Why Does India Still Borrow?

World Bank and Kosi Basin

Anandi Sharan

The 8-year loan from the World Bank to the Government of Bihar was approved on 8th December 2015 to close on 31st March 2023. The World Bank Board report at which they approved the Bihar Kosi Basin Development loan is titled "converting adversity into opportunity". But opportunity for whom? The interest charges are 4% on a principal of 250 million USD. Information is from the World Bank website. It makes sense for the people of Bihar to embroil themselves in such financing, when instead the Government of India could print this money or issue it digitally to exactly the same implementing partners and circulate it in Bihar for exactly the same purpose, at zero interest and no repayments. Unlike the EU, where Governments are by law now prevented from issuing money, and only private banks can conjure money out of thin air, which is then legitimated by the European Central Bank, for pure profit to the banks, India has not yet gone that far. One can at any time put on hold the FRBMA 2003 due to national calamity or emergency even without an Act of Parliament to outlaw the FRBM rules, though FRBMA should of course be outlawed at the earliest. The Bihar Kosi Basin Development loan is a good example of why.

The total project cost of the Bihar Kosi Basin Development project is 376.5 million USD of which 250 million USD is loan. Nearly half of the loan or 117 million USD is being spent on roads. For example, "an estimated 600 km of rural roads will be constructed at a cost of US$80 million". This means that India is borrowing 84 lakh Rupees per kilometre of road and bridge construction and must repay more than 10 lakhs and fifty thousand Rupees per year to the World Bank in capital and pay interest of 3 lakhs and thirty-six thousand Rupees per year in interest for the privilege of borrowing money for eight years for each kilometre of road. Now the question is how is India supposed to earn this foreign exchange to repay the World Bank? The answer is that the World Bank Bihar Kosi Basin Development project is itself promoting agricultural improvements to increase export sales of biomass from Bihar, biomass that of course is sorely needed in Bihar itself to improve its soils and sequester carbon let alone feed ourselves. "One of the most interesting aspects of this project pertains to on-farm demonstrations for dissemination of information about improved agricultural techniques", said a senior agriculture department official. According to the Kolkata Telegraph. "The pre-project study revealed that agriculture productivity level in some of the areas of the selected districts is as low as Rs 17,399 per hectare", said another official of the agriculture department, according to the report. Assuming the project raises export sales by Rs 5000 per hectare, and half of this is allocated to repaying the World Bank loan, the Bihar Kosi Basin Development project will be doing nothing other than hijacking 554 hectares of land per kilometre of road including bridges to repay the international financial community for their God-given right to create money for development. If the money was not borrowed from outside but spent into circulation by the government, for exactly the same activities, at least 554 more people per kilometre of road and bridges would be eating for a full stomach from the agricultural improvements that are being made, instead of the produce having to be exported to pay for importing money. It is high time the states of India got together and questioned the Union policy of importing money instead of using its own constitutional, powers to create legal tender. Is building roads so complicated that India must import the financial, technical and managerial package for the same and sacrifice the health and well being of 554 people per kilometre of road and bridge? Is not the international economy nothing but a scam to line the pockets of bankers in the West?

Vol. 50, No.18, Nov 5 - 11, 2017