India could Lose World Bank Soft Loans Middle-income tag to make it ineligible for IDA funding

World Bank has informally told India that its rapidly-growing economy may soon make it ineligible for soft loans, prompting the government to lobby for concessional lending for a few more years. 

India stands to lose over $2 billion in lowinterest funds for many of its welfare schemes, besides missing out on social initiatives spearheaded by the Washingtonbased lender over the previous decade. 

"We expect India to move into the middleincome category of countries in the next two years. This will mean that the IDA ( International Development Association) funding India got last year was the last cycle of such funding for the country," said a senior World Bank official. 

The bank lends to developing countries under two arms — IDA and International Bank of Reconstruction and Development (IBRD). IDA funds are highly concessional or interest-free loans and grants aimed at improving living conditions of the poorest. India is Currently a Blend Country 

IBRD funds infrastructure projects in middle-income and creditworthy lowincome countries at interest rates higher than those provided by IDA but lower than those offered by other commercial lending agencies. 

India is currently classified as a "blend" country — defined as one in transition from lower middle-income to middle-income — and is creditworthy for lending from both IDA and IBRD. In 2010, India's per capita national income stood at $1,330, which is higher than the operational eligibility cut-off of $1,175 per capita income. 

The finance ministry, which is lobbying with the bank, has argued that though per capita income has risen, India has the highest number of poor and should, therefore, continue to get IDA support, an official said. According to official estimates, India has more than 350 million people below the poverty line. Last July, the World Bank board approved $1 billion for the National Rural Livelihood Mission (NRLM) — an ambitious livelihood guarantee scheme launched in 2011 under the rural development ministry. The bank is helping 13 poorest Indian states in building institutional systems before the scheme is scaled up at a national level in the next three-five years. "We tried hard to get the funding for NRLM as we knew that getting IDA funding will not be possible after this. There is a huge demand for concessional lending from poorer countries, particularly in Africa," the official said.