The Hindu : Only 4 p.c. of ADB loan for poverty alleviation: study

Online edition of India's National Newspaper
Monday, Dec 23, 2002

Southern States

Southern States - Kerala

Only 4 p.c. of ADB loan for poverty alleviation: study

By Our Special Correspondent

THIRUVANANTHAPURAM DEC. 22. The ADB-bound Modernising Government and Fiscal Reform Programme caters to poverty eradication only minimally, contrary to the Government claim that it was being implemented with a `human face'.

A study by K. Ravi Raman of the Centre for Development Studies says that hardly 4 per cent of the adjustment cost envisaged under the programme is earmarked for poverty eradication.

This is notwithstanding the fact that the State is to generate a counterpart fund of $152 million to be added to the $375-million loan. A significant portion of the same would again be spent for the identification of the poor.

``In a situation where starvation deaths among the outliners have dragged the Kerala Model in mud, one wonders what fresh effort is required to identify the poor. Delivery improvements in the public utilities through `asset renewal' and other measures of social security and social audit network might give the State a face-lift; but it would take a far more comprehensive programme involving a radical redistribution of assets and sustained employment opportunities to make a tangible difference in the lives of the poor.''

Mr. Ravi Raman says that the State is facing a debt overhang that constrains investment in the productive and social sectors. The debt cycle passes through three phases. In the first, debt comes as a relief in the face of resource deficiency and it remains desirable until the debt is sustainable. In the second phase, debt becomes unsustainable when the debt servicing costs surpass revenue receipts, leading to what is called debt overhang. The last phase ushers the State in to a debt trap wherein it would not be capable of generating enough surplus even for debt servicing. The debt overhang leads to an increased tendency on the part of the State to make further cuts in social expenditure. It was a phase when the growth in debt serving cost overtakes the growth in Net State Domestic Product (NSDP), development expenditure and State's own domestic revenue.

A new loan, he says, would not alleviate debt overhang. It would only accentuate the problem of debt overhang, leading the economy into an internal debt trap. With acceptance of the entire loan of about of Rs. 3,700 crores by 2004-05, contractual debt serving obligations would soar to not less than Rs. 2,800 crores including the pre-existing obligations.

``Any fresh borrowing therefore would only further compromise the financial well being of the State -- the annual debt servicing for the ADB loan alone would be within the range of Rs 3,000-4,000 million for about a decade. This, in addition to the existing cost of debt servicing worth around Rs 2,410 crores, would take the annual repayment rate to the range of Rs. 2,700-2,800 crores for a considerable period of time. The implications are many: the amount spent for debt servicing alone would approximate to 80 per cent of the annual Plan outlay of the State which would make its budget less flexible; the State has to set aside much more than one-third of its own revenue for debt servicing; all leading to the already shrinking social expenditure as the first major casualty: the ADB loan that would reverse the social model of development is quite obviously not the right `fiscal medicine' for the State.''

(To be continued)

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