Beyond Development Loans: World Bank Lobbying in India

The World Bank (WB) is one of the world’s largest financial institutions funding nearly $60 billion dollars in development projects each year (World Bank Group). These loans create the opportunity for developing countries to provide food for their citizens, power their cities and move their resources to marketplace. While the WB is improving the lives of millions of people a year, it is no secret that its lending is a reflection of the interests of its donor countries. Through policy-based lending the WB has been routinely criticized of promoting neo-liberal ideology throughout the developing world. In the 70 years of the Bank’s existence, India has been the largest benefactor of these loans (Mallapur). With a relationship so large in time and scale, India has become a case study in the typical relationship a country will hold with the WB. On the surface, the interactions between India and the WB have been the same as any other country; however, the WB effectively utilized lobbying to impose the 1991 Indian structural adjustment package. This paper will first examine the formation of the WB and how this formation lead to such an important interest in India. It will then go on to look at the evolution of the WB-India relationship. This paper will ultimately demonstrate that when the WB’s traditional requests for structural adjustment fail, the Bank turns into a lobby group aimed at spreading neo-liberal ideals.

Founded at the 1944 Bretton Woods Conference, the WB began as the International Bank for Reconstruction and Development (IBRD). At the time, the IBRD was designed to provide loans for major capital projects in the post-World War Two world. Because of the huge risk nations would be undertaking through their contributions to the bank, it was built in such a way that voting rights were allocated by size of financial contribution (Babb 20). Therefore, in its 70 years of existence, the United States has always had the greatest say in the operation of the Bank. The Bank had geographically humble beginning; between 1946 and 1952 half of all loans went to Europe and Australia (Babb 22). The reason for this was twofold. First, the Bank originally lent at “market rates”, which most of the third world could not afford. Second, US sentiment at the time suggested that loans to the “third world” should be provided by the private sector (Babb 22). Loans at this time were “project based”, meaning that, countries would submit proposals for infrastructure projects, which would then be approved based on merit (Kirk 6).

During this time India was a country economically built upon state-owned enterprises and import substitution industrialization (Kirk 5). While these policies were considered “illiberal”, India maintained a good relationship with the Bank, funding railroad and power plant projects with IBDR loans (Kirk 5). A series of failed monsoons and agricultural crises meant that in 1958 India was on the verge of a balance of payments crisis (Kirk 7). Turning to the WB for help, the Aid-India Consortium was created by 13 major donors to discuss a long term solution to India’s financial issues. Ultimately these discussions lead to the 1960 creation of the International Development Association (IDA). With the creation of the IDA, lending to India increased fivefold, and India became the largest beneficiary of WB funds (Kirk 9).

While the creation of this new fund seemed to be a testament to the good heartedness of the donor countries, it really represented a shift in the strategy of the Bank. This shift stemmed from two separate pillars. First, in the years leading up to its creation, India had experienced warming relations with the Soviet Union. This included two diplomatic missions between the two in 1955, and India’s refusal to denounce the 1956 Soviet invasion of Hungary at the UN General Assembly (Mastny 54–55). Second, the United States was fearful of the Special United Nations Fund for Economic Development, the UN development agency at the time (Babb 23). The United States was not willing to make large financial contributions to such a fund, because the one country, one vote system at the UN would give the third world and communist bloc to much influence on loans were spent. The creation of these Banks are significant as they represent the first time the United States utilized aid as a foreign policy tool under the name “World Bank”. The reasons for the Banks creation echoed throughout their strategies and actions during the 20th and into the 21st century.

The first time the WB attempted to change policy was in 1966. After sending Bernard Bell to do a two year analysis of the Indian economy, the WB decided that if it was going to support India’s upcoming five year plan it would need to see India devaluing its currency and decreasing import controls (Bhambhri 82). The firm stance of the WB, the International Monetary Fund (IMF) and the United States ultimately resulted in India agreeing to a 36% devaluation of the rupee and changes in import legislation (Bhambhri 82). This incident represented the first time in which the WB would instigate policy based lending.

After the tough stance the WB took pertaining to the 1966 currency devaluation, going into the 1970’s the Indian government was “wary of liberalization and determined to lessen the country’s dependence on foreign assistance” (Zanini 10). By 1969 strict import controls had been reintroduced, and India was working to improve its relationship with the Soviet Union (Sengupta 187). Continuing along this theme, Indira Ghandi, (India’s Prime Minster from 1969–1977) proposed in 1973 to reduce net foreign aid to $0 in ensure self-reliance (Kirk 23).

This trend continued into the 1980s. Under Rajiv Ghandi’s government from 1984–1989, India was still considered one of the most statist economies in the non-communist world (Kirk 26). During this time period, structural adjustment loans, like those offered to India in 1966, became the norm at the Bank (Babb 104). Nonetheless, the WBs aggressive approach in 1966 kept their most important customer at bay.

In 1991, several events coinciding at once lead to India having a balance of payments crisis. The first, was the persistent deficits which India maintained throughout the 1980’s. Over the long term this decreased India’s credit rating and therefore its ability to borrow. Second, the Iraqi invasion of Kuwait, resulting in a spike of the price of oil and decreased remittances from Indians working in the middle east, lead to further account deficits. This crisis ultimately lead to India receiving IMF assistance and a WB loan. The WB loan was contingent upon a two year long structural adjustment package which included: devaluing the rupee, decreasing subsidies to state owned businesses, simplifying complex industry and trade licensing laws and modernizing capital markets (Independant Evaluation Group). The acceptance of this package marked a radical transition in Indian economic history.

As stated earlier, India was a country which was considered one of the most statist economies in the non-communist world (Kirk 26). Because of this, it is difficult to understand how structural adjustment gained such rapid popular support. There are different theories for why the structural adjustment packages were accepted; Jason A. Kirk, argues that “a broad official consensus underpinned the new, pro market direction in 1991” (Kirk 28). David B. H. Denoon saw the consensus built on a long term, “loss of confidence in India’s control system” (Denoon 54). Both are correct in saying that there was a certain degree of consensus when the Indian Government agreed to reform, however the source of this consensus could be described as an Iceberg: what was seen was far different than what occurred below the surface. Upon realizing the strong arm techniques of the pushing structural adjustment would not work again in India, the WB took a different approach. This consensus only existed because of concentrated lobbying efforts pushed forward by the WB. Throughout the 1980’s the WB used a methodical approach to change the attitude of important players within Indian politics. This approach was based on two pillars which focused on enabling and incentivising certain WB sympathizers.

The first pillar — enabling — existed in the WB sharing its significant resources with specific allies in the Indian Government. As economic conditions worsened throughout the late 1980’s, government officials began looking for a way out. Using this as an opportunity the WB began providing economic reports and technical data to its allies. This data would have otherwise been inaccessible to elected officials and civil servants. S.K. Goyal, an advisor to former Indian Prime Minister Chandra Shekhar said in a 2001 interview that “more studies on India are done within the World Bank than in India itself . . . [And] . . .the international organisations have most systematically kept the senior bureaucrats informed of their research and the results of their research” (Sengupta 203). He contrasted this to the political parties who do not have the resources to employ advanced economic researchers (Sengupta 203). During 1980’s India, people were looking for alternatives to the status quo. This sharing of resources is significant because it enabled free market sympathizers in India to bring forward analysis and information other members of the government could not access. This allowed these free market sympathizers to have a greater influence over elected officials and ultimately create a political environment which was willing to consider a more liberal approach.

The second pillar — incentivising — lies in the WB creating relationships with certain government officials which equivocate to financial bribery. Methods have included “invitations to lectures, seminars and conferences in Washington, DC, which are usually accompanied by handsome honoraria and exceptionally well-paid contracts as consultants” (Sengupta 193). Many were also promised employment at the Bank after their time in government. Notable examples include: Shankar Acharya, who went from being an economic advisor for the Ministry of Finance to the Chief of Public Economics at the WB in 1990, and Jayanta Roy, who left his role as an Economic Advisor at the Ministry of Commerce to be a full time Lead Economist for the WB (Sengupta 208). These are just two of what the Independent Peoples Tribunal on the World Bank Group in India estimates to be upwards of 100 federal level civil servants who had some employment ties to the WB (Kellogg). This stems from what politician and human rights lawyer Prashant Bhushan describes as the “revolving door” (Bhushan). First noted in the United States, the revolving door refers to the movement of staff between private financial institutions, government institutions and the multilateral banks. Bhushan argues that the issue which arises with a “revolving door” is the fact that those who spend their whole career in financial or economic related positions begin to view the world from a certain lens which may be in conflict with the mandate of a government position. Naturally, their world view is one reflective of the financial community; thus, when they enter a government position, their policy decisions likely reflect the needs of the financial community (Bhushan 4879). By creating a revolving door, the WB was able to consistently distort the world views of a group of Indian politicians and civil servants.

Ultimately these two techniques were used over the long term to build consensus within the Indian government. When crisis struck in 1991, internal desperation allowed the free market sympathizers the WB had been grooming for so many years to successfully convince their peers of the ‘merits’ of structural adjustment. In theory, the WB was created to contribute to developing the economies of poor nations. It is no secret that its expansion was fueled by a desire to influence the economies of the developing world; however, the case study of India demonstrates that when the traditional methods of instigating structural adjustment fails, the WB is willing to utilize techniques equating to lobbying to promote their ideology. This is concerning because if it happened in a well-established democracy such as India, it is conceivable this could happen anywhere in the world. Consider the weaker democracies which the WB also loans to. If India did not have the institutional strength to prevent external WB influence then they will not either.

Going forward, action must be taken to prevent the WB from dictating its member’s economic policies. Ultimately the WB has not done anything unlawful so there is no legal action which can be pursued. In addition, the concerns raised by a few academics will not change the ways of the WB. What is likely the best course of action is the engagement of regions affected by WB development projects. By educating leaders and civilians in these regions about the methods used by the WB they can take the necessary action to fight off WB’s influence. Influence could be mitigated through laws encouraging freedom of information or laws which focus on preventing the revolving door. This could include a regulatory body whose mandate is to seek out and highlight all correspondence between politicians, civil servants and the Bank. On a macro scale, states and municipalities could rise together to reject WB development projects in their communities unless they remain autonomous over their economies.

The WB was first created to provide funding to post World War II infrastructure projects. It quickly became a tool used to promote neo liberal ideology throughout the world. It promoted neo-liberal policies through the distribution and withholding of funds. As demonstrated in the case of India, when traditional methods of spreading doctrine fail, the WB is willing to utilize infiltrative lobbying to build consensus for its neo liberal reforms. They do this through granting special access to information and promising employment to key allies. This is concerning because if lobbying like this occurs in India, it can also happen in other countries. Going forward, communities which intend to partner with the WB need to be informed about these infiltrative techniques so their lending agreements enable them to maintain their fiscal autonomy.

Works Cited

Babb, Sarah. Behind the Development Banks. Chicago: University of Chicago, 2009. Book.

Bhambhri, C P. World Bank and India. New Delhi: Vikas Publishing House, 1980.

Bhushan, Prashant. “The Revolving Door of the IMF/World Bank.” Economic and Political Weekly (2004): 4877–4880.

Denoon, David B. H. “Cycles in Indian Economic Liberalization, 1966–1996.” Comparative Politics (1998): 43–60.

Independant Evaluation Group. Structural Adjustment in India. 6 January 1996.

Kellogg, Sonal. Independant Peoples Tribunal. 20 September 2007. Article.

Kirk, Jason A. India and the World Bank. London: Anthem Press, 2010.

Mallapur, Chaitanya. India largest recipient of World Bank loans over 70 years. 18 January 2016.

Mastny, Vojtech. “The Soviet Union’s Partnership with India.” Journal of Cold War Studies (2010): 50–90.

Sengupta, Mitu. “Making the State Change Its Mind — the IMF, the World Bank and the Politics of India’s Market Reforms.” New Political Economy (2009): 181–207. PDF.

World Bank Group. “Annual Report 2015.” 2015. PDF.

Zanini, Gianni. India: The Challenges of Development. Country Assistance Evaluation. Washington D.C.: The World Bank, 2001.