ADB grants $1.5bn loan to India to tackle the coronavirus pandemic

20 May 2020  Read 1123 Views

The Asian Development Bank has increased its predicted global economic losses due to the COVID-19 crisis between $5.8 trillion to $8.8 trillion from $2 trillion to $4.1 trillion. Recently, ADB announced the approval of $1.5 billion (about Rs. 11,400 crores) assistance to the government of India to help its response programs to fight coronavirus pandemic.

The funding is part of its rescue package of $20 billion to help developing countries in Asia facing the health and economic effects of the pandemic. If needed, it can increase the assistance package for India’s health sector, informal workers, and MSMEs. So, what’s happening in India? Let’s have a closer look.

COVID-19 Crisis and India

With a daily increase in the number of affected people in India the count of confirmed cases has reached 85,790 cases of which 52,774 are active, 30,258 are recovered and 2,753 are deceased as on 15th May 2020. But it’s not just a health crisis. Most economic activity in the country had come to a standby mode after the government imposed a 21-day nationwide lockdown to break the chain of Covid-19 infection beginning March 25 to check the spread of coronavirus. The lockdown has since been extended twice up to May 17, with some relaxations to allow the resumption of economic activity.

The most vulnerable and the worst hit of all is the informal sector where many workers and laborers are reduced to subsistence living. Informal enterprises or the parallel economy accounts for around 85% of overall employment and around 40% of GDP. Companies with heavy bank loans and no incoming funds have suffered the most. As a result of which lots of people are facing salary cuts, salary delays, retrenchment, layoffs, leave without pay, and partial deferred payout, etc. In short, it has created a situation of the social, economic, and political crisis in the country.
 

Following are some of the major steps taken by the government of India to control economic fallout:

  • Introduced Arogya Setu App and Invest India Business Immunity Platform among others to increase awareness and get information which can help in making informed decisions

  • Setting up of 20 lakh retail shops called Suraksha stores across the country to provide daily essentials.

  • Announcement of releasing 12 million metric tonnes of food grains under Pradhan Mantri Garib Kalyan Ann Yojana

  • Medical insurance cover of ₹ 50 Lakh per person to health workers fighting coronavirus pandemic

  • Announcement of 1.7 lakh crores relief package by the Ministry of Finance.

  • Relief measures announced by the Minister of finance regarding Income tax filing, GST filing, Corporate affairs, GST, Customs & Central Excise, Insolvency & Bankruptcy Code (IBC), Fisheries, Banking Sector, and Commerce.

  • Tax refunds to individuals and businesses of ₹ 18,000 crores.

  • Under the National Social Assistance Programme, ₹ 1,400 crores has been disbursed to about 2.82 crore old age people, widows, and disabled people.

  • With a total disbursement of ₹ 9,930 crores, ₹ 500 was credited to each of Jan-Dhan accounts of nearly 20 crore women.

Recently, Government has announced a mega economic relief package of ₹ 20 lakh crores which includes the previously mentioned measures covering all the major sectors such as agriculture, manufacturing, MSMEs (collateral-free loans, promotion of e-market linkages, revised investment limits), NBFCs, DISCOMS and providing EPF support for business & workers and relaxing TDS rates, etc.

The Government of India is taking necessary steps and trying each and everything it can do to slow down the spread of the virus byways of lockdown, testing, and treating people and by following various resilience models with the aid of state governments. The Government has set up the Prime Minister's Citizen Assistance and Relief in Emergency Situations Fund (PM CARES fund) which received enormous support from the people of our country. Many corporates and celebrities came forward making huge donations and helping create awareness and supplying essentials.

All these efforts require a lot of capital and to further scale up such efforts, India has reached various organizations for monetary support and received assistance from them such as Asian Development Bank ($ 1.5 billion), Asian Infrastructure Investment Bank ($ 500 million), United States Agency for International Development ($ 5.9 million) under PAHAL project (Partnerships for Affordable Healthcare Access and Longevity), United Arab Emirates (7 metric tonnes of medical supplies) and World Bank ($ 1 billion) under COVID-19 Emergency Response and Health Systems Preparedness Project. Let’s have a look at the Asian Development Bank (ADB).

Asian Development Bank (ADB)

ADB is a multilateral development bank established in 1966 headquartered at Manila, the Philippines owned by 68 members, 49 from the region and 19 from other parts of the world. ADB’s main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance. ADB collaborates with multilateral and bilateral development partners to exchange information on development operations and best practices to augment its financial assistance.

It also explores co-financing opportunities with a focus on climate finance. ADB started the COVID-19 Active Response and Expenditure Support (CARES) Program which is funded through the COVID-19 pandemic response option (CPRO) under its Countercyclical Support Facility. Now let’s have a look at the relationship between India and ADB since its inception.

Asian Development Bank and India

India was a founding member of the Asian Development Bank (ADB) and is now the bank’s fourth-largest shareholder and the top borrower. It commenced operations in India in 1986 and has since committed 229 sovereign loans totaling $38.9 billion. ADB works closely with India’s Department of Economic Affairs and project partners to build strong project pipelines. For smooth functioning, it devises robust implementation, monitoring, and management systems using various models such as public-private-partnership (PPP) model, Engineering, procurement, construction (EPC) model, Build-operate-transfer (BOT) model, hybrid-annuity model, etc.

Shareholding and Voting Power of India

 

Number of shares held

672030 (6.317%)

Votes

711727 (5.352%)

Overall capital subscription

$ 9.35 billion

Paid-in capital subscription

$ 467.42 million

 

In 2018 alone, ADB committed a record $3.03 billion for 19 sovereign projects to help India develop infrastructure and services in transport, energy, urban development, agriculture and natural resources, finance, and education and training. The current portfolio includes 79 sovereign loans amounting to $ 13.5 billion. In 2018, cumulative lending volume was $ 43,267.00 million (348 projects), with technical assistance at $ 338.09 million (402 projects) and grant-financed projects at $ 200.6 million (16 projects). Refer below graphs for a detailed view.

 

Sheet 1

 

 


 

Conclusion:

Since the beginning, India was proactively taking decisions and implementing measures of lockdown to maintain social distancing, testing, and treatment by following various models implemented by state governments. To combat the biggest challenge of reviving its informal economy or informal sector, recently the government of India announced a mega economic relief package of ₹ 20 lakh crores to improve access to health facilities and for the protection of informal workers, farmers, health care workers and economically vulnerable sections of the society.

The assistance of $1.5 billion from ADB will help India in strengthening the operational framework and delivery of its response programs. India, given its population of 1.3 billion is cruising well through the COVID-19 crisis as compared to other nations but if required, ADB assured to further extend its assistance if needed.

About the Author: Anurag Bhayal | 1 Post(s)

A finance enthusiast pursuing MBA from IIM Raipur. Always up for learning new things. Anurag is very friendly and makes every effort to keep others happy. He is skilled in Public Speaking, Management, and Leadership.

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