World Bank's India Development Update breaks new ground; competition helps

As the Asian Infrastructure Investment Bank weighs in heavily to correct the perceived infra shortage in member countries, World Bank sets the needle away to make what is available work better

The World Bank’s India Development Update had for rather long just parroted the government’s line on development. As a result, it was hardly accurate and ended up swaying in whichever direction the government of the day swung.

That might now change a little. Also, at a time when the new kid on the block, the Asian Infrastructure Investment Bank, is weighing in heavily to correct the perceived infrastructure shortage in its member countries, the older World Bank is setting the needle away to make what is available deliver better results. It has gone about doing so with its new tool, the Systematic Country Diagnostic (SCD). 

There is a lot of reason why the World Bank group would want this new tool: It brings on the table the Banks’ own understanding of the direction or challenges a member country faces, compared with the traditional country participation framework, which naturally draws heavily on what the country managers have to say. Essentially, instead of repeating to the larger members like India what they already know, SCD hopes to take the engagement deeper. And, yes, it is all about competition, not only from AIIB but also New Development Bank (NDB). As successive World Bank updates over the years show, there was too little coming out from the Bank to keep countries like India interested in taking out loans from it. 

Do the changes incorporated make this year’s Development Update more useful as a pointer for policy makers? The latest edition released this week for India banks heavily on the SCD to draw attention to the direction of reforms the Indian economy needs to take. The assessment differs from two issues that have dominated the domestic public policy discourse – banking and securing energy security. Instead, the areas where the SCD wants to see more reform action are the following:

(i) Cities: Making them more efficient by improving connectivity and transport infrastructure and enhancing urban service delivery 
(ii) Agriculture: Helping farmers avoid constraints from depleting resource bases, enhancing productivity by transitioning to a modern food system and building resilience against climate change 

(iii) Power and water: Protecting water resources and focusing reforms on removing distortions in the electricity sector. 

The set is based on the assumption that India is somewhat starved of natural resources. This is a well-made point, as the accepted discourse in India for far too long has been about the plentiful supply of resources, except for oil & gas. Since resources are not scarce, successive governments have focused on making the resources available, rather than conserving them at source by building efficiencies. 

The troika is not a total break from the past, which in any case they were not expected to be. But it is interesting enough to possibly get policy mandarins interested. Let us take power reforms. Assessing the state of Uday, the government programme for reforms in the electricity distribution sector, the 2016 Update stated: “Depending on the particular performance of state utilities, a turnaround of distribution companies might take longer than the current ambitious time table.” 

From there, to highlighting the three ‘must-dos’ for India in its transition to higher income goals, is a large shift. The Update for 2013, for instance, spent a lot of print space figuring out if India was indeed part of the fragile five. The ones for the next four years were excellent copies of the respective Economic Surveys. 

This time, too, the World Bank does make noises about bank recapitalisation, about making exports competitive, and continuing with prudent fiscal policies. Where it breaks fresh territory is the SCD analysis. “The preceding analysis offers perspectives on potential pathways to return to growth rates exceeding eight per cent. The World Bank’s SCD for India complements these perspectives by highlighting priority areas for reform to achieve a long-run ambition: Raising the income of at least 50 per cent of Indians to a level comparable to the global middle class.”

One could quibble about the three. But they offer a menu that is forward-looking. The other area where it scores is the statistical analysis. It has worked around the challenge of a break in the GDP series (because of revisions in the methodology to calculate them) to pull back data on investment and savings in the economy to as far back as 2000. These, again, could be challenged. But that is something to look forward to. It shows, for instance, that private sector investment as a percentage of GDP has been flat since 2009 – it is almost a 10-year lull and says a lot about some of the problems of the Indian economy. 

Clearly competition helps, even in the rarefied world of multilateral institutions.