Is India Too Rich for World Bank Loans?

Is India Too Rich for World Bank Loans?

For decades, India has been one of the largest recipients of World Bank loans. By most accounts, the relationship between the massive democracy and the global lender has been mutually beneficial. India gets billions in very low-interest loans with long repayment plans while the Bank is able to disburse loans to a reasonably well-run government it knows well. Just last week, the Bank announced a new $100 million program to help low-income families secure housing loans. In the last fiften yeears, the Bank has provided more than a billion dollars to India for water and sanitation projects alone.

But there’s a hitch: India is getting too wealthy for many World Bank loans.

The Bank’s lending arm for poor states, the International Development Association (IDA), has an eligiblity threshold based on Gross National Income (GNI) per capita. This year, the cutoff is $1205. According to the Bank, India’s GNI per capita now exceeds $1500. 

Fortunately for India, the application of this threshold is not mechanical. For several years now, the Bank has classified India as a "blend" country that is eligible for both IDA money and loans designed for creditworthy middle-income countries. According to this account in the Business Standard, India’s diplomats are working hard to ensure the country remains IDA-eligible:

The ministry of external affairs () has pulled out all stops to retain India’s eligibility for loans from the World Bank’s concessional lending arm, the International Development Association ().

This is because the country is otherwise quickly running out of the eligibility criteria for getting such loans. IDA funds are highly concessional or interest-free loans and grants. If the extension is not granted, India will stand to lose a little over $2 billion in low-interest funds for many schemes, an MEA official told Business Standard.

India’s push to keep the Bank’s spigots open comes at a time of heightened economic anxiety. On a recent visit to India, the Bank’s chief economist Kaushik Basu—a former advisor to India’s government—faced questions about whether the country might even turn to the International Monetary Fund. Basu flatly rejected the idea, but rumors that India is considering an international lifeline are persistent. Against a backdrop of economic volatility, the Bank seems very unlikely to pull the plug on future IDA loans.