External sector and investment regime liberalization
 Report No: ; Type: Report/Evaluation Memorandum ; Country: India; Region: South Asia; Sector: Macro/Non-Trade; Major Sector:
                                            Economic Policy; Project ID: P009907


December 5, 1995

                India: External Sector and Investment Regime Liberalization (Loan 3627-IN)

        The Implementation Completion Report (ICR) for the India External Sector and Investment
Regime Liberalization loan (Loan 3627-IN, approved in FY93) was prepared by the South Asia Regional
Office. The Borrower provided no comments, hence there is no Appendix B to the ICR.

         The objective of the US$300 million loan was to support the Government of India's ongoing
reform of the country's trade regime and a liberalization of the investment licensing systems. This was a
one-tranche operation, with all of the reform measures being undertaken prior to Board approval of the
loan on June 24, 1993. This loan represented the third fast-disbursing operation in support of India's
structural adjustment efforts, following a SAL (US$500 million approved in December 1991) and an IDA
credit supporting the Government's social safety net program (US$500 million approved in December
1992).

         The primary objective of increasing external and domestic competition and dismantling the
country's pervasive system of economic controls and excessive trade protection was achieved. India's
stabilization and structural reform program, initiated in July 1991, has been sustained over the past four
years, with significant improvements in all macroeconomic indicators. Foreign reserves have increased
dramatically (to a level over twice that projected in the President's Memorandum for the above operation),
exports grew by 20 percent in dollar terms from July 1993 to June 1994, foreign investment inflows have
improved and domestic and external confidence have been restored. Most importantly, despite
considerable external debt service payments (estimated at US$19.5 billion) over the July 1994 to June
1997 period, projections of exceptional financing needs have been scaled downwards significantly.

        The ICR rates the project as highly satisfactory and its sustainability as likely. The Operations
Evaluation Department (OED) concurs with these assessments. There was no institutional development
objective for the project. Bank performance is also rated as highly satisfactory.

         There are a number of key lessons to be drawn from this project. First, a strong government
commitment to the adjustment program over a sustained period contributed substantially to this
operation's success. Second, given this commitment, and a demonstrated track record of policy reform, a
one-tranche operation was warranted in support of the ongoing reform process. Finally, and although not
fully brought out in the ICR, detailed and comprehensive sector work was undertaken prior to, and during
the reform process, which contributed greatly to the Government's and the Bank's understanding of the
reform priorities and their implementation timing.

         The ICR is of satisfactory quality. An audit is planned. Given the highly satisfactory outcome of
this operation, and the one-tranche nature of disbursement, the audit will focus, inter alia on sustainability
of the reforms and further steps needed in the liberalization of investment.