World Bank's Role In India's Infrastructure Development | BQ Prime
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00:00 Hi, thanks so much for tuning in.
00:17 You're watching Infravisioning on BQ Prime.
00:18 My name is Alex Mathew.
00:20 Now, we discussed on this show the various aspects of infrastructure development in our
00:25 country and in that context, there is a very important functionary that's not necessarily
00:31 Indian but plays a role in various aspects of nation building in several parts of the
00:37 world and this is the role of multinational banks because a lot of key infrastructure
00:43 projects get funded in certain spaces with funding from these multinational banks.
00:50 And this is important to understand in the context of the visit of the new head of the
00:55 World Bank to India.
00:57 Ajay Banga is meeting several key functionaries of the Indian government and he has spoken
01:03 in the recent past about the need to perhaps change the focus of the World Bank to broaden
01:09 the focus from what has so far been poverty alleviation to make it more holistic.
01:15 What does this mean from the infrastructure perspective?
01:18 Joining me as always is Vinayak Chatterjee, who is the founder and managing trustee of
01:24 the Infravision Foundation.
01:26 Thanks so much Vinayak for taking the time.
01:29 Help contextualize this.
01:31 What is the role of multinational banks in infrastructure funding and what does it mean
01:38 when Ajay Banga says that there is a need to widen the scope of the World Bank?
01:43 Well, that's a very broad-based agenda but let me answer your questions in the following
01:53 steps.
01:54 One, to the larger question, what is the role of multilateral development banks in funding
01:59 infrastructure, in our context funding Indian infrastructure, very, very large.
02:05 The role of multilateral development banks, the World Bank has funded road projects, water
02:10 projects, irrigation projects, the Japan multilateral banking system, JICA, has funded the Delhi
02:18 Metro, Asian Development Bank has funded many, many iconic infrastructure projects in the
02:25 country and some of the new banks, like the New Bank for Infrastructure, the Asian Infrastructure
02:29 Development Bank are beginning to make their mark in funding India's infrastructure.
02:34 Not only do they provide a modicum of soft funding but they've also played a key role
02:40 in policy formulation.
02:41 For example, I recall that in the early 90s, the World Bank was instrumental in the power
02:46 sector reforms, you know, to cutting up monolithic state power companies into generation, transmission
02:53 and distribution entities with a view to privatization as well as attracting private capital.
02:59 So across the board, the World Bank again in the late 90s provided strong intellectual
03:06 inputs in the formation of India's PPP policies, public-private partnership policies.
03:11 So in a nutshell, they have played a very important role but it also has to be noticed
03:18 that with India's economy growing at the pace it has been for the last two decades, the
03:25 importance of the role of financing India's infrastructure has consistently gone down.
03:31 The country itself is able to raise public and private funds so that unlike the 60s or
03:37 the 70s, the role of multilateral bank funding or bilateral institutions funding like used
03:43 to happen with DFID and USAID and the Nordics, etc.
03:49 The role of multilateral and bilateral funding per se of India's infrastructure as a percentage
03:54 has come down substantially.
03:57 That's just to answer your question on the role that multilateral development banks,
04:02 particularly the World Bank has played in the Indian context.
04:05 Is it alright for me to move on to your next question, Alex?
04:09 Absolutely.
04:10 So I'm referring to newspaper articles that I've read over the past couple of days that
04:16 quoted Mr. Banga in, I believe it was the sidelines of a G20 meeting where he was talking
04:21 about the need to broaden the scope for the World Bank.
04:25 And effectively, what does it mean for an Indian to take charge?
04:29 Because the liaising, and I know this is a serious question because, you know, key functionaries
04:36 of the government in their conversation with Ajay Banga, and it's been said that he would
04:41 be much more conversant, much more understanding of the issues that the Indian government would
04:50 face in setting up these large infrastructure projects.
04:56 That's really very interesting perspective.
04:58 I think we as Indians are extremely proud of the fact that we have our very own Ajay
05:05 Banga as the president of the World Bank.
05:08 And it has to be said to his credit that he's kind of, you know, hit the road running.
05:14 I mean, ever since it took over on 1st July, global newspapers, media channels, the intelligentsia,
05:23 people in the business of development economics, the networks are buzzing with Ajay's, shall
05:29 we say, rather path-breaking thoughts on reforming the agenda of the World Bank specifically.
05:36 And in that context, obviously the spillover effect on the other multilateral banks.
05:42 To your question on India specifically, it is interesting, Ajay will have a very, very
05:48 strong empathy, very strong empathy to the needs of India.
05:53 That goes without saying.
05:54 And in that context, can even enlarge the agenda to make an impact in similar other
06:00 developing markets.
06:03 Very interestingly, he has in his initial remarks on the charter of the World Bank,
06:11 I have noticed seven major dimensions that he has spoken of, which lead to what one would
06:17 call a kind of a resetting of the charter of the World Bank itself.
06:22 The first is probably the most important, that he has said that the mandate of the World
06:26 Bank has to go beyond its traditional poverty focus.
06:31 Most of the funding, the approach of the World Bank has been under the umbrella of what is
06:37 called poverty alleviation.
06:38 And he says that in a changing world, this now has to go beyond, obviously poverty alleviation
06:44 is important, but the agenda must pay or have equal weightage to issues like climate change,
06:52 pandemics, food security, inequality, migration, on all of these things, which he says should
07:01 make the mandate of the World Bank should be to make the planet a far more, within quotes,
07:07 livable planet.
07:09 Secondly, he's talked about going for multiple partnerships.
07:16 I think he has hit the nail on the head saying the World Bank by itself can't change the
07:21 world.
07:22 What it can do is it can set the agenda, it can provide the knowledge leadership, and in
07:27 most cases, it can even provide the seed funding.
07:30 But he talks about multiple partnerships and therefore, projects and programs that are
07:36 replicable and scalable.
07:37 Now, this is very, very interesting.
07:39 So basically, he's saying that if we show the lead, then other partners must then run
07:46 with the beta along with us.
07:49 And therefore, he talks about other partnerships that would include other obviously other multinational
07:54 development banks, the private sector, state entities, and parastatal entities and NGOs.
07:59 These are all civil society entities that he looks at, who would be in partnership with
08:06 the World Bank's fresh agenda.
08:09 Then he talks about increasing the balance sheet.
08:12 You know, the committee set up by the committee constituted by two eminent people, our very
08:20 own NK Singh and Larry Summers, to suggest changes to the agenda of multinational development
08:25 banks has basically said that they need to be recapitalized to a much higher level.
08:31 But Banga does strike a note of caution while he agrees with the need to substantially increase
08:37 the size of the balance sheet of the World Bank to make a difference.
08:43 He very interestingly says, let us first be a better bank, a more relevant bank than just
08:50 merely a bigger bank.
08:52 Now, it's a very, very important statement and a very, very important message to World
08:56 Bank staffers also.
08:59 He talks about the fact that it is relying completely on donor funding to multilateral
09:06 development banks will not get us very far unless we create, shall we say, avenues to
09:14 channelize private sector funding also from the large capital pools available with the
09:20 private sector, both corporate as well as institutional and charitable, to walk hand
09:27 in hand with the plans and programs of the World Bank.
09:29 To this extent, I must say that he has in the very first month walked the talk.
09:35 He has set up what is called a private sector investment lab with 15 eminent professionals
09:41 from around the world, including private sector CEOs, to suggest ways and means of how this
09:47 partnership between private capital and multilateral donor capital can be leveraged many times.
09:53 So he's actually set up the private sector investment lab.
09:57 He asks for the bank to move quicker and faster.
10:00 For example, in India, if you ask anybody, what is your expectation from the World Bank?
10:05 You know, the general answer among people would be, oh, they will write one more report
10:09 and take 20 months to do so.
10:11 So he is talking also about moving quicker, faster, and on the ground with replicable
10:19 and scalable models.
10:21 And finally, I think he is in sync with our own finance minister, Madam Sitaraman, where
10:27 both of them in their talks in Gandhinagar, I think day before yesterday, talked about
10:33 the fact of a specific approach to raising finance for Indian towns and cities.
10:38 And they talked about innovative means for municipal finance, because that those cities
10:44 are the engines of growth.
10:45 And there seems to be a huge concern about them being able to fund their growth.
10:49 But I've spoken enough, let me stop here and get your reaction.
10:52 So yeah, no, in fact, a few clarifications here, right?
10:56 If you're talking about the traditional role or the traditional relationship between our
11:02 country and organizations like the World Bank, it has been with regard to specific projects.
11:08 You mentioned how JICA also has funded key infrastructure projects, the World Bank has.
11:14 What you're talking about is a larger focus.
11:17 So for example, am I right in assuming that India's smart city project, where it's trying
11:22 to develop several clusters of development, that's not just one infrastructure project,
11:29 but an entire network of projects that will build a smart city.
11:34 Is that the kind of partnership that a World Bank can get into with India?
11:39 Yes, it can.
11:41 I mean, that's one of the big ideas in any case, urban infrastructure financing.
11:46 And by instituting the necessary reform packages to, for example, make municipal bonds, a very
11:56 large capital market instrument for financing our cities, entire US cities are funded by
12:01 munis, as they're called, and it's one of the largest capital market instruments in
12:05 the US.
12:06 But India doesn't seem to have yet reached any level of, shall we say, impact on municipal
12:11 bonds.
12:12 So yes, doing all of these things will make the World Bank a partner in pushing the smart
12:18 cities agenda, including many others.
12:20 Now, I would also just like to clarify that while I did say that the World Bank's financing
12:26 as a percentage of the total funding of infra projects has come down over the years, which
12:31 is natural.
12:32 As the country grows, it is able to fund more and more of its own.
12:36 But it is interesting, I'm told, that India is still the largest beneficiary, the largest
12:41 recipient of World Bank loans in the world.
12:46 So India remains a very, very important piece of the action agenda and the arena for action
12:54 for the World Bank, and nothing like having a president of Indian origin.
12:58 No, certainly.
12:59 But the question then is, and the reason I asked about, and I'm glad you pointed out
13:07 munis or municipal bonds, because that really is being looked at as the avenue to fund this
13:12 development, this urban development.
13:16 The question is, you're going to need, apart from the World Bank stepping in, Indian participation
13:21 as well and Indian spending as well, the private sector has been wary of spending in public-private
13:29 partnerships.
13:30 I think that is also something that we have to talk about, the fact that that itself needs
13:35 to get an impetus from the government.
13:38 So apart from conversations with the World Bank, which of course would lend a stamp of
13:43 approval to some of these projects, if the World Bank, for example, steps in on a PPP
13:48 project, that would mean that private sector would be more than willing to put a little
13:53 bit of the capital required for that.
13:55 And it's a very large amount of capital, right Vinayak, that is being spoken about, that
14:01 will be needed from the private sector over the coming years.
14:05 So talking of PPP, Alex, the World Bank played a seminal role in crafting or providing knowledge
14:14 inputs with best practices and working papers, etc. that I recall in the late 90s and early
14:20 2000s to actually get the PPP movement up and rolling and rocking, as some would say,
14:27 in UPA 1 and a few years before that, from 1997 onwards to about 2010.
14:33 Those 15 years was what I would call the heydays of the PPP movement in India.
14:38 The World Bank had a great deal to do.
14:40 I understand, you know, from 2012 onwards, the NPA problem started, projects started
14:45 becoming sick, etc. etc. and PPP got a bad name to the extent that very few private sector
14:51 managers, I mean, honchos today, both Indian and foreign, would actually be enthusiastic
14:57 about putting balance sheet money into PPP projects until the issues and problems are
15:01 sorted out.
15:02 And that is precisely where I understand that the government of India currently has reached
15:06 out again to the World Bank to say, take a hard look and tell us how we can revive the
15:11 whole PPP momentum, this time not just for creating greenfield assets, but also for formats
15:17 for monetizing brownfield assets under the National Monetization Bank.
15:21 So it's going to be a big challenge for the World Bank team to rise up and respond to
15:26 this, shall we say, request from the government of India.
15:29 And we shall all look forward to it actually, you know, revving up the PPP market once again.
15:36 Do you have any thoughts, Vinayak, in terms of what can be fixed in the near term to say,
15:42 for example, see, and as somebody that has looked more at the 2012 onward cycle of all
15:49 of these non-performing assets, which seem to have finally gotten fixed over the last
15:54 couple of years, you see public sector banks back in focus, because they've kind of cleaned
15:58 up their books.
16:00 And they're once again, seeing manageable levels of non-performing assets.
16:04 And they're talking about possibly the start of another CAPEX cycle, right, where we could
16:09 be at a much better place now than at the start of the last or the first decade of the
16:16 current century.
16:17 So once again, Alex, I've been wary of too much involvement of commercial banks, because
16:24 that has been one of the criticisms of PPP, that commercial banks have an asset liability
16:29 mismatch problem, whereas the infrastructure sector requires long term bonds.
16:33 But remember, in the early days of PPP, India has developed a range of new institutions.
16:39 You have the NIIF, the National Infrastructure and Investment Fund.
16:44 You have recently created the DFI, the DFI, DAPFID, National Bank for Financing Infrastructure
16:49 Development.
16:50 All these institutions are vehicles that can absorb World Bank financing knowledge and
16:56 capacity building to play a stellar role in the next version of PPP.
17:01 And remember that World Bank itself is, shall we say, a combination of different institutions
17:09 with different mandates.
17:10 So while the World Bank can certainly play a proactive role in crafting PPP policy and
17:16 helping states fund, the government fund, their portion of the P, remember it has its
17:22 affiliate, the IFC, the International Financial Corporation, which can partner and fund private
17:28 sector to also jump into well-structured PPP projects.
17:33 And then it has the other arm, MIGA, Multilateral Investment Guarantee Agency, that provides
17:39 reassurance to investors after charging a premium that their capital and their investments
17:46 will be looked after and taken care of in case there are any issues of public policy
17:53 or sovereign defaults, as has happened in some states where concessions have got unilaterally
17:57 cancelled.
17:58 So the World Bank has within its fold a bunch of institutions that can together make a difference
18:03 with the World Bank playing the key role and all the others kind of, shall we say, lining
18:10 up to provide the common impetus.
18:14 But over to you, Alex.
18:16 All right.
18:17 No, so I think we've got a few questions that need answers.
18:20 And I guess we've kind of laid the context for a future conversation.
18:26 And perhaps we will have that sooner rather than later.
18:29 And we can really say that we are seeing an impetus to the PPP model here in India, finally,
18:36 after I think a decade of a lull.
18:38 So thanks so much, Vinayak, for taking the time and for speaking to BK Prime.
18:42 Thank you.
18:43 Thank you, Alex.
18:44 That was interesting.
18:45 That was an interesting conversation.
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