (ii) providing an assessment of the stress points in the

fi nancial system.

Financial sector policies in Sri Lanka have tended to focus on symptoms rather than

causes. While there have been recent improvements, fundamental reforms to the

infrastructure for fi nancial services, including the legal framework, functioning of

the registry system, and governance standards, are still needed. Without addressing

the underlying issues, symptoms, such as high lending to deposit interest margins in

the banking sector, will continue, and Sri Lankan will not realize the full benefi ts of

competitive and well-functioning fi nancial system.

The study covers the fi nancial markets, including the banking sector, nonbank fi nancial

institutions, and capital markets. It follows a simple methodology that seeks to

identify tightly defi ned constraints and measures to offset these constraints classifi ed

according to policies, institutions, and systems and procedures. Recommendations are

presented at the end of each section and classifi ed according to issue, recommended

action, performance indicator, and short- and medium-term time frame.

93. Greater Colombo Waste Water Management Sector ReviewAuthor/Staff: Keiichi Tamaki

The technical assistance (TA) assists the Government in developing appropriate

institutional framework and investment criteria required for sustainable wastewater

infrastructure. The TA (i) examines strategies to improve performance of existing

systems; (ii) recommends on how to fi nance wastewater infrastructure; (iii) outlines

an investment plan to increase people’s access to appropriate sanitation; and (iv)

provides recommendations on areas in relevant legal instruments and framework

that need amendments after existing status review.

At present, the sector is not attracting any private investments or fi nancing from

funding agencies it needs for the main sewerage areas of Greater Colombo, primarily

because the institutional arrangements for sustainable operation and maintenance

(O&M) are lacking. Sector reform is, thus, necessary to attract the private funds

and/or fi nancing from funding agencies required for the Greater Colombo sewerage

58

systems. Some of the groundwork for the needed reform has been completed.

A Regulatory Framework that is mostly acceptable to private investors has been

prepared, although it has yet to be implemented. Other government reform policies

for the sector also need to be implemented. Among other things, under these

policies, operations will be separated from asset ownership, and tariff revenues will

cover, at least, full O&M costs.

94. Post-tsunami Needs AssessmentAuthor/Staff: Johanna Boestel

This preliminary damage and needs assessment was released on 2 February 2005 by

ADB, the Japan Bank for International Cooperation (JBIC), and the World Bank. This

assessment report, prepared in close cooperation with the Government of Sri Lanka,

sets out clear guiding principles for the reconstruction strategy, with an important

emphasis on the inclusion of affected communities in the planning and process of

rebuilding. It estimates the overall damage to Sri Lanka at $1 billion, with a large

proportion of losses concentrated in housing, tourism, fi sheries, and transportation.

Total losses are estimated to equal 4.4% of GDP, with about $500 million in external

fi nancing required in the short term for 2005.

95. The Power Sector in Sri Lanka: Background to Current CrisisAuthor/Staff: Johanna Boestel

The power sector in Sri Lanka is in crisis, with potentially serious consequences for

growth and macroeconomic stability. The sector faces three major constraints: (i)

fi nancial performance and management, (ii) power generation and load capacities,

and (iii) the operational effi ciencies and governance of the Ceylon Electricity Board

(CEB). These have to be addressed to achieve a sustainable power sector. The

fourth key issue, the regulatory issue, has been adequately addressed through the

establishment of an independent and autonomous regulatory mechanism under

the Public Utilities Commission’s (PUC) Act of 2002.

It should be understood that it is not enough to address only one or two of the

constraints to establish a fi nancially and technically sustainable power sector. All

four issues of the power sector must be addressed simultaneously in order to reach

the targeted objectives. As of today, only the regulatory issue has been adequately

addressed, and that leaves the remaining three pillars, currently acting as constraints,

to be resolved.

SRI LANKA

REGIONAL

61

96. Comparing Contracting-out Primary Health Care Services to NGOs in Bangladesh and CambodiaAuthor/Staff: Sekhar Bonu

In both Bangladesh and Cambodia, efforts were put into developing objectively

measurable indicator targets. Final decisions were based on the literature and

baseline measurements, but also arbitrary and part of a political negotiation process.

Generally, indicators were chosen to refl ect priorities cited in the MDGs and targets

were ambitious.

In Cambodia, contracting appears to have dramatically increased the rates of use

of government health facilities. The gap between contracted and government

districts is seen to have widened for facility-based services (antenatal care,

delivery at facilities, curative services) and, in the fi nal survey, contracted districts

still outperform government districts for all indicators on average. In Bangladesh,

coverage rates have increased from start of project to midterm.

It is unclear, however, whether these increases would have occurred without

the implementation of the Urban Primary Health Care Project (UPHCP). Health

facilities established in locations near urban slums have benefi ted the urban poor.

Contracting health services provides a cost-effective and rapid means of achieving

specifi c goals.

Over the long run, however, gains may decrease and this may suggest an opportunity

for transitioning from a contracted system back to government-run system. However,

the gains achieved by initially freeing the health system from the restrictions of

ineffi cient government protocols can jump-start programs. Future pressure on

profi t-making may decrease the private sector’s ability to maintain equity goals.

Further study is needed to determine if similar government gains would be seen in

the absence of competing privatized districts.

97. Corridor Development Plan (Customs)Authors/Staff: Haruya Koide and Masaaki Nagata

At the Working Group Meeting on Transport and Trade held in Dubai on 4–5 March

2004 under the Central and South Asia Transport and Trade Forum (CSATTF), the

Common Action Plan (CAP) adopted by the ADB-assisted Central Asia Regional

Cooperation (CAREC) program was cited as a potential model for CSATTF customs

cooperation. In this regard, the proposed CSATTF Corridor Development Plan

(Customs) (CDP-C) has retained CAP’s format in terms of components but has

taken into consideration the specifi c needs of CSATTF’s six member countries in the

prioritization and contents of each component.

62

98. Economic Impact of Central–South Asian Road CorridorsAuthor: Mohiuddin Alamgir

Staff: Haruya Koide and Masaaki Nagata

The Central and South Asia Trade and Transport Forum (CSATTF) was established at

the First Ministerial Conference on Transport and Trade in Central and South Asia in

Manila on 31 July and 1 August 2003 with participation from Afghanistan, Pakistan,

Tajikistan, and Uzbekistan, and from Iran as an observer. (Turkmenistan was invited

but was not able to attend this Conference.) ADB has worked closely with countries

in the region and with other bilateral and multilateral funding agencies to ensure

that the vision of planned north–south (through Pakistan) and east–west (through

Iran) links receive appropriate investments and that policy and institutional changes

allow all countries of the region, as well as international trading partners, to benefi t

from the proposal. The initiative will improve peace and stability in the region and

will have positive impacts on investment, trade, income, and employment.

99. Foreign Exchange Reserves in South AsiaAuthor/Staff: Alain Borghijs

Foreign reserve accumulation in South Asia has signifi cantly outpaced the world

trend. The share of South Asian reserves in world reserves has climbed from 1.5%

a decade ago to about 3.5% in 2006. Reserves in South Asia currently amount to

about $170 billion.

The study looks into the evolution of foreign reserves in South Asia and the causes

that contributed to their accumulation. It further discusses the pros and cons of

holding foreign reserves and raises the question whether reserves in South Asia have

exceeded their adequate level. Based on a methodology developed by de Beaufort

Wijnholds and Kapteyn (2001), it is concluded that the level of foreign exchange

reserves is well above the maximum threshold level.

At the country level, however, the picture is different: three countries that have

suffi cient reserves comfortably exceed the most conservative requirement, as

measured by the maximum threshold; one country falls within the adequate range;

and three countries fall below the minimum threshold. Compared with that of the

previous year, the analysis reveals that the reserve positions of the majority of the

countries have worsened.

100. Implementation of Poverty Reduction Strategy in South AsiaAuthor/Staff: Narhari Rao

This paper undertakes a comprehensive review of the implementation of ADB’s

Poverty Reduction Strategy (PRS) in South Asia. Success in poverty reduction, the

The initiative will improve

peace and stability in

the region and will

have positive impacts

on investment, trade,

income, and employment.

REGIONAL

63

overarching objective of PRS, and in other Millennium Development Goals (MDGs)

objectives will depend critically on the outcomes in South Asia.

The changes in ADB’s operations and business processes in South Asia following the

adoption of PRS are also discussed. Consistent with PRS, the CSPs and recent CSPUs

emphasize a narrowing of number of sectors and subsectors for ADB involvement,

while also developing detailed sector road maps with monitorable targets and

outcomes (except Pakistan). This is a key innovation in the new CSPs following

adoption of PRS. The paper concludes with the important issue of monitoring efforts

and outcomes of poverty reduction initiatives.

101. Social Protection Index for Committed Poverty ReductionAuthors: Joe Wood et al.

Staff: Axel Weber

The TA defi nes social protection in each of the developing member countries

(DMCs) and develops a common standard that comprise social protection (to ensure

comparability among DMCs). It improves statistical information on social protection

(for monitoring impacts) and allows comparisons between countries and over time

with view to implementation of social protection measures. Existing and other

accessible databases are analyzed for their relevancy to the index. Pilot fi eldwork

was undertaken in one DMC to collect information and compute the index and

determine the validity of the output. Based on this, guidelines are elaborated for

local consultants to enable collection of information and data in other DMCs. A

regional technical assistance (RETA) workshop provides an opportunity to discuss

the results, ascertain feedback on methodology, guidelines, and data situation.

102. Study on Transit Trade Author: Douglas Cruickshank


The facilitation of transit trade is a factor critical to fostering economic development

and prosperity in the Central and South Asia subregion. The needs are particularly

acute for landlocked countries in the area. Practical means of cooperation to improve

transit trade need to be identifi ed. Numerous multilateral and bilateral transit

transport accords have been concluded to recognize reciprocal access rights and

to simplify visa requirements for transporters. The subject has also been dealt with

in the larger region by several studies carried out by international organizations,

international fi nance institutions (IFIs), and consultants.

A regional technical

assistance (RETA)

workshop provides an

opportunity to discuss the

results, ascertain feedback

on methodology,

guidelines, and data

situation.


64

103. Toward Harmonization and Modernization of Transit Transport AgreementsAuthors: Kristiaan C. Bernauw and Bruce P. Winston


Recent meetings of the Central and South Asia Transport and Trade Forum (CSATTF)

initiative have identifi ed constraints on transit trade in the member countries and have

recommended that they seek to address these constraints through implementation

of bilateral and regional agreements. In response, considering the divergent views

of several prior transit facilitation studies for the CSATTF region, ADB has exercised

its secretariat function to carry out a small-scale study to seek the way to harmonize

and modernize the existing bilateral/trilateral agreements through the development

of general principles, as well as promotion of the countries’ accession to international

conventions, which provide widely accepted solutions.

REGIONAL

65

Index of Economic, Thematic,

and Sector Work

A. Theme STUDY

TITLE COUNTRY NUMBER

ENVIRONMENTAL SUSTAINABILITY

Design of a System for Recording Road Traffi c Data on a Continuous Basis IND 23

Energy Pricing IND 26

Energy Security IND 27

Environment Assessment BHU 9

Environmental Aspects of Power Development IND 28

Infrastructure and Institutional Constraints in the Development of Coastal Shipping IND 34

Integrated Water Resources Management in Balochistan PAK 81

Policy Framework for Enhancing the Quality of Trucking Services IND 47

Policy Framework for Facilitating the Development of an Optimal Modal Mix IND 48

for Urban Passenger Transport

Promoting Energy Effi ciency and Conservation IND 51

Rationalization of Allocation of Landing Rights for Civil Aviation IND 52

Regulatory Mechanism and Policy Coordination Across Sectors IND 56

Review of Accelerated Irrigation Benefi ts Program IND 57

Rural Electrifi cation: Access and Quality Aspect IND 61

Scope of Transfer of Railway Activities (Core and Noncore) to Private Sector IND 62

The Rehabilitation and Management of Tanks in India IND 58

Viability of Inland Waterways IND 66

GOVERNANCE

Anticorruption Framework for Projects IND 17

Building Civil Society Coalitions for Governance Reforms PAK 77

Governance Impediments to Pro-Poor Change in Pakistan PAK 79

Governance/ Institutional Assessment BHU 11

Nepal Public Debt Sustainability Analysis NEP 71

The Power Sector in Sri Lanka: Background to Current Crisis SRI 95

INCLUSIVE SOCIAL DEVELOPMENT

Agricultural Growth and Rural Poverty: A Review of the Evidence PAK 75

Agricultural Research and Extension: Priority Setting and Institutional Development IND 15

Bangladesh Rice Price Policy BAN 1

Crop Diversifi cation and Value Addition to Agriculture IND 21

Data for Monitoring and Evaluation of PRSP of Bangladesh: A Review BAN 3

of National Data Sources, Problems, and Suggestions


66

Economic Policies for Augmenting Remunerative Rural Employment IND 25

Ethnic and Caste Diversity: Implications for Development NEP 67

Food Security and Better Nutrition for the Poor IND 29

Gender Assessment BHU 10

Improving Devolved Social Service Delivery in North-West Frontier Province and Punjab PAK 80

Issues in Sustainable Water Use IND 36

Land Reforms: What Next? IND 38

Legal Impediments to Rural Development IND 39

Management of Disasters and Crises Situations for the Poor IND 40

Marketing and Rural Finance for Strengthening Agriculture IND 41

Poverty Assessment BHU 12

Prerequisites for Capital Formation in Agriculture: Public-Private Partnerships IND 49

for Enhancing Rural Infrastructure

Social Protection Index for Committed Poverty Reduction REG 101

Social Protection Strategy Development Study PAK 90

Social Protection Study NEP 74

Social Structures in Rural Pakistan PAK 91

Structural Issues in Poverty Reduction in Balochistan PAK 89

MULTITHEME

Post-tsunami Needs Assessment SRI 94

Public Resource Management in Balochistan: Policy Lessons and Emerging Challenges PAK 84

PRIVATE SECTOR DEVELOPMENT

Comparing Contracting-out Primary Health Care Services to NGOs REG 96

in Bangladesh and Cambodia

Global Experiences of Public-Private Partnerships in Highway Development IND 30

Private Sector Assessment BHU 13

Private Sector Strategy BAN 6

REGIONAL COOPERATION

Corridor Development Plan (Customs) REG 97

Foreign Exchange Reserves in South Asia REG 99

Implementation of Poverty Reduction Strategy in South Asia REG 100

Priorities for State Fiscal Consolidation IND 50

Regional Strategy for Development NEP 73

Study on Transit Trade REG 102

Toward Harmonization and Modernization of Transit Transport Agreements REG 103

SUSTAINABLE ECONOMIC GROWTH

An Agenda for Financial Sector Reform for Stimulating Investment and Economic Growth IND 16

Assessment of ADB’s Interventions PAK 76

Borrowing Capacity Assessment BAN 2

Borrowing, Debt Management, and Contingent Liabilities IND 18

Index of Economic, Thematic, and Sector Work

67

Capital Flows and the Absorptive Capacity of the Indian Economy IND 19

Critical Issues in Services-led Growth IND 20

Debt Sustainability BHU 8

Decentralization and Issues of Local Government Finance: The Workings IND 22

of State Finance Commission

Determinants of Capital Infl ows in the Indian Economy IND 24

Economic Impact of Central–South Asian Road Corridors REG 98

Financial Sector Assessment SRI 92

Fiscal and Financial Management in Balochistan PAK 78

Globalization, Poverty, and Inequality IND 31

Greater Colombo Waste Water Management Sector Review SRI 93

Growth and Fluctuations in the Indian Economy IND 32

Human Development in India: The 1990s IND 33

Investment vs. Maintenance: Lessons in Maintaining and Managing IND 35

Physical Infrastructure (Excluding Power)

Issues Regarding Privatization and Disinvestment IND 37

Labor Sector Reforms in Balochistan PAK 82

Macroeconomic Impact of Oil Price Increase in Bangladesh BAN 4

Managing the Debt: An Assessment of Nepal’s Public Debt Sustainability NEP 68

Measuring the Economic Costs of Confl ict: The Effect of Declining Development Expenditure NEP 69

Medium-term Fiscal Management: A Program for Reform IND 42

National Urban Sector Policy Paper BAN 5

Nature of Macroeconomic Development and Determinants IND 43

of Growth in the Indian Economy: Pre- and Post-Reform

Nepal Macroeconometric Model NEP 70

Nontariff and Other Barriers to Trade IND 44

Nontax Revenues, User Charges, and Subsidies IND 45

Optimizing Lessons of Effi cient Social Service Delivery IND 46

Pakistan Punjab Economic Report Toward a Medium-Term Development Strategy PAK 83

Public Finance Management Assessment (PFMA) NEP 72

Public Service Delivery in Balochistan, Part I PAK 85

Public Service Delivery in Balochistan, Part II PAK 86

Recent Developments in the Regulatory Framework for the Private Sector IND 53

Reforming Bangladesh Railway BAN 7

Reforming the State Tax System: Taxes Other Than Sales Tax IND 54

Reforming the State Tax System: Transition to Value-added Tax (VAT) IND 55

Role of Fiscal Policy in Stimulating Economic Activity and Growth IND 59

Role of Small-scale Industries in the Age of Liberalization IND 60

Rural Economy and Livelihoods PAK 87

SME Development in Pakistan: Analyzing the Constraints to Growth PAK 88

Sources of Growth BHU 14

States’ Fiscal Performance and Assessment of Multilateral Assistance for Fiscal Consolidation IND 63

Status of the Indian Financial System in the Global Context IND 64

Transport Sector Strategy IND 65


68

B. Sector STUDY


AGRICULTURE AND NATURAL RESOURCES






ENERGY









FINANCE




HEALTH, NUTRITION, AND SOCIAL PROTECTION

Comparing Contracting-out Primary Health Care Services to NGOs REG 96

in Bangladesh and Cambodia



Improving Devolved Social Service Delivery in North–West Frontier Province and Punjab PAK 80




INDUSTRY AND TRADE





Issues regarding Privatization and Disinvestment IND 37




69






LAW, ECONOMIC MANAGEMENT, AND PUBLIC POLICIES






















Nature of Macroeconomic Development and Determinants IND 43

of Growth in the Indian Economy: Pre- and Post-Reform





Pakistan Punjab Economic Report Toward a Medium-term Development Strategy PAK 83





Reforming the State Tax System: Transition to Value-added Tax (VAT) IND 55






70



MULTISECTOR
























TRANSPORT AND COMMUNICATIONS






Policy Framework for Facilitating the Development IND 48

of an Optimal Modal Mix for Urban Passenger Transport





WATER SUPPLY, SANITATION, AND WASTE MANAGEMENT



71

C. Division and Resident Mission STUDY


BANGLADESH RESIDENT MISSION









INDIA RESIDENT MISSION























Issues Regarding Privatization and Disinvestment IND 37







72

Nature of Macroeconomic Development and Determinants of Growth IND 43

in the Indian Economy: Pre- and Post-Reform





Policy Framework for Facilitating the Development IND 48

of an Optimal Modal Mix for Urban Passenger Transport








Reforming the State Tax System: Transition to Value-added Tax ( VAT) IND 55











NEPAL RESIDENT MISSION







PAKISTAN RESIDENT MISSION






Improving Devolved Social Service Delivery in North–West Frontier Province and Punjab PAK 80




73

Pakistan Punjab Economic Report Toward a Medium-Term Development Strategy PAK 83








GOVERNANCE, FINANCE, AND TRADE DIVISION



AGRICULTURE, NATURAL RESOURCES, AND SOCIAL SERVICES DIVISION


Comparing Contracting-out Primary Health Care Services to NGOs in Bangladesh and Cambodia REG 96





COUNTRY COORDINATION AND REGIONAL COOPERATION DIVISION














TRANSPORT AND COMMUNICATIONS DIVISION


URBAN DEVELOPMENT DIVISION


SRI LANKA RESIDENT MISSION




About the Asian Development Bank

The work of the Asian Development Bank (ADB) is aimed at improving the welfare of the people in Asia and the Pacific, particularly the nearly 1.9 billion who live on less than $2 a day. Despite many success stories, Asia and the Pacific remains home to two thirds of the world’s poor. ADB is a multilateral development finance institution owned by 66 members, 47 from the region and 19 from other parts of the globe. ADB’s vision is a region free of poverty. Its mission is to help its developing member countries reduce poverty and improve the quality of life of their citizens.

ADB’s main instruments for providing help to its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance. ADB’s annual lending volume is typically about $6 billion, with technical assistance usually totaling about $180 million a year.

ADB’s headquarters is in Manila. It has 26 offices around the world and has more than 2,000 employees from over 50 countries.

Asian Development bank6 ADB Avenue, Mandaluyong City1550 Metro Manila, Philippineswww.adb.orgPublication Stock No. 111706 Printed in the Philippines

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