India soon must gear itself to fewer interest-free loans

With the international aid reservoir falling, India faces involuntary weaning from its current hefty share of interest-free World Bank loans.

The world's largest single beneficiary of World Bank assistance over the past three decades, India has been gobbling up 40 percent of the bank's no-interest loans. It has come to regard that proportion as its traditional share.

But the bank's soft-loan affiliate, the International Development Association (IDA), now has less money to lend, largely due to a cutback in American contributions. Nations poorer than India, which ranks 15th from the bottom on the world poverty scale, are clamoring for a bigger share.

Looking at India's growing economy and excellent credit rating, the World Bank now figures India can afford to pay more for the development funds it borrows overseas. The upshot is that India will get only about $840 million in interest-free loans this year, compared with the $1.6 billion it expected.

To compensate, the World Bank will increase its lending to India from its hard-loan window, the International Bank for Reconstruction and Development (IBRD). The big difference is that IBRD loans come at a higher, although still subsidized, price: about 13 percent a year in interest and service fees, compared with no interest and only 0.75 percent in service charges a year for IDA loans. The World Bank emphasizes that the merit of loan projects does not differ.

The net result will be about the same amount of World Bank aid -- approximately $2 billion -- but in a different ''mix'' of soft and hard loans costing India more. Government officials here say the higher aid costs will mean a setback for development efforts that still have a long way to go.

Although the country has built up a heavy-industry base and has reached virtual self-sufficiency in food production, annual per capita income is still a low $190. Nearly half of India's 684 million people live in officially designated poverty, and much of the country's economic gains have been swamped by unchecked population growth.

For that reason, A. W. Clausen, president of the World Bank, assured Indian officials during a January visit here that ''India is a long, long way from graduation'' from the bank's concessional lending programs. He emphasized, however, that India's creditworthiness gave it financial alternatives not available to many other poor countries. Some have so little credit standing that they cannot qualify even for IBRD subsidized loans, much less commercial borrowings.

Because India has received $13 billion from the World Bank over the last three decades and has secured substantial aid from bilateral donors, it has largely been able to avoid commercial borrowing at world market rates. That picture began to change at the start of the 1980s though. This year, according to published press reports here, both government-run enterprises and private businesses will be tapping the world capital markets to the tune of about $650 million.

A little-known fact, highlighted by India's announcement of an $11 million loan to Vietnam last month, is that India is itself an aid donor. The government's proposed fiscal 1982-83 budget, unveiled Saturday in Parliament, allots $103 million as aid to other countries. Most Indian assistance goes to poorer subcontinental neighbors such as Bhutan, Nepal, and Bangladesh.

Looking ahead, officials see little prospect of India's recouping its losses at the World Bank's soft-loan window. World Bank policies aimed at targeting loans to the neediest nations mean a diminishing share for India. Last month, in a position paper on international development banks, the Reagan administration signaled its intention to further cut back contributions for low-interest lending.

What's more, China, the world's most populous country, is to become eligible for World Bank interest-free loans in 1984. With one more claimant to a shrinking pot, India and other traditional recipients are concerned there will be even less left for them.

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