The Hindu : Rs. 960-cr. ADB loan for Kerala

Online edition of India's National Newspaper
Tuesday, Dec 17, 2002

Southern States

Southern States - Kerala

Rs. 960-cr. ADB loan for Kerala

By Our Special Correspondent

THIRUVANANTHAPURAM DEC. 16. The Board of Directors of the Asian Development Bank (ADB) on Monday approved a $ 200-million (Rs. 960 crores) loan to Kerala for the Modernising Government Programme and fiscal reforms.

The Government of the Netherlands is co-financing the Programme with a $ 50-million grant (Rs. 240 crores), to be administered by the ADB.

The Finance Minister, K. Sankaranarayanan, said here today that the Government was expecting the first tranche of the assistance, totalling Rs. 600 crores, by January. He said the cash flow would help the implementation of this year's Annual Plan, though the funds were for specific programmes. (Only about 30 per cent of the Plan outlay could be spent until last month because of the cash crunch).

Mr. Sankaranarayanan said the interest on the loan, to be routed through the Central Government, would be 11.5 per cent (in rupees). However, considering the grant component, the actual incidence would be only 8.05 per cent. The Centre would be disbursing the assistance as 70 per cent loan and 30 per cent grant. The exchange risk would be borne by the Central Government.

Asked about the Central Government considering proposals to pass on the exchange risk to the States, the Minister said the matter could be addressed when it took a decision.

Referring to the sathyagraha planned by the Opposition parties demanding discussion in the Assembly on the loan, he said there was nothing inexplicable about the loan.

The Government would maintain full accountability and transparency. The matter could be discussed if the Opposition raised the question during the Assembly session beginning on January 24.

An official release by the ADB said the assistance would help Kerala implement the Modernising Government Programme which was designed to make the Government more responsive to the needs of its people and become more efficient and effective.

The Programme, it said, would enhance the State's social and economic development by increasing accountability and pro-poor outcomes, improving service delivery and fostering sustainability.

``We welcome Kerala's commitment to reforms, and the ADB and the State Government intend this loan to be the beginning of a long-term partnership that involves work in sectors such as power and infrastructure,'' the Director General of the ADB's South Asia Department, Yoshihiro Iwasaki, said.

The release said that the proposed reforms, drawn up after extensive consultations, focused on creating an environment to achieve fiscal sustainability, improving the quality, equity and value-for-money of public services, improving the targeting and quality of poverty reduction programmes and social service and increasing transparency, responsiveness, accountability and efficiency of State and local self-governments.

The Programme also supported the implementation of legislation on right to information and public disclosure and strengthened links between the State and local governments to deliver services, it said.

The ADB loan is from its ordinary capital resources and carries a 15-year term, including a grace period of three years. Interest is determined in accordance with the ADB's London Inter Bank Offered Rate (Libor)-based lending facility.

Currently, the floating rate under this facility for loans to the public sector is 2.55 per cent (in dollars, payable by the Central Government). The fixed rate is 6.34 per cent. (The usual practice is to avail the loan under floating rate and later convert it into fixed rate.) These rates will change in January. The loan also carries a front-end fee of one per cent).

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