Kouame said investments worth about $7 billion could come to India even before Indian securities are included in the JPMorgan emerging markets bond index in 2024. After the inclusion, investments worth more than $25 billion are expected. Increasing private investment, reskilling of India’s workforce and broad-basing financial access for MSMEs could also ensure sustained growth for India amid global headwinds. Kouame also noted the urgent need for the World Bank to become more efficient and effective at a time when development across the world is speeding up, and to increase its size by tapping the private sector.

Excerpts from the interview:

India’s the fastest growing emerging market but there are a lot of headwinds. Private investment seems to be staggering and consumption is losing steam. What will drive India’s growth, especially when it needs to provide jobs for a large demographic?

First, let’s acknowledge that growth has been quite good in this global environment where there are a lot of headwinds. India grew at 7.2% last year and is projected to grow by 6.3% for fiscal year 2023-24. Having said that, it’s true that India could grow faster. India wants to be a $5 trillion economy by 2028 and an advanced economy by 2047. For that a growth rate of 8% is required. And your question goes to the heart of this issue: what will it take for the growth engines to function with more dynamism so that India can achieve 8% growth?

The first thing that is needed is not in India’s hands, because you need to have a conducive global environment. If the global environment is what it is today, it is going to be very hard to achieve 8%. So we need a much better global environment, we need global solutions to global challenges, and the G20 showed us that we need to work as a global community to address some of these challenges.

Geopolitical tensions need to come down. We need to work better globally to connect demand and supply of various commodities, whether it is food or energy, so that we can bring inflation down globally. We need to support engines of growth elsewhere, whether it is in Europe, America or Africa or other developing countries, because these are the countries that will also provide a market for Indians exports.

The second thing in India’s hands. Private investment is flagging today but public investment is very strong. There is a need to find ways to grow private investment so that public investment doesn’t have to bear all the weight of creating growth. Public investment can stimulate private investment as well. There are a number of things that are needed for this to happen, but let me move to another thing that is in India’s hands. That is to ensure the skills needed by the labour market are provided. This requires reskilling and investing in new skills. But it’s not just an investment in any new skills – there’s a need to invest in skills that are needed, and therefore you need to consult with employers so that there is a match between supply and demand at the local level.

Third, India has done very well on financial inclusion and the financial sector so the private sector can get access to some financing. But it’s not broad based. Some MSMEs are still struggling to access finance so there is a need to change this.

Finally, firms have struggled to have access to other inputs, other factors of production. Land is one of them. Firms are struggling to find locations with easy access, and to import some of the inputs that they need. This is partly because the global conditions are tight, as I said earlier, but also in some cases there are barriers, challenges and difficulties in importing goods for production.

There is an increasing realisation among policymakers that the ability of the manufacturing sector to create a large number of jobs may be diminishing due to automation, technology and now AI. What should India focus on for sustained growth?

We need to embrace the notion that it is important to have manufacturing. In fact, the government of India has an ambition to increase the share of manufacturing in GDP from 17% to 25% by 2030, so there is a recognition that manufacturing is good.

India has, of course, shown the world that services are also very good, especially modern and sophisticated services. India has done very well on that but the two are not mutually exclusive. You can’t really become a global superpower if you rely only on services. You also need to embrace manufacturing, and I think India is going in the right direction.

Having said that, I agree with your point that traditional manufacturing is not where you get the highest productivity boost. If you want to improve productivity, manufacturing needs to be made more sophisticated. Therefore AI and IT are important, and these are areas where India has global leadership, especially in IT. So blending that with manufacturing would be the way to go.

For India to boost manufacturing, we need to think of it as a state-level subject because manufacturing is local, it’s physical, it’s based somewhere. So we need to find out what are the different constraints to manufacturing growth in various states. Regulations in some states are more flexible than others. Some states have decided to be very dynamic and some states have not shown that dynamism. It’s important also to connect the state and local investors to global investors, especially for modern manufacturing. So attracting global investment into India and into any state in particular will be very important, and we at the World Bank can help with that. We have ways of creating conversations between global investors, local leaders and local investors. We can also analyse the constraints in attracting foreign direct investment.

What’s the potential impact of including Indian securities in the JPMorgan Government Bond Index for Emerging Markets? We’re told it will attract investments worth $25 billion to $40 billion but from the World Bank’s perspective, what will change?

First, I fully agree with you that including India in the JPMorgan Emerging Market bond index, could attract $25 billion in investments and maybe more. This won’t happen before 2024 but even in the lead up to it, just the announcement and the expectation could attract up to $7 billion worth of investments.

What else could it bring? It could help Indian firms raise money globally because the India brand would be known to global investors. Indian corporations would benefit from this when they go out to invest in Asia, Europe, America or Africa or Latin America.

Second, it will help improve, if I may say so, how investment is done here in India. We know that when India is connected to the global market, whether it is through value chains or to other means, it changes the way we do business here. Businesses are now increasingly embracing global standards.

For example, new firms that participate in the global value chain have more women in the labor force. So with the inclusion of India in the bond market, I think we will be more aware of global standards, whether it is for employment, or the green economy or green bonds. This will also help the government raise more funds to finance the deficit, but this is not a big need because the government is doing very well on financing itself.

One possible area to watch… it is not a risk, but these bonds are generally going to be volatile. The more you are connected to it, especially through portfolio investment, the more you’re exposed to global volatility, so it’s an area to watch as India becomes more connected with the global bond market. It will make monetary policy very important, it will make the management of the currency very important. It will also make the need to reduce deficits important, both for corporations and the government.

This can be contradictory because in essence, if you don’t have deficits you don’t need bonds. I should have mentioned also that the inclusion of India in the index will also be good for foreign direct investment (FDI).

The World Bank has been talking about including more women in the labour force, especially in countries like India. At the same time, there’s a growing demand, including from the G20, for making multilateral development institutions like the World Bank better. Can these tasks be taken on together?

Yes. I see zero contradiction. Having more women in the labour force is absolutely important. It’s needed, especially for India, not just because female labour force participation is low but because it’s needed for economic reasons. I’ll come back to this.

A bigger role for the World Bank, as discussed in the G20, is also very important. In fact there is synergy on this because multilateral development banks strongly believe in inclusiveness. Giving women the same access and rights as men is important, but we also believe in the importance of labour and human capital to economic growth. Human capital is gender-neutral. The brain of a woman can be as powerful as that of a man, if not more. The reason we think it’s important for economic reasons is because when you want your economy to grow, you need to have all the parts of the engine pushing the same direction.

In growth language, the engines are mainly three: capital or investment, human capital and productivity. You need to have sophisticated and productive investment. The human capital part cannot be just 50% of your potential. It cannot be just men contributing to the growth. You need to create human capital, which is created through investment of time and investment of resources.

Educating a woman in India is not free. It takes effort from families, from the parent as well as from the society to invest in it. If you don’t make that investment, it means that you are sinking money into something that does not create growth. Using that human capital now will be the biggest boost to growth. According to our analysis, increasing India’s female labor force participation from 25%, where it is today, to 50%, will alone add a percentage point to GDP growth. So that alone will almost be enough to help India achieve a 8% growth rate, without even spending more on equipment, capital or whatever. That low-hanging fruit to me is the biggest opportunity for India to achieve its target growth rate.

If India were to increase its growth rate by 1% by increasing female participation in the labour force it would be better for the wider economy than the alternative – spending more on buying equipment. If you use the human capital for which you have already paid, you’re not buying new things to create growth, and this puts much less pressure on prices. That would be better in a global environment where inflation is a concern.

Having said that, when you employ more women and you pay them salaries, fair salaries, which you should, you also need to be mindful that it will create more demand but that that demand will be met but because you are also employing women to increase supply. So on balance, this is the best way of achieving 8% growth. If I were Indian, that would be my dream.

On reforming the World Bank, the need to look inwards…

Yes, we need to look inwards. MDBs are a global public good, we belong to countries, to the world. We’re here to serve countries, to help countries grow and develop faster and more equitable world. At the World Bank, we’re looking at this very carefully. We take it very seriously.

First, we looked at our mission and vision. Our new president Ajay Banga came in very strongly and said we need to look at our mission and vision. We cannot just look at our mission, which used to be two pronged – eliminating extreme poverty and boosting shared prosperity. He said that’s not enough. We need to do that while ensuring that we are on a liveable planet. So our new vision mission now is to eliminate poverty on a liveable planet. We need to make the planet liveable for all and that entails paying attention to climate change, the environment, pollution and so on.

Secondly, we need to look at how we operate internally. We were created maybe 75 years ago, when development was a slow-paced process – you could take five years to make an investment. These days development is fast-paced. In five years if you don’t do well, other countries will take over, you will lose market opportunities and your youth will be impatient.

So internally we need to be faster at preparing projects, at approving projects, at implementing projects and getting results. It is very important to show results because there is more accountability, people ask questions. We are making progress and we’ll get there because we really want to be better for the world.

Finally, we need more resources. The world of today is bigger, economically speaking. Our size has remained more or less the same while the global economy has been growing. But we’re not waiting for resources to come to us. While it would be nice if they came, we’re also trying to use what we have more efficiently. We’re trying to stretch our balance sheet, trying to find ways of mobilizing and leveraging more resources from outside, like from the private sector. We’re trying to work within our system to find ways of providing guarantees so that countries can mobilize more resources. We’re trying to do some financial engineering to use what we have more efficiently until we get more resources from our shareholders.