Urbanisation has been a crucial element when evaluating the effects of economic development to alleviate poverty in developing countries. A theory-based approach by Kuznets voiced that migration plays a key role in preserving both urban and rural divisions. It is arguable that the theory suggests that although growth can enhance inequality in developing countries, the levels of inequality will lessen with time. In circumstances where the methods to alleviate rural poverty surpass the urban measures, growth in an economy is definitive as migrants from rural areas will contribute to poverty alleviation as they will migrate with the intention to acquire gains. However, the levels of inequality and its implications are not easily predictable.
One of the greatest challenges faced by growth in India is in relation to urbanisation; a core element for economic evolution and stability. However, recognising the possibilities that can accommodate urbanisation have gained momentum in India’s policy dialog. Between years 2000-2011, ninety million individuals joined the Indian urban positions and its cities are anticipated to become the abode for an excess of 200 million individuals by 2030.
During the premature years of India’s planning for development, the question of urbanisation was referred to address issues in local development, housing requirements and industrialised growth. However, it is argued that in the two eras post development, India’s development policy was concerned with controlling and limiting the growth in its urban regions which led to a decline in investment in its municipal cities. Arguably, this is due to the fact that during the period of India’s independence, the number of people living in urban cities was only 17%. Thereby, the focus on rural areas by utilising its assets and proficiency to address the issues on development is exactly what India needed. Yet, the effort on their part and effectiveness of the same is subject to debate.
It is submitted that India’s development planning today, is highly effective, in comparison to its early years. It is more considerate towards the elements of urbanisation, such as: urban poverty, infrastructure and concerns relating to governance, which arguably, control state action.  The shift in paradigm is arguably due to acknowledging the significance of urban innovation for both the growth and stabilisation of an economy; as India’s gross domestic product which originates from its metropolitan areas exceeds 60%. However, it can be argued that as India rests upon a democratic system, issues are addressed in favour of the middle-class; therefore, urban growth is subject to complexities and at times, difficult to overcome.
Still, the evolution of densely populated regions in India have instigated stress on India’s metropolitan infrastructure arrangement, including; transport and water supply, leading to a demand for greater security/investment. As such, income generating sources were found to be insufficient to suffice the mandate for basic necessities, essentially; transport, electricity, water and therefore, India had to turn to the World Bank for the financing of such basic needs. It is stated that the World Bank has, for decades, provided loans to India for urban growth endeavours. The government of India pronounced a number of programmes for urban growth in an attempt to overcome the shortages caused by non-existence of the same.
- Constitution (seventy-fourth) Amendment Act 1992 and early urban projects of the World Bank in India
The lack of a constitutional providing for urbanisation as a duty in the local self-government of urban areas in India led to un-stable democracy and not only weakened the Urban Local Bodies in India but caused a delay in their services. As a result, in 1992, the Indian parliament passed the Constitution (seventy-fourth) Amendment Act for urban local government, in an attempt to provide a background for the mandate and arrangement of the urban local bodies to allow them to stabilise the democracy of self-government and provide effective services. Other features of the Act include finance and finance commission, powers and responsibility, elections, seats and constitution of committees for District and Metropolitan planning.
In 1973, the World Bank began lending for urban projects in India with the lending of 35 million dollars for the urban development in Calcutta. The lending soon extended to a sum of 24 million dollars 1977 and 25 million dollars in 1981 with the aim to toughen urban planning and provide efficient services. A number of integrated processes were carried out by the World Bank in Chennai, Kanpur, Mumbai and Kolkata in India in the early 1980s with the hope that integration would have a better impact on improving the municipal living conditions than dividing projects into divisions. However, the integration of projects can instigate the thought that issues surrounding both regional and urban events as a one tier system with one solution to suit all. Nevertheless, integrating urban projects is complex, therefore it is imperative that the Bank addresses each project as a single project and divides projects into sector specialism such as transport, housing and industry. Amalgamation of projects can lead to un-achievable ambitious goals; therefore, it is critical that such projects are addressed individually as integrated projects can cause complexities, which can impact the economy of developing countries.
A World Bank analysis of the Urban Development Project in Calcutta highlighted a quick expansion in the Calcutta Metropolitan Development Authority (CMDA) which had become a significant agency in the metropolitan area of Calcutta. The advancement of a subsequent project was also found to be successful as the CMDA achieved its goals and identified methods to toughen its maintenance. In comparison to the first project which amounted to 3% of costs to improve slum life, the second project accounted for 18%, showing a significant rise. However, it is argued that the World Bank faced numerous challenges due to the 1970s service schemes in India. Delays were caused in the advancement of projects as private land had to be acquired by private owners. As most of the projects were situated in urban areas, people were being migrated from larger cities, causing social and economic displacement.
Despite high prospects of success from World Bank lending projects, the advantages of its funded urban projects were difficult to measure. Although groups from low-income backgrounds had benefitted from the urban development programmes, the benefits did not reach the poorest urban population. However, one can argue that projects rely heavily upon macroeconomic policy and the environment that the project is carried out in. Therefore, it is necessary that institutional and local policies are strengthened alongside improvements in agency management which provide the urban services. It is also important for the World Bank to adequately supervise funded projects in order for no errors to take place on their part.
Given the gaps in joint urban projects, the Bank shifted its paradigm towards focus on individual sectors and macroeconomic policy. Following a decline in the Bank’s lending to India in 1990 and a study on the same, the Bank re-commenced its lending to urbanisation in India. The World Bank provided a 105 million dollars to loan the Urban Development Project in Tamil Nadu, to finance its urban infrastructure including roads, transport, water, sanitation and sewerage. The Bank aimed at improving the infrastructure services by strengthening the technical, financial and management of the ULBs. The Independent Evaluation Group (IEG) of the World Bank evaluated the Tamil Nadu Project (TNP) and stated an improvement in the urban infrastructure service. The TNP had increased the volume of building of metropolises. By 2005, 17% of the projects worked on by the TNP were in relation to investments made in water supply, 39% towards roads and bridges and 38% towards sanitation and sewerage. The IEG noted that the project was successful in organising capital for investment in urban infrastructure. An estimate of sixty million rupees is collected yearly for toll charges which is adequate to fund the costs for both operation and maintenance of the roads.
Furthermore, the World Bank has actively been a part of the growing demand in India’s urban population and improvements in both sanitation and water supply. Although the initial assistance by the Bank was provided in 1973, the Bank till today still funds towards improvement in water supply and sanitation in India. A sum of 55 million dollars were provided by the Bank to Bombay Water Supply and Sewerage Project 1973. Despite delays in the project, most of the purpose was achieved as the water supply was increased to a daily limit of 450 million litres alongside improved condition in the sewage system.
The World Bank has significantly boosted its technical and fiscal assistance to the ever-growing urbanisation in India, with India’s policy accommodating urban expansion. Although the early urban development projects were aimed at developing basic services of infrastructure the projects soon developed to include changes in policy, improvement in institutions and efficient governance. However, despite efforts of urbanisation, much of the urban population do not have access to infrastructure services and urban development still faces challenges. Although the Bank has provided loans for developments in urban projects, authorities in urban cities and ULBs have failed to effectively address the problems of infrastructure and develop the governance, nevertheless, the Bank’s lending has notably improved the infrastructure, offering hope for further growth and sustainability.
Although World bank aid/loans are a key tool to alleviate poverty and promote growth in developing countries, there have been many debates regarding the efficacy of World Bank aid/loans provided to developing countries and these are based on socio-political viewpoints. The World Bank’s ever-evolving nature and the growing need for adjustment lending has been examined. Different criterias are used by the Bank to fund loans and provide aid to developing countries and the impact of the same has varied. This dissertation discusses the role of the World Bank aid in developing countries and raises questions on its effectiveness. A critical method is adopted to discuss the effectiveness of aid/loans arguing that although World Bank aid/loans can assist in alleviating poverty and enhance growth in some states, it can hinder development in others and challenge their sovereignty, and this is arguably; due to the conditions attached to World Bank aid/loans. A study of World Bank aid for urbanisation in India is discussed. Commentary also discusses that the World Bank is no longer just a financial institution but has shifted its paradigm towards an autonomous system of global governance.
The World Bank also referred to as a Bretton Woods Institute (BWI) was established in the mid 1940’s at a United States conference and was originally named the International Bank for Reconstruction and provides aid to promote global sustainable growth and reduce poverty in its member countries. BWI also consists of the International Monetary Fund (IMF), and both institutions were founded to produce a development in the global economy following the aftermath of the Second World War. The principal establishment of the World Bank was to ease the reconstruction of Europe which had become the subject of war-damage, and to provide a high scale of aid to develop what is now referred to as the “Developing World”. By providing loans to recipient countries, the World Bank assists developing countries in reconstruction and development of their economy.
The World Bank today is functioning as a different institution to the way its founders at Bretton Woods had imagined, as the Bank is affiliated with five divisions, namely; International Bank for Reconstruction and Development (IBRD), International Development Association (IDA), Multilateral Investment Guarantee Agency (MIGA), International Finance Corporation (IFC) and International Centre for Settlement of Investment Disputes (ICSID).
Created in 1960, the IDA was aimed at enhancing economic development, increase production and improve the life of those in developing parts of the world, by providing long term interest free loans to ‘not creditworthy’ countries. However, very small amount of administration fee is paid by annually by the borrowing country. IDA replenishments are funded through the national budgets of rich members of the World Bank.
The MIGA which was established in 1988, boosts the investment flow to member developing countries by providing insurance securities for political risk to private lenders and investors. The aim is to interest the investors to invest into complex environments to promote development. The private sector division of the World Bank is known as IFC which was created in 1956. In comparison to the IBRD which lends to states, the IFC can provide funding to private organisations of member states and in an effort to enhance development, no repayment guarantee is required by the concerned member state. The IFC borrows from capital markets and provides the loans on a profitable basis.
The dispute division of the World Bank is known as the ICSID which provides services for disputes between states members and their nationals. The ICSID was formed in 1966 due to a demand for body providing arbitration or conciliation services to facilitate dispute resolution between contracting parties.
The two terms World Bank and the Bank in this dissertation are an example of the work carried out by the IBRD and IDA and focus of the World Bank’s work in this dissertation will restrict attention to the two. It provides two types of lending in the form of development policy loans to support economy reforms through policies and actions to promote growth and increase the living standard. Comparatively, project loans are used to finance development of infrastructure to reduce poverty and sustain development. 
For numerous decades, the global community has perceived the World Bank has been as a significant institution for attempting to reduce poverty in the developing countries. The Bank has an objective of alleviating poverty in member countries through lending, providing advices in relation to policies, technical assistance and research and economic evaluation.  Despite widespread criticism against World Bank lending through aid/credit provided by the Bank has extended billions of dollars to cover a large number of the economy sectors in its 189-member countries. This therefore leads one to question whether the huge flow of World Bank aid had the anticipated effect on growth and reduced poverty in developing member states. If not, it is necessary to think about what alterations should be introduced into the area of aid and what the focus should be to accomplish the anticipated outcomes. Over the past decade, this topic has been a growing interest amongst scholars, economists, non-governmental organisations (NGOs), aid giving agencies and political parties. Until date, the World Bank has showed its ability for change. However, whether it can now rise to face new challenges, address its strategies to fuel fiscal growth and alleviate poverty on a substantial scale are some of the vital questions that need consideration when looking at the aid provided by the World Bank. It is thus important to assess if the aid provided has been an efficient tool to implement necessary modifications in aid.
The aid provided by the Bank flows from two sub-divisions, namely; IBRD and IDA. The aid is provided in the form of grants or loans for the sole purpose of development and growth, as the central mission of the Bank is to create a poverty-free world. The Bank raises capital for its aid/programmes through global capital markets and increasing its association with the richer member states.
The World Bank has vastly evolved since its establishment in 1944, particularly in response to the changes in economic conditions and the demanding needs of the world-wide economy. From its commencement as a funding institution for reconstruction of nations post-war, the World Bank has evolved into a development Bank, antipoverty campaigner, aid organisation and a leading advocate of economising states under structural adjustment programmes. However, in the passage of recent years and with the aim of planning for progression, the Bank has begun dealing with diverse issues such as crime and governance. For each new initiative, the World Bank policy has incorporated new functions, developed new agencies and programmes alongside collaborations with external institutions to address the new areas. However, the most significant aspect within the economic revolution is submitted to be the huge growth of the capital markets among flexibility in capital across nations and while there has been significant development in the global context; the World Bank remains a key institution in framing today’s world.
Although at the time of the World Bank’s creation it was considered as an addition to existing forms of aid, it is deemed as a parallel to the IMF. However, when compared to the IMF, the Bank is understood to cover larger issues than that of the IMF and over time, as mentioned above, the World Bank has expanded its subject matter and included additional topics into its world of work and policy. The Bank diverged from its initial mandate of reconstruction and prompted towards a development strategy for economically growing nations. In contrast to banks such as Asian Development Bank (ADB) who focused on regional development, the World Bank’s commitment towards lesser developed member states was recognised in a positive light as it proposed ideas of betterment for its member states such as development in policies, along with extensive resources.
The span and resilience of the Bank’s Articles of Agreement are the core strength on which the World Bank is centred. Article 1 of the Agreement signifies that the objective of the Bank was to finance reconstruction, promote international investment and trade and itself be a means of lending for important projects. Though the World Bank is considered as an institution providing loans for economical betterment, it exercises power as a multifaceted organisation which frames policies in the developing nations. Whether it be in relation to reform for structural adjustment or governance, or executing specific projects in certain locations, the Bank is deemed as an international player. As the Bank plays the role of mediating amongst financial markets and governments that need economic aid for matters such as reconstruction or development ventures, it can be argued that it is developing towards an autonomous system of global governance. With this being said, the loans/aid provided by the Bank has been a subject of controversy, giving rise to debate whether the Bank’s aid/loans actually encourage growth in the developing countries or whether it impedes it and as a result, undermines the sovereignty of the recipient nation. However, where countries would face challenges in obtaining market loans or would resort to borrow loans with extremely high interest rates, the World Bank offers such countries loans at a reasonable interest rate.
The chapters of this dissertation aim to conceive the procedures used by the World Bank to execute policy options and aid/lending in developing countries. The structure of the chapters will be in the following order: the introductory Chapter discusses the formation of World Bank and its role in developing countries. Chapter 2 will inspect the World Bank and its support to developing countries, especially in relation to aid & loans, to set the stage for subsequent analysis. Further discussion will delve into the instruments utilised by the Bank to lend money and the criteria it follows to permit the granting of loans to less developed countries, the evolving nature of the Bank in relation to lending and the growth in acknowledgement of how significant adjustment lending is, will also be discussed. Chapter 3 will discuss opinions regarding World Bank lending, highlighting the theoretical and political opinions on aid and the impact of the United States on World Bank aid policy and whether there is a need for an advancement in the model of World Bank Policy. Additional analysis in Chapter 4 will look at the effectiveness of World Bank aid in developing countries and examine the need for an improvement in aid.
Subsequent focus will involve influence of World Bank lending on the state and the evolving nature of the government’s function in the developing sphere. A range of views regarding the effects of the World Bank will be mapped out and whether such lending strengthens or undermines the sovereignty of the recipient nations will be considered. In order to understand the different policies of the World Bank, the efficiency of aid, the relationship between the Bank and its member states and the effects/impact of the World Bank loans on developing countries with a focus on structural adjustment and sovereignty will be analysed.
However, despite providing numerous assistances to nations, the Bank is a subject of never-ending critique. As such, Chapter 5 will examine the impact of World Bank conditionality on developing countries, emphasising the essential need for good governance. Chapter 6 will discuss the alliance between World Bank and India and World Bank aid provided for urban development in India. Concluding commentary will confer that despite numerous criticisms, the role of World Bank in developing countries is vital for promoting development by utilising mechanisms to alleviate poverty, ending that as such, the World Bank has developed into an autonomous system of global governance.
World Bank lending to developing countries
The following chapter delves into an analysis of world bank lending to developing countries, discussing the different methods aid/loans provided to developing countries.
Since its establishment, the Bank has undergone numerous phases of change to alleviate poverty. Initially, it provided loans to developing countries for the financing of investments for projects involving infrastructure to improve the quality of roads, railways and dams. The Bank assumed that lending for such projects would instigate economic growth. The financing from the Bank was obtained from private sectors and markets and the Bank’s bonds got acclaimed rating of a AAA grade by rating agencies, which later got it a status of a leading development lender in the global world.
However, there was growing concern that countries borrowing from the World Bank were not utilising the funds on projects they took the loans for and this led the Bank to form stronger policies and alter its investment programmes. It diverted its projects from infrastructure to improvement of the education sector, where although the rewards were grander, measuring the same was not an easy task.
The time following from the Cold War saw a change in the World Bank aid culture as it began lending to developing countries and laid the grounds for aid structure which concentrated on governing foreign policies rather than aiming to reduce the poverty levels. However, this changed soon after as the Banks main concerns were altered to once again focus on alleviating poverty, following a large increase in the capital flow to developing countries and focused its direction towards projects involving water supply, education, health etc. Further advancement took place in banks as the Bank placed emphasis on structural adjustment concerning policy reforms. This saw an increase in the volume of lending by both IBRD and IDA. Although the Bank assisted developing countries with issues such as recovering from years of war and environmental calamities, the changes in the Bank lending policies saw changes in the structure of aid. Attention was focused on governance in aid-receiving countries to promote growth and to narrow the economic gaps.
The World Bank has been granting loans for projects, sectors and structural adjustment and despite the volume and variety, operations of the World Bank are of vast scopes. The Bank assesses the needs of the recipient country and has to pass a set of procedures prior to financing the loan to recipient countries to ensure that the resources will be used in an efficient manner.
The World Bank provides lending to developing countries for project/investment purposes and by doing so, the Bank aims to instigate a process to reduce poverty and develop the recipient country. The aid receiving country can have the option to select the lending tool subjective to their goals to achieve economic growth. However, where the Bank intrudes on the rights of the borrowing country, it can impede the economic development of that member state. Although the Bank’s involvement was to assist development, extremely poor countries such as Africa felt that added intervention from the Bank caused an increase in exclusion of its population. As external parties such as the World Bank aid the less developed countries projects, the recipient country feels that their national agencies lose their identity. India also felt that community input was very little until the late 1980s. However, it can be argued that the World Bank is as a growth partner, as it is concerned with supporting the efforts of recipient countries to achieve and sustain their objectives practised through their investment project.
- Adjustment Lending
Additionally, the Bank also finances projects involving economic divisions such as revolutionising an industry, distributing electricity or developing railways as the World Bank attempts to directly attack poverty. Sectoral adjustment lending (SECAL) was launched by the Bank in the late 1970s and was designed to assist sector policies and systemise change. SECALs aimed to address issues within sectors and also focused on investment programmes. However, the Bank’s sectoral lending has branched out to now include additional sector expenses and not just funding for investments. India has borrowed loans from the World Bank to fund sectors including education, environment, urban development, water supply and health sector.
However, the Bank once again faced challenges from the global economic atmosphere which pushed donor countries towards structural adjustment in order to adapt to external distresses and the Bank created Structural Adjustment Programs (SAPs) which shifted the Bank’s normal focus on project aid to programmed aid and conditionality. Such loans are generally short in duration and provide swift aid to developing countries to achieve institutional and policy reform. Structural Adjustment Loans (SALs) delve into broader issues to address trade policy, public investment and economic incentives. Unlike loans provided for specific projects, SALs are approved under special circumstances and are issues on an urgent basis to developing countries to allow them to deal with debt crises. On the other hand, SAPs are framed for economic reform and to allow developing countries to become modernised and trade oriented and to tackle bureaucratic governments. The Bank states that SALs target poverty alleviation by allowing recipient developing countries to deal with their loans in a more manageable manner by supporting the SAPs to comprise precise polices and adapt to changes which will allow their economy to not only manage the payments but also allow them to grow as a country.
The Bank states that SALs are
“non-project lending to support programs of policy and institutional change necessary to modify the structure of an economy…[to allow it to] maintain its growth rate and viability of its balance of payments in the medium term.”
Arguably, SALs diverged the perceptions of the Bank from a traditionalist to a modernised, policy centred institution as they are centred on macroeconomic issues and are framed to address issues relation to national policy and institutional arrangements in developing countries. Additionally, SALs are known to differ from the numerous Bank program loans as previous lending programs were created to provide solutions for sudden outbursts of crisis rather than providing solutions to a nation’s long-standing structural issues. SALs were established to be supported by a chain of loans with long-term goals, with the belief that such loans would have bearable effects than the Bank’s crisis concerned loans.
- Development in Adjustment Lending
It is submitted that the World Bank’s program lending loans are advantageous as they aim to support reform over lending for project development. Debatably, this promotes strategies of development in the borrowing country and increases the ownership of the country as larger programmes allow countries to mirror their priorities in a much better way than project-based lending programme. However, the Bank’s mandate is to ensure that the programme-based lending will be effective in alleviating poverty in the borrowing country. Although initial programs were commenced at the direction of the Bank, the traditional approach of the Bank still remains, and delivers loans in an attempt to reduce poverty and project-lending to encourage economic growth in developing countries. However, it can be argued that the Bank’s approach could be enhanced by reorienting its development goals to include development with equity.
2004 saw an advancement in the Bank’s SALs which were re-named as ‘development policy lending’ (DPL) and ‘development policy financing’ in 2014. Through this lending-based programme the Bank aimed to support policies and reforms in institutions, which as a result, would produce development in a short time span. 
Furthermore, in order to grant loans, the Bank has to satisfy that under the marketing conditions, obtaining a loan from elsewhere is merely impossible for the borrowing country and was responsible for acting in favour of the member country where the project would be located. Aid is treated as a medium for economic growth in developing countries, and the Bank considers several factors prior to lending loans to developing countries. These factors include credit, programs, grants, national currency financing, market eligibility. Although the Bank leads a capitalist premise, many socialist ideology-based countries have borrowed from the Bank and have experienced no direct conflict of interest. However, failure of communist governments in the 1990s led to numerous developing countries to adopt market-focused policies.
Furthermore, it is submitted that the Bank examines the creditworthiness of the borrowing country by considering its external debt, condition of its budget and the position of its currency and their priority of projects under reflection. The Bank assesses the types of goods and services required by the country and how the same would be utilised. International bidding allows for quality goods to be obtained at a low cost and thus allowing procurements to be made. This allows the Bank to ensure that the loan will efficiently raise the levels of production required for sustained growth. The Bank loans then allow for the borrowing country to cover its import requirements. Although the borrowing country is anticipated to organise its local resources and expenses, in situations where the country is unable to do so, the Bank can offer the same.
SALs and the conditions it places on states built up the existence of ‘conditionality’ which the World Bank argues as it is necessary for preserving and protecting its resources and ensuring that repayment are made. However, due to the lack of conditions being fulfilled and lack in effectiveness of the same, the Bank altered the conditions to include thorough and detailed conditions. The Bank’s policy-based lending has stimulated controversy and made it a subject of continuous research and internal Bank reviews on policies in light of adjustment lending and conditionality to support country policies and programs.
Theoretical notions and political aspect on aid
This chapter will discuss the socio-political views on World Bank aid in developing countries and the effects of Unites States on World Bank policy and the need for an improvement in its policy.
It is arguable that external aid has and will always have a range of targets. Originally named Official Development Assistance (ODA), foreign aid has been affected by political practises and interests, the economic world and the outcomes of initiatives used to reduce poverty. However, there seems to be differing views on foreign aid provided for development in developing countries. Many argued from the perspective that there was a gap between developed and developing nations and others strongly believed that foreign aid was analytical in narrowing the gap between the two. Vis-à-vis the arguments, one can reason that providing aid to developing countries enhances financial investment and boosts the capital as it allows the economy of the developing state to grow towards betterment and utilise the loans/aid provided in manner which would enhance the living standards of the nation. On the contrary, where developing countries cannot generate enough savings which if successfully obtained, would allow the country to finance necessary investment to begin the growth process. Thus, this can cause the poor countries to be caught in a trap of poverty as their income would be so little that it would not initiate the growth process as the necessary savings would not be generated. However, aid can have the ability to reduce the restriction on foreign exchange in those countries that produce a very small amount of foreign exchange.
Those in favour of foreign aid argued that such funds allow developing countries to advancement from the casual nexus of poverty and low standard of stability to achieve advanced growth rates. Pro-Aid theories argued that aid can assist developing countries to halt from the poverty-cycle and can enhance the productivity of workers if the funds are used to invested into education or health and thus, increase the rates of development. This led the Bank to encourage societies to move towards modernisation as it believed that external investment was an engine which could instigate modernism and confine traditional norms. It is considered that aid can assist poor countries by the transfer of knowledge and technology from developed countries to less developed countries and fund the import of capital goods. This can be done by providing technical assistance or by introducing new technologies to assist the development of lesser developed countries. However, the outcomes of aid lending it not always equal. Where aid has assisted some countries towards development, it has failed in other countries, enhanced growth and reduced poverty in some and prevented poor presentation in others.
On the contrary, those who oppose the use of foreign aid submit that such aid in developing countries can discourage the transition of their own resources and that foreign aid can possibly encourage exchange of domestic investments. It can be argued that whilst aid aims to assist countries to improve their resources, it will only replace domestic resources which as a result would increase consumption and thus more money would need to be invested to replace the resources and introduce additional ones. Additionally, aid can in numerous ways hinder the long-term effects on economic growth. For example, changing the investment structure to favour those activities that would take longer to benefit the economy or are not productive in nature. Aid can also countereffect the original reason for its means and increase the recipient country’s need for continuous capital, resulting in increased loan borrowing from the World Bank. Arguably, aid can also delay reform of a country and thus, slow the procedure of growth.
Aid is a catalyst for productivity in developing countries. It should adopt conditions that are favourable in enhancing growth in aid recipient countries which would over time, allow such countries to eradicate their reliance on foreign aid. Developing countries should determine their ability to grow and utilise external resources as a foundation to stimulate their nations investment which would enhance growth and promote innovation. However, the work of the World Bank in providing aid is a topic involving complexity and controversy and thus, it makes it a difficult task to evaluate the work carried out by the Bank, especially in relation to shifting the norms, changing policies and the nature of the aid provided to developing countries.
- The influence of United States on World Bank policy
The World Bank agenda has been largely influenced by the United States and arguably, the Bank is known to have mirrored the ever-evolving foreign policy of the United States. The United States can utilise mechanisms and uses rules and norms to influence the work of the World Bank. As a large financial lending hub, the United States has the means to influence the World Bank. The Bank and the United States were drawn into an alliance in 1958 and created the India Consortium of Aid to organise a flow of Western aid, and this greatly influenced by the United States. After numerous replenishments, the Bank reduced its IDA to India and increased its lending to India on a set of terms. Many argue that United States was the reason behind the reduction and increase in commercial lending.
The Bank has been driven by political decisions of the globalised world and demands from shareholder governments such as the United States, has led to many of the Bank loans to be blocked or sanctioned. United States as the largest shareholder had dominance and thus, its foreign policies and politics greatly interfered with the Bank’s decision of approving loans. It is argued that the effect of United States was so large that not only did the Bank reflect the power and authority of the United States’ economy but also functioned the Bank on its interests and values. In effect, the United States’ policy with the Bank was such that the Bank prevented aid to those nations which would result in hostile consequences for the United States. However, where providing resources and aid was vital to the interests of the United States’ economy, the States could impose its choices on the Bank to lend in a manner which would strengthen their interests and benefits. The politics and policies of the United States shape the role, strategies and organisational routes of the World Bank and the Bank is treated as part of the United States capital. Arguably, until States dominance exists, the Bank will remain a treasury of the United States.
- Is there a need for an advancement in model?
There seems to be conflicting views on the functions and role of the World Bank, and the Bank has received numerous criticisms. Some arguments base their opinion on the belief that the Bank has had an insensitive nature towards political affairs of those in the developing world, and that it primarily signifies views of industrial, revolutionised countries acting as an ideology of power. Arguably, if one is to conceive the Bank’s position as such, then it would not be wrong to state that the Bank represents a power of political theory and diverging towards a self-governing legal system. Some critics claim that it should be in a position which would allow it to be responsive to market powers. Arguably, the Bank should work towards coming to mutual arrangements with the private sector and address the political demands of countries. All-in-all, criticisms of the Bank have can have a significant effect on its aid.
When considering the traditional viewpoint of the Bank, it is suggested that the World Banks functions diminish development of capitalism in developing countries and endorse communism. In the United Sates, development led by the state was criticised when the Banks internal assessments signified poor results of lending. The Bank was questioned in relation to different grounds; one being the programmes on poverty. It was argued that through its lending programmes, the World Bank had supported development in some of its member countries and not used its robust power to direct others towards a market focus.
Furthermore, it is submitted that modernisation of the World Bank led to criticism by traditionalists. They viewed the Bank as a method of encouraging reckless schemes in developing nations at the detriment of policies set for development. Reasonable policies can allow the third world countries to grow in output and employment could be increased if sound measures are put in place, therefore, it is imperative for the Bank to implement the same for developing countries to grow in output.
However, the Bank was criticised for providing the capital to wealthy governments and not to those who required it the most and for lobbying the society in member countries. Oppositely, the Bank was recognised for its attempts to assist those in dire need. It shaped loans to not only meet the necessary banking criteria but also to help create efficient and effective policies. In the 1970s, the lending provided by the Bank was increased in an attempt to alleviate developing countries from poverty and to advance their efficiency by investing into things such as trade and agriculture. However, one can argue that the World Bank and its recipient countries have a common goal to boost economic growth and capital flow in the market alongside strengthening relationships with other nations.
Additional criticisms of the Bank include opinions defining the Bank as an institution which promotes colonialism, imposing views on countries relating to the development procedure; criticising the development strategy relating to poverty, environment and societal issues. According to numerous scholars, foreign aid from developed countries is not a substance to instigate development in developing countries. Arguably, interventions by the World Bank can increase the vulnerability and dependency of developing countries on the Bank. Thereby, the Bank should not be a constraint and dominate the poor, but instead, aim to promote independence. Due to their financial status, developing countries are able to contribute very little to the Bank’s voting system to reform the World Bank’s policies. As such, the position of developing countries is undermined as the advanced nations are able to contribute far more, and in effect, hold a higher position in the hierarchy system and debatably, contribute to decide what happens with the poor countries. Moreover, the World Bank imposed conditions on developing countries which they had to follow, in order to obtain the aid, they required. Despite attempts from the developing countries to limit the conditions imposed on them, stronger governments demanded stricter conditions to be made applicable to less developed countries to adhere to firmer market policies.
Although the Bank should focus more on ensuring that aid reaches the underprivileged; providing continuous loans to poor countries with severe conditions does not mean that life in those countries will automatically be improved. Aid carries with it a danger of corruption and dependency. Therefore, the relationship between development and alleviating poverty is rather complex, and whilst the Bank plays the role of a complex organisation determined to bring about change; a shift in paradigm is required and it should not continue lending to nations already severely indebted to them but, should assist them to use the funds in an effective manner by investing into projects which will deliver high standard results, to better the lives of those afflicted by poverty.
See also: Ram B Bhagat, ‘Rural‐Urban Classification And Municipal Governance In India’  26 (1) Singapore Journal Of Tropical Geography 61