Pradhan Mantri Fasal Bima Yojana (PMFBY)

In January earlier this year, in a move aimed at reducing the recurrence of agricultural distress without having to effect hefty hikes in the Minimum Support Prices (MSP), Narendra Modi led National Democratic Alliance government had announced a crop insurance scheme named Pradhan Mantri Fasal Bima Yojana (PMFBY).

Being implemented from Kharif season of 2016, the premium paid by farmers had been reduced to 2% of the insured value for the more rain-dependent kharif crop and 1.5% for the rabi season, compared with 3.5-8% charged for the two earlier schemes:

• National Agricultural Insurance Scheme (NAIS)
• Modified National Agricultural Insurance Scheme (MNAIS)

In the case of horticultural crops, farmers’ premium burden will be 5% of the sum assured or 50% of the total premium.

National Agricultural Insurance Scheme (NAIS) and Modified National Agricultural Insurance Scheme (MNAIS) have been discontinued from Kharif 2016, but the ongoing Weather Based Crop Insurance Scheme (WBCIS) and Coconut Palm Insurance Scheme would continue to operate while premium to be paid under WBCIS has been brought on a par with PMFBY.

New crop insurance scheme would provide a solution for the farmers problems in times of difficulty. Care had been taken to eliminate the shortcomings of previous crop insurance schemes, and create trust among farmers with regard to crop insurance. Technology would be used extensively with this scheme to ensure early settlement of claims, and exhorted farmers to take benefit of this scheme.

Under the PMFBY, there would be no upper limit on government subsidy on premium provided by centre and state governments. Even if the balance premium (after farmers’ contribution) is 90%, it will be borne by the government. In the earlier schemes, there was a provision of capping the premium rate which resulted in low claims being paid to farmers. This capping on premium was done to limit the government outgo on the premium subsidy. This would ensure that farmers get the full sum insured without any reduction or hassles from the 11 designated insurance companies if natural calamities ravage their crops. The crop insurance coverage is set to rise from 45 million hectares or 23% of the area under cultivation at present to 50% of the crop area by 2018-19.

Another benefit to farmers under the new crop insurance scheme is that losses incurred by them at any stage of the farming activity — from the sowing to the post-harvest season — would be covered. Earlier, only post-harvest losses can be offset by the insurance facility under the two existing schemes. Also, even those farmers who haven’t taken bank loans will be eligible for insurance cover under PMFBY.

Features:

• The new scheme will increase farmers income and resultant increase in rural demand.
• The subsidy would be borne by the Centre and the state government concerned equally.
• The use of technology which would be encouraged to a great extent.
• Smart phones will be used to capture and upload data of crop cutting to reduce the delays in claim payment to farmers.
• Remote sensing will be used to reduce the number of crop cutting experiments.
• In case there is crop loss to a loanee farmer who is not insured, the bank will have to make good the losses.

PMFBY if implemented properly across the country would mitigate farm distress to a large extent especially when the erratic climates have become a norm rather than exception. 

Minimum Support Prices (MSP)

Minimum Support Price

Minimum Support Price (MSP) is a form of market intervention by the Government of India to insure agricultural producers against any sharp fall in farm prices. The minimum support prices are announced by the Government of India at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP). MSP is price fixed by Government of India to protect the producer - farmers - against excessive fall in price during bumper production years. The minimum support prices are a guarantee price for their produce from the Government. The major objectives are to support the farmers from distress sales and to procure food grains for public distribution. In case the market price for the commodity falls below the announced minimum price due to bumper production and glut in the market, government agencies purchase the entire quantity offered by the farmers at the announced minimum price.

Historical perspective of MSP

The Price Support Policy of the Government is directed at providing insurance to agricultural producers against any sharp fall in farm prices. The minimum guaranteed prices are fixed to set a floor below which market prices cannot fall. Till the mid 1970s, Government announced two types of administered prices :

• Minimum Support Prices (MSP)
• Procurement Prices

The MSPs served as the floor prices and were fixed by the Government in the nature of a long-term guarantee for investment decisions of producers, with the assurance that prices of their commodities would not be allowed to fall below the level fixed by the Government, even in the case of a bumper crop. Procurement prices were the prices of kharif and rabi cereals at which the grain was to be

domestically procured by public agencies (like the FCI) for release through PDS. It was announced soon after harvest began. Normally procurement price was lower than the open market price and higher than the MSP. This policy of two official prices being announced continued with some variation upto 1973-74, in the case of paddy. In the case of wheat it was discontinued in 1969 and then revived in 1974-75 for one year only. Since there were too many demands for stepping up the MSP, in 1975-76, the present system was evolved in which only one set of prices was announced for paddy (and other kharif crops) and wheat being procured for buffer stock operations.

Determination of MSP

In formulating the recommendations in respect of the level of minimum support prices and other non-price measures, the Commission takes into account, apart from a comprehensive view of the entire structure of the economy of a particular commodity or group of commodities, the following factors:-

• Cost of production
• Changes in input prices
• Input-output price parity
• Trends in market prices
• Demand and supply
• Inter-crop price parity
• Effect on industrial cost structure
• Effect on cost of living
• Effect on general price level
• International price situation
• Parity between prices paid and prices received by the farmers.
• Effect on issue prices and implications for subsidy

The Commission makes use of both micro-level data and aggregates at the level of district, state and the country. The information/data used by the Commission, inter-alia include the following :-

• Cost of cultivation per hectare and structure of costs in various regions of the country and changes there in;
• Cost of production per quintal in various regions of the country and changes therein;
• Prices of various inputs and changes therein;
• Market prices of products and changes therein;
• Prices of commodities sold by the farmers and of those purchased by them and changes therein;
• Supply related information - area, yield and production, imports, exports and domestic availability and stocks with the Government/public agencies or industry;
• Demand related information - total and per capita consumption, trends and capacity of the processing industry;
• Prices in the international market and changes therein, demand and supply situation in the world market;
• Prices of the derivatives of the farm products such as sugar, jaggery, jute goods, edible/non-edible oils and cotton yarn and changes therein;
• Cost of processing of agricultural products and changes therein;
• Cost of marketing - storage, transportation, processing, marketing services, taxes/fees and margins retained by market functionaries; and
• Macro-economic variables such as general level of prices, consumer price indices and those reflecting monetary and fiscal factors.

Source : Farmer Portal

Crops for which MSP is announced

Minimum support prices are currently announced for 25 commodities. They are as follows.

• Cereals (7) - paddy, wheat, barley, jowar, bajra, maize and ragi
• Pulses (5) - gram, arhar/tur, moong, urad and lentil
• Oilseeds (8) - groundnut, rapeseed/mustard, toria, soyabean, sunflower seed, sesamum, safflower seed and nigerseed
• Copra
• Raw cotton
• Raw jute
• Sugarcane
• Virginia flu cured (VFC) tobacco

Asian Development Bank (ADB)

ADB was established in Dec. 1966 on the recommendation of ECAFE (Economic Commission for Asia and Far East). The aim of this Bank is to accelerate economic and social development in Asia and Pacific region. The  Bank started its functioning on January 1, 1967. The head office of the Bank is located at Manila, Philippines. It is worth mentioning here the Chairmanship of ADB is always allotted to a Japanese while its three Deputy Chairman belong to USA, Europe and Asia. At present, 63 nations are partner members of ADB.

The principle functions of ADB are:

1. To make loans and equity investments for the economic and social advancement of its developing member countries.
2. To provide technical assistance for the preparation and execution of development projects and programs and advisory services.
3. To respond to the request for assistance in coordinating development policies and plans in developing member countries.

Asian Development Bank constituted ‘Asian Development Fund’  in 1974, which provides loans to Asian countries on concessional interest rates. India started borrowing from ADB’s Ordinary Capital Resources (OCR) in 1986. 

Reserve Bank of India

It is the Central Bank of the country. The Reserve Bank of India was established in 1935 with a capital of Rs. 5 crore. This capital of Rs. 5 crore was divided into 5 lakh equity shares of 100 each. In the beginning the ownership of almost all the share capital was with the non-government share holders. In order to prevent the centralisation of equity shares in hand of a few people The Reserve Bank of India was nationalised on January 1, 1949.

The general administration and direction of RBI is managed by a Central Board of Directors consiting of 20 members which includes one Governor, four Deputy Governors, one Government Official appointed by the Union Government of India to give representation to important strata in economic life of the country besides four directors are nominated by the Union Government to represent local boards. Apart from the central board there are four local boards also and their head offices are situated in Mumbai, Chennai, Kolkata and New Delhi. Five members of local boards are appointed by the Union Government for a period of four years. The local boards work according to the instructions and orders given by Board of Directors, and from time to time they also tender useful advice on important matter. The office of RBI is in Mumbai. 

Functions of Reserve Bank of India

1. Issue of Notes - The Reserve Bank has the monopoly of note issue in the country it has the sole right to issue currency notes of various denominations except one rupees notes. The Reserve Bank act as a only source of legal tender money because the one rupee note issued by the Ministry of Finance are also circulated through it. The Reserve Bank has adopted the Minimum Reserve System for note issue. Since 1957, it maintains the gold and foreign reserve of Rs. 200 crore, of which at least Rs. 115 crore should be in gold.
2. Banker to the Government - The second important function of the Reserve Bank of India is to act as the banker, agent, and adviser to the Government. It performs all the banking functions of the State and the Central Government and it also tenders useful advice to the Government on matters related to economic and monetary policy. It also manages the public debt for the Government.
3. Bankers’ Bank - The Reserve Bank performs the same function for the other banks ordinarily perform for their customers. It is not only banker to the commercial bank, but it is the lender of the last resort.
4. Controller of Credit - The Reserve Bank undertakes the responsibility of controlling credit created by the commercial banks. To achieve this objective it makes extensive use of quantitative and qualitative techniques to control and regulate the credit effectively in the country.
5. Custodian of Foreign Reserves - For the purpose of keeping the foreign exchange rates stable the Reserve Bank buy and sells the foreign currencies and also protect the country’s foreign exchange funds.
6. Other Functions - The bank performs a number of other developmental works. These works include the function of clearing house arranging  credit for agriculture (which has been transferred to NABARD), collecting and publishing the economic data, buying and selling of Government Securities and Trade Bill, giving loans to the Government, buying and selling of valuable commodities etc. It also act as representative of Government in IMF and represents the membership of India.

Interim Budget & Vote on Account

What is it?

• Interim budget is basically a vote-on-account that authorizes the government to carry out expenditure on different heads for a certain part of the financial year.

• Since the government of the day will not be presenting the budget for the full year, it will need funds in the next financial year (beginning April) to carry out its functions till the time a new government is formed and then gets the budget passed. Thus, the need for an interim budget.

• As per the law, it is necessary for the central government to have Parliament’s approval to raise tax revenue or incur expenditure. Article 265 of the Indian Constitution, for instance, says, “No tax shall be levied or collected except by authority of law.” Similarly, article 266 talks about the conditions for expenditure.

According to a news report by the Press Trust of India, Chidambaram was quoted as saying, “We can make any proposal short of amending any law. We cannot propose amendments to the Income-tax Act, Customs Act or the Excise Act. But any proposal short of amending a law can be made. We can also outline vision for the future.”

In the past two instances of when interim budgets were presented (2004-05 and 2009-10), the government of the day sought the nod of Parliament for carrying out expenditure in the first four months of the financial year.

Going into the technicalities between Interim Budget and Vote -on-Account ...!

Are a vote-on-account and an interim Budget the same?

No. While a vote-on-account deals only with the expenditure side of the government's budget, an interim Budget is a complete set of accounts, including both expenditure and receipts.

So what is a full Budget?

The Budget is a statement of the financial position of an administration for a definite period of time based on estimates of expenditures during the period and proposals for financing them. A full budget thus spells out both the manner in which the money is to be spent and how it is to be raised.

Why a vote-on-account and not an interim Budget?

A caretaker government typically opts for a vote-on-account, as it is regarded improper for an outgoing government to impose on its successor changes that may or may not be acceptable to the incoming government.

Can a caretaker government not present a full Budget?

• Yes it can. Since the concept of 'caretaker government' does not exist in the Indian Constitution, legally there is no distinction between caretaker government and a normal one.

• Technically, it is not necessary for a government to present a vote-on-account in an election year. But a full Budget just before the elections makes a mockery of the whole exercise.

Can the finance minister make policy statements while presenting the vote-on-account?

• Barring any announcement on taxation, the finance minister's speech before seeking Parliament's approval of the vote-on-account can contain his intentions on economic policy.

• When former finance minister Yashwant Sinha presented the vote-on account in 1991, he announced the Chandra Shekhar government's plan to divest government equity in public sector undertakings.

For how long can a vote-on-account be in force?

• Normally, the vote-on-account is taken for two months only. But during election year or when it is anticipated that the main Demands and Appropriation Bill will take longer time than two months, the vote-on-account may be for a period extending two months.

• Typically this period does not exceed six months, as that is the maximum gap possible between two sittings of the Parliament.

• Normally a vote-on-account is in operation till the full Budget is passed.

Financial Relations Between Union and States

Indian possesses a federal structure in which a clear distinction is made between the union and the state functions and sources of revenue. Our Constitution provides residual power to the Center. Article 264 and 293 explain the financial relations between the Union and State Government.

Although the states have been assigned certain taxes which are levied and collected by them, they also share in the revenue of certain union taxes which are levied and collected by the Central Government but whole proceeds are transferred to the states.

The Constitution makes a clear division of fiscal powers between the Center and the State Governments.

A. The List I of Seventh Schedule of Indian Constitution enlists the union taxes which are as follows:

1. Taxes on income other then agricultural income
2. Corporation tax
3. Custom duties
4. Excise duties except on alcoholic liquor and narcotics not obtained in medical or toilet preparation.
5. Estate and succession duties other than on agricultural land of individuals and companies.
6. Taxes on the capital value of assets except agricultural land of individuals and companies.
7. Rate of stamp duties on financial documents.
8. Taxes other than stamp duties on transaction of stock exchanges and future markets.
9. Taxes on sales or purchase of newspapers and on advertisement therein.
10. Thaxes on railway freight and fares.
11. Terminal taxes on goods or passengers carrier by railways, sea or air.
12. Taxes on sale or purchase of goods in the course of inter-state trade.

(B) List II of Seventh Schedule enlists the taxes which are within the jurisdiction of the states:

1. Land revenue
2. Taxes on the sale and purchase of goods, except newspapers
3. Taxes on agricultural income
4. Taxes on land and buildings
5. Succession and estate duties on agricultural land
6. Exercise on alcoholic liquors and narcotics
7. Taxes on the entry of goods into a local area
8. Taxes on the consumption and sale of electricity
9. Taxes on mineral rights (subject to any limitations imposed by the parliament)
10. Taxes on vehicles, animals and boats
11. Stamp duties except those on financial documents
12. Taxes on good and passengers carried by bond or inland waterways
13. Taxes on luxuries including entertainment, betting, and gambling
14. Tolls
15. Taxes on professions, trades, callings, and employment
16. Capitation taxation
17. Taxes on advertisements other than those contained in newspapers

(C) Apart from taxes levied and collected by states, the constitution has provided for the revenue of certain taxes on the union list to be allotted, partly or wholly to the state. These provisions fall into various catagories:

1. Duties which are levied by the union government but are collected and appropriated by by the states. These includes stamp duties, excise duties on medical preparations containing alcohol and narcotics.
2. Taxes which are levied and colleted by the union, but the entire proceeds of which are assigned to the States, in proportion determined by the Parliament. These taxes include:
   i) Succession and Estate duty.
   ii) Terminal taxes on goods and passengers
   iii) Taxes on railway freight and fares
   iv) Taxes on transactions in stock exchanges and future markets
   v) Taxes on sale and purchase of newspapers and advertisement therein.
3. Central taxes on income and union excise duties are levied and collected by the union but are shared by it with the states in a prescribed manner.
4. Proceeds of additional excise duty on mill made textile, sugar and tobacco which are levied by the union since 1957 in replacement of state sales taxes on these commodities, are wholly distributed among the states in a manner as to guarantee their former incomes from the displaced sales taxes.

Recommendations of Narasimham Committee on Banking Sector Reform – 1998

For Banking System

• Pending the emergence of markets in India where market risk can be covered, it would be desirable that capital adequacy requirements take into account market risk in addition to credit risks.
• In the next three years, the entire portfolio of Government securities should be marketed to market and this schedule of adjustment should be announced earliest.
• The risk weight for a Government guarantee advance should be the same as for other advances.
• Foreign exchange open position limits should carry a 100% risk weight.
• An asset be classified as doubtful if it is in the substandard category for 18 months in the first instance and eventually for 12 months and loss if it has been so identified but not written off.
• Banks and financial institutions should avoid the practice of “evergreening” by making fresh advances to their troubled constituents only with a view to setting interest dues and avoiding classification of the loan in question as NPAs.
• Average level of net NPAs for all banks should be reduced to below 5% and 3% by the year 2000 and 2002, respectively, and net NPAs to 3% and 0% by these dates.
• Banks should introduce calculation of interest as monthly rests.
• There should be 100% computerization of bank’s operations. Unless 100% computerisation is made, it may not be feasible to implement the recommendation.
• It is also necessary to tone up the legal machinery for speedy disposal of collateral taken as security for the advance.
• Banks should bring out revised Operational Manual and update them regularly.

Structural Issues

• DFIs should, over a period of time, convert themselves to banks.
• If a DFI does not acquire a banking license with a stipulated time it would be categorized as a non-banking finance company.
• Mergers between banks and between banks and DFIs and NBFCs need to be based on synergies and locational and business specific complementarities of the concerned institutions and must obviously make sound commercial sense.
• A ‘weak bank’ should be one whose accumulated losses and net NPAs exceeds its net worth or one whose operating profits less its income on recapitalization bonds is negative for three consecutive years.
• The policy of licensing new private banks (other than local area banks) may continue. The start-up capital requirement is Rs. 100 crore where set in 1993 and these may be reviewed.
• Foreign banks may be allowed to setup subsidiaries or joint ventures in India. Such subsidiaries or joint ventures should be treated on par with other private banks and subject to the same conditions with regard to branches and directed credit as these banks.
• All NBFCs are statutorily required to have a minimum net worth of Rs. 25 lakh if they are to be registered.
• Then minimum period of FD be reduced to 15 days and all money market instruments should likewise have a similar reduced minimum duration.
• Foreign institutional investors should be given access to the Treasury Bill market.
• The Board for Financial Regulation and Supervision (BFRS) should be given statutory powers and be reconstituted in a way to be composed of professionals.
• RBI should totally withdraw from the primary market in 91 days Treasury Bills.

Method of National Plan Formulation

The Plan has to go through various stages in order to reach its final form. About 2-3 years before the implementation of the Plan, the discussions on the targets and programs of the plan begins. The Planning Commission collects the data of national product, national consumption, availability of resources, national investment and saving for the future plan and it prepares micro and macro plans, keeping in view their allocation arrangements. Thereafter, these plans along with the data sent to the National Development Council. The NDC again sends it back to Planning Commission with or without any amendment. On this basis, the ministries of Center and State Governments are asked to prepare their projects. The Planning Commission obtains suggestion from a panel of experts operating in various sectors. On the basis of the requisites of the plan obtained from different ministries and opinion of the different specialists, the Planning Commission prepares a draft memorandum of the plan, in which all the policies and important details of the plan are laid down. This draft memorandum is sent to central cabinet for discussion. After assessment, the central cabinet sends it to National Development Council along with its suggestions. The NDC again sends it to Planning Commission with its suggestions. The Planning Commission prepares a draft outline of the objective and programs of the plan, keeping in view the draft memorandum and suggestions given by the Cabinet and NDC. This outline is sent to the various State Governments and Central ministries. It is published after receiving acceptance from the NDC. This published format along with the reactions and suggestions of the experts is again sent to the Central Cabinet and National Development Council. The approved format is laid down in its final form, which is presented to the Lok Sabha for discussion. After getting it ratified by the parliament the government implements the Plan.

International Bank for Reconstruction and Development (IBRD)

IBRD and its associate institutions a group are known as the World Bank. The Second World War damaged economies of the most of the countries particularly of those who were directly involved in the war. The global war had completely dislocated the multilateral trade and dislocated multilateral trade and had caused massive destruction of life and property. In 1945, it was realised to concentrate on reconstructing these war affected economies in a planned way. IBRD was established in December 1945 with the IMF on the basis of recommendation of Bretton Wood Conference. This is the reason why IMF and IBRD are called ‘Bretton Wood Twins’. IBRD started functioning in June 1946. World Bank and IMF are complementary institutions.

India is a member of four constituents of the World Bank Group i.e. IBRD, IDA, IFC, and MIGA (Multilateral Investment Guarantee Agency) but not of its fifth institute ICSID (International Centre for the Settlement of Investment Disputes).

Objective of World Bank

According to the Clause I of the agreement made at he time of establishment of World Bank, it was assigned the following objectives:

1. To Provide long-run capital to member countries for economic reconstruction and development. World Bank provides capital mainly for following purposes -
   (i) To rehabilitate war ruined economies (this objective is fully achieved)
   (ii) To finance productive efforts according to peace time requirement.
   (iii) To develop resources and production facilities in underdeveloped countries.
2. To induce long-run capital investment for assuring BOP equilibrium and balanced development of international trade. (This objective was adopted to increase increase the productivity of member countries and to improve economic condition and standard of living among them).
3. To promote capital investment in member countries in following ways:
   (i) To provide guarantee on private loans and capital investment.
   (ii) If private capital is not available even after providing guarantee, then IBRD provides loans for productive activities in considered conditions.
4. To provide guarantee for loans granted to small and large units and other projects of member countries.
5. To ensure the implementation of development projects so as to bring about a smooth transference from a war-time to peace economy.

IMF Vs. World Bank

IMF and World Bank are Bretton Wood Twins. Both the institutions were established to promote international economic cooperation but a basic difference is found in the nature of economic assistance given by these two institutions. World Bank provides long term loans for balanced economic development, while IMF provides short-term loans to member countries for eliminating BOP disequilibrium. Both these institutions are complementary to each other. The eminent world economist George Schultz had suggested in American Economic Association Conference in January 1995, for the merger of IMF and World Bank.

Membership of the World Bank and Voting Right

Generally every member country of the IMF automatically becomes member of World Bank. Similarly, any country which quit IMF automatically expelled from the World Bank’s membership. But under a certain provision a country leaving the membership of IMF can continue its membership with World Bank. If 75% member of the bank gives their vote in its favour.

Any member country can be debarred from the membership of World Bank on following grounds:

1. Any member country can quit the bank simply by written notice to bank, but such country has to repay the granted loans on terms and conditions decided at the time of sanctioning the loan.
2. Any country working against the guidelines of bank can be debarred from membership by the board of governors.

Like IMF, World Bank has also two types of members: ‘founder members’ and ‘general members’ the world bank has 30 founder members who attained membership by December 31, 1945. India is also among these founder members. The countries joining the World Bank after December 13, 1945 come under the category of general members. At present total membership of the World Bank is 182. The voting right of member country is determined on the basis of member country’s share in the total capital of the bank. Each member has 240 votes plus one additional vote for each 1,00,000 shares of the capital stock held.

Capital Resources of World Bank

The initial authorized capital of World Bank was $ 10,000 million, which was divided in 1 lakh share of $ 1 lakh each. The authorized capital of the bank has been increased from time to time with the approval of member countries. On June 30, 1996 the authorized capital of the bank was $ 188 billion out of which $ 180.6  billion (96% of total authorized capital) was issued to member country in the form of shares. Member countries repay the share amount to the world bank in following ways:

1. Two percent of allotted shares are repaid in Gold, USD or SDR. 
2. Every member country is free to repay 18% of its capital share in its own currency.
3. The remaining 80% share is deposited by member country only on demand by the World Bank.

Bank is managed by an elected President. On July 1, 2007, Robert B. Zoellick became the 11th President of the World Bank. The headquarter of World Bank is at Washington DC.

IDA (established on Spetemeber 24, 1960) and IFC (established in July, 1956) are the tow main associate institutions of IBRD. These institutions work under the supervision of World Bank. MIGA is also an associate institution in the World Bank group.

Banks Lending Operations

IBRD gives loan to members in anyone or more of the following ways:

1. By granting or participating in direct loans but its own funds.
2. By granting loans out of the fund raised in the market of a member or otherwise borrowed by the bans and 
3. By guaranteeing the whole or part loans made by private investors through the investment channels.

Before a lone is made or guaranteed the bank ensure that the -

1. Project fro which the loan is asked has been carefully examined by the competenet committee as regards the merits of the proposal.
2. Borrower has reasonable prospect for the repayment of loans.
3. The loan is meant for productive purposes and 
4. Tthe loan is meant for reconstruction and development.

Functions of the World Bank

Presently, The World Bank is playing the main role of providing loans for development works to member countries, specially to under-developed countries. The World Bank provides long-term loans for various development projects of 5 to 20 years duration. The loaning system of the bank can be explained with the help of following points:

1. Bank can grant loans to a member country upto 20% of its share in paid up capital.
2. Bank also provides loan to private investors belonging to member countries on its own guarantee, but for this loan private investors have to seek prior permission from those countries where the amount will be collected. For such loans the consent of that country is also required whose currency is given in loans. For granting such guarantee, the Bank charges 1% to 2% as service charge.
3. The quantum of loans, interest rate and term and conditions are determined by the Bank itself.
4. Generally, Bank grants loan for a particular project duly submitted by the member country.
5. The debtor nation has to repay either in reserve currencies or in the currency in which the loan was sanctioned.

Besides, granting loans for reconstruction and development, World Bank also provides various technical services to the member countries. For this purpose, the Bank has established ‘The Economic Development Institute’ and a Staff College in Washington.

Appraisal of the World Bank Activities

Bank has sanctioned 75% of its total loans to developing countries of Africa, Asia and Latin America while only 25% was given to developed nations of Europe. IFC, IDA and MIGA were established as the associate institutions of the World Bank in extending financial assistance to member countries. Besides, the Bank also tried its best to coordinate the functioning of nations granting loans to underdeveloped countries. In 1958, the Bank played an important role in establishing ‘India Aid Club’ for providing specific economic assistance to India. It has now been renamed as ‘India Development Forum’. Such types of clubs and forums has also been established for other developing countries. The Bank has also established its mission in various developing countries for providing technical assistance for development project in these countries. The Bank also takes the guidance of experts of various international institutions like FAO, WHO, UNIDO, UNESCO for providing assistance for various projects related to agriculture, education and water supply.