Source: Financial Times

The World Bank group finances countries for various developmental projects to help developing countries reduce poverty, promote economic growth, and build prosperity. Saying India too is a large receptor of World Bank loans like other developing countries would be an understatement. In fact, India is the largest recipient of loans from the World Bank, amounting to $102.1 billion, between 1945 and 2015 (as on July 21, 2015), according to the Bank’s lending report last year. While the International Bank for Reconstruction and Development (IBRD), a part of the World Bank group, has lent $52.7 billion, the International Development Association (IDA), a multilateral concessional lender of World Bank, has loaned $49.4 billion to India over the last 70 years. India’s loans from the World Bank stood at $104 billion (IBRD—$54 billion and IDA—$50 billion) as on December 31, 2015. Of this, the World Bank disbursed $73 billion, with India repaying $37 billion.

As for this year 2016, and according to the data available on the World Bank website, the IBRD/IDA operations approved for the fiscal year 2016 stand at $1.80 billion with 3 new and supplemental projects approved. The total disbursed amount as of Jun 30, 2016, to IBRD, stood at $18.44 billion, while the undisbursed amount from IBRD as well as IDA remains at $10.483 billion, with a borrower’s obligation being $10.982 billion. There are 22 current loans from the IBRD as on 31st July 2016 and 47 current credits by the IDA as on 30th September 2016.

Source:- http://data.worldbank.org/country/india

Now as the World Bank only accepts hard cash and with the move to demonetize 500 and 1000rs notes, the new 2000 Rs. cash would then have to be exchanged into dollars and repaid to the World Bank. A story circulating amongst the CA community at least is that the Indian government has no deposit to repay the loan amount. And the cash reserves are limited. Therefore this demonetization, although done to eliminate black money from the market, might not have just a single agenda behind it. With the cash thus obtained after this move, the government can use it to repay the World Bank loan.

Now this is all just a theory. But it does make one wonder. After all overnight demonetization is a major move. And the benefits stated by the government in doing so have flaws, flaws which have been pointed out by many prominent figures as well. Although a good move which would be beneficial to the government, in the long run, there could be agendas behind it the government doesn’t feel suitable to disclose to the public. Whatever the reason, let’s hope this current chaos is worth the long term benefits!