India has got a lot of things right, World Bank president Ajay Banga said in an interview with ET, adding that he’s more optimistic about the country economically than he was 20-30 years ago. Banga, who was in Delhi for the G20 summit, spoke about the changing vision of the World Bank, climate finance, the Delhi Declaration consensus and India’s trajectory. Edited excerpts:
How do you view the outcome of the G20 summit?
I think the fact that the leaders all came together showed the willingness to compromise on different parts of a declaration, and brought a way to put it together, was pretty good. And I think a few days ago, nobody would have given any chance for that to come together. And I think, India, but also all the G20 leaders, deserve some credit for that. To me, that’s a big deal. Inside that there’s a great deal of conversation about the importance of the multilateral development banks (MDBs), which selfishly I find very useful.
Although it’s hard work – it’s like having a bull’s eye on your forehead, you have to deliver. And then the second big thing that came out clearly, is the importance of digital public infrastructure, on which of course India and a lot of other countries have done a good job.
The World Bank has published a good report on the importance of digital infrastructure to create the right governance and access. I believe in that. There is work on green and the idea of going green with everything.
There was a lot of conversation about sustainable agriculture. I think there’s progress in the G20 on a lot of topics, and I would pick the fact that there was a declaration. I would, of course, pick the fact about the conversation around MDBs. But I would also pick the fact about the importance of inequality and fighting that as a very important thing.
How do you view the Indian economy going forward and what kind of policy prescription would you recommend in line with the country’s goal of becoming a developed nation?
I tend to stay away from too many policy prescriptions, because I think that’s the wrong way to go at this. I do believe that the world is growing slower right now than people thought it would be. Part of that is caused by what’s going on in one of the largest economies, which is China, parts of the EU are slower than people wanted. But that’s not all – the US is doing well, India is doing well, Asean is doing well. These are the bright spots. The emerging world has got more challenges because in fact, if anything, as interest rates go up, countries will geven more challenges. Somebody was telling me that by the end of next year, 30% of the emerging world will still be growing slower than it was prepandemic. That’s a little unfortunate, and it creates widening disparity between nations. India, fortunately, is on the right track. I’m more optimistic about India today economically, than I’ve been over the past 20-30 years, mostly because of the way in which the founding blocks have been put in place. Much money has gone into infrastructure, tens of thousands of kilometres a month of roadways, ports, airports, digital infrastructure.‘Need Help from Private Sector Too’
Everybody’s got a phone, plans are much cheaper than they used to be, the infrastructure for taking advantage of that data is there. Skilling institutes have got built. There’s a lot more to do, but there is a lot happening. India can also justifiably position itself to take advantage of the realignment of supply chains. If it does a few things correctly. It has to make sure that it can be seen as a viable alternative to a lot of other countries that also are fighting to get into the supply chain. I don’t think you have 10 years to get this right. I think in the next four or five years, a lot of work can be done to get more in. Apple has arrived with the biggest smartphone manufacturing centre. You’re going to have to get more than Apple and get more numbers like this to come in. So I’m convinced that there’s more that can happen here.
I would say three things are generally important. The first one is to remain prudent in the management of the economy. India’s done a good job on managing the economy in the last few years. You have prudentially managed, you have fiscal headroom. The world economy is still bumpy, there’s multilateralism, fragmentation is going up, you still have inflation, you’ve got high interest rates in a number of places. This is not easy.
So I will be fiscally prudential even now. I think your FM and PM get that. So that’s a good thing. The second thing I would advise always is to look at everything that enables you to mobilise more domestic and international capital, whether it is through the predictability of policy, or what all you can do to improve, things which both domestic and international investors want.
India can pick a few sectors where it can play very well in supply chain realignment, because it has competitive advantages – food processing, data, textile manufacturing, car and automobile manufacturing. If you figure out what holds you back from the next growth, that’s what you should focus on. I’m optimistic, I think you guys are headed in the right direction.
One big announcement at the G20 summit was the rail transport corridor. Will the World Bank lend support to it?
My general view on logistics and transport corridors is very bullish. I believe that India is building logistics corridors. I think India’s cost of logistics is still higher than what it can be. One of the things I offered to the Prime Minister in a prior trip is to bring the World Bank’s knowledge on managing logistics corridors and the cost of logistics corridors to one particular corridor. Pick an example and let’s work with you on bringing our knowledge and you bring your execution expertise and let’s bring that down. But I think what they’re doing with a similar corridor connecting India all the way to Europe for the Middle East, I think it’s brilliant. Because if you can connect not just the physical corridor, but also digitally, you connect people, you connect commerce. India can be a part of the supply chain solution in so many ways. I think this is a great move for India. It’s only an announcement, it is to go from announcement to execution. But the PM is pretty execution oriented.
What is your vision for the bank?
If you think about the last 30 or 40 years, spreading prosperity and reducing poverty is what the bank was completely devoted towards. The good news is the World did well in these three or four decades. China, India, Brazil, Vietnam, Indonesia and Bangladesh all grew and global trade allowed a lot of countries to rise.
The problem in the last four or five years has been that with the pandemic, climate fragility, nowadays with war in Ukraine, with its impact on food, fertilisers and oil prices, things have really changed. This reduction in poverty kind of hit a wall. My view, when I was traveling around the world, before I got elected, was that you cannot divorce poverty reduction from fighting climate change. We cannot divorce poverty reduction from fighting for fragility and helping people in fragile environments.
The idea of an intertwined crisis is fundamental to where the bank has to change. So, the first thing we’re doing is changing the vision statement of the bank, from being focused only on poverty and prosperity, to saying we want to create a world free of poverty but on a liveable planet. Having those last four words changes everything, in terms of our focus, our people, our skills, and our future. The second big part is to be inclusive. And while we include people who are disadvantaged in different ways, we’re picking on two specific types to emphasise: women and young people.
Even today, around the world, labour force participation is not equal, management levels are not equally shared. Not just in a developing country, even the developed world, the status and rights of women have yet to reach equality. There’s a real fight still to be had. The second part has to do with young people. The developing world is full of young people. And young people are a demographic dividend. If you give them quality of life, when they’re growing up – air, water, education, health, and then when they grow up, they must get a job. If you’re living in India, you have to generate tens of millions of jobs. It’s not easy, it’s a hard task. If you don’t do that, then these youth get disaffected, and from being your hope they become a problem. The challenge is both women and youth. The other big part of our change is getting our system to work in partnership with other multilateral banks.
We have collaborated with the InterAmerican Development Bank, focusing on the Amazon, the Caribbean, and the digitisation of governments, something India has done so well.
Getting in partnership with the private sector, that’s important as well. And, the last part is the capital. The G20 laid out a framework for capital adequacy, and we’re doing a lot of work on that, from loan to equity ratios to hybrid capital portfolio guarantees. Hopefully, over the next few months, our shareholders will step up with that capital. Now we get a new vision with women and youth on the board. A whole lot of work to do with partners and the private sector and improve the way we work. Then the capital to back up, that’s the better bank idea.
What happens when the mandate is widened? Does it take World Bank away from the core objectives of shared prosperity and poverty elimination? Will the bank remain as effective as it was supposed to be with this wider mandate?
We have not dropped the idea of fighting poverty. We are very much aiming at trying to create a world free of poverty. What we’ve done is we’ve let people recognise that it’s not an either-or situation. Let’s consider – Kenya has not had rain for four years. So the Kenyan farmer, who was having two crops a year, because of irrigation now has one. When he has one crop, you end up having to get rid of the cattle, because you can’t afford it. So, you don’t get your dairy income. You let go of the labourer and replace her by taking the kid out of school. These things are not an either-or, that’s the first issue. That’s why we need to get this capital adequacy framework. Definitely, the bank needs more capital. There’s no doubt on that score. But there’s not enough capital in the world with governments or multilateral banks, so you also need the private sector.
How do you plan to raise more resources?
The importance of the private sector cannot be under emphasised. The reality is that people say that we need a trillion dollars a year just for emerging markets, renewable energies, not even agriculture, heavy transportation, construction, material reform, carbon capture, poverty, pandemics, fragility, food insecurity, just renewable energy to bend the curve. If (it’s) a trillion dollars, there’s not going to be enough money with India, the US and Europe and philanthropy or multilateral banks. You have to get the private sector into this.
The good news on renewable energy is that the cost per unit of solar and wind is today lower than that from fossil fuels. There is technology, there is scale. The question is, can you implement it with the right policies? You need clear roadmaps that governments must lay out, as to what you are going to do with renewable energy, like India’s trying to do. Clear policies, tariff assurances, policies on how the grid will be managed. And then you can find how the private sector can still come.
