At the helm of the World Bank for the last five months, Ajay Banga spoke to Seema Sirohi in his Washington office about making changes, getting funds during two wars, tackling India’s underemployment problem and other issues. Edited excerpts from the interview:
Your biggest challenges?
The biggest is to make the World Bank fit to be the leader for the next decades. I think about the world’s challenges as three sides of a triangle. One side is the issue of humanity vs nature, the second side: inequalities caused by gender, ethnicity, sexual orientation, accident of birth. And the reason these two sides don’t fall is because the bottom of the triangle is very stable. But these are long-term problems that need long-term solutions. Very often we end up putting a bandaid on an open wound. And that to me is the real big challenge.
I want to also start asking our shareholders to make the Bank bigger so I can, in turn, work with the private sector and others. What I’m trying to do is four things. One, to improve the turnaround time of the Bank’s work. It takes 27 months on average from the time we start talking about a project to the time the first dollar goes out of the door. I want to change that to one-third less, eventually half. Two, to sweat our balance sheet – extract or take a higher loan-to-equity ratio in the balance sheet. Three, to be very clearly focused on the knowledge bank. Over time, countries will need our knowledge more and the money less. I want to focus on five areas: people, prosperity, planet, infrastructure, and digital. By digital I mean the India kind of digital, meaning not just financial inclusion but also better governance. The fourth thing I want to do is, across the bottom, I want to measure the results that cut across all areas. I want to connect this to a revised corporate scorecard.
Given the geopolitical situation with two wars raging, money from the West will be diverted. How will you get the funds?
I don’t believe it’s an either-or. I don’t believe the facts demonstrate that the money going into a war takes away money from the Bank.
The bigger issue is the challenges on climate change – they attract a lot of numbers. People talk about a trillion dollars a year needed for the energy transition alone. It makes everyone’s eyes glaze over, and then they think of money going for wars. That’s not the way to think about it. It’s not that everything is expensive. I’ve been talking about this rice emissions thing. When I grew up in India, I was told that rice has to be water-intensive. If you grow rice that way, it adds up to 8-9% of the methane emissions in the world. Methane is bad news, worse than CO2. But if you actually follow the science, you don’t need to leave water in there. If you do it that way, methane reduces by some 40%. If 8-9% can become 4-5%, that’s a big change.
You want to attract private sector money using existing Bank capital as leverage. But the private sector wants profits. Why would they invest with the Bank?
I don’t want people to misunderstand. I’m talking about the private sector bringing its capital, technology, people and innovation into investing in countries in RE (renewable energy), in carbon capture, those kinds of things. The real question then becomes: What holds the private sector back? Let’s talk RE. The decline in energy emissions in the developed world over the last few years, it’s not bad. More is going to come because (of) solar and wind.
The reduction will be outpaced by the increase in emissions in the developing world in just 10-15 middle-income countries. My view is to focus on those 10-15 countries. As they grow, change the mix of renewables vs emissions-heavy. The whole world benefits. That requires the private sector. So, what will get the private sector to invest more in solar and wind in India, in Indonesia? One, projects on the ground. Two, clear regulatory policy. If an investor’s going to put large amounts of money, he needs to know the tariffs will be properly set up. PM Modi made a very interesting statement years back. I think he said, “I want 30% of my energy to be solar by 2030.” He’s gone right past it. By saying that, it tells investors this guy is on a mission that means solar energy is a good investment in India. Three, political stability. Four, foreign exchange – the hardest one. If the capital comes from outside and the earnings are in domestic currency, there’s a problem… I don’t yet know how to solve that. That’s a tough one.
Rich nations have failed to put up $100 billion a year to fight climate change as promised. How about asking them to reduce/tax emissions? Back in the day, they taxed tobacco and usage came down.
Energy emissions are reducing in the developed world because of the mix of sourcing. Should it reduce faster and more? Probably. But my thing is this whole energy question should not be portrayed as a government taking something away from you. These are choices you should give consumers. To me, that’s all about voluntary carbon markets.
I’m not as much of a friend of taxes. Expecting people in a democracy to tax their citizens so you can send the money to a developing country 30,000 miles away is probably not going to happen. You have to think whether paying a higher price for things that are more carbon-intensive is a good idea. That probably is good value-change behaviour.
India has a serious underemployment problem despite a good GDP growth. How can the Bank help?
I believe in jobs in services. When you invest a dollar in services, you generate more jobs than you do in manufacturing. Manufacturing tends to generate fewer, but very well-paid jobs. Services tend to generate more but lower-paid jobs.
India needs to really think about not just manufacturing, but also services. Look at India’s potential in tourism. New York City gets 60 million tourists a year. India has history, culture, food, shopping, vibrancy, beaches, mountains… It’s one example, but I don’t think it gets the focus that it’ll need. Healthcare is another important one.
I’m not discounting manufacturing. I believe that the supply chain movement is an enormous opportunity for India over the coming 10 years. Will India be able to take advantage? What’s required is infrastructure, which India is building. Simpler customs facilitation is needed. Like a semiconductor fab, things go in and out eight times. That’s eight times the paperwork. Eight times the duties — unless you give me a duty exemption on day one. I think India is tackling some of those things. You also need to worry about agriculture and productivity.
How vulnerable is India to global headwinds? Is it on a stronger footing than some other economies?
Yeah, I think so. One, a greater share of India’s GDP comes from domestic consumption, a lower share from manufactured exports. If the global economy slows down, India has a nice little buffer. Two, India’s external debt is in much better shape than a lot of the other countries. It’s done a very good job of managing the external debt over the last 10-20 years. Three, it has pretty deep and wide domestic capital markets. It needs to do more. But it’s got much better than it was.
