India’s the fastest-growing emerging market, but private investment and consumption are losing steam. What will drive India’s growth?

First, let’s acknowledge that (India’s) growth has been quite good in this global environment where there are a lot of headwinds. India grew 7.2% last year and is projected to grow by 6.3% in FY24. Having said that, it’s true that India could grow faster, and India wants to reach a $5 trillion economy by 2028; India wants to become an advanced economy by 2047. For that, a growth rate of 8% is required. The first thing 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%. We need global solutions to global challenges, and the G20 showed us that, indeed, we need to work as a global community to connect demand and supply of various commodities, whether it is food or energy, so that we can bring inflation down globally. Geopolitical tensions need to come down. We need to support engines of growth elsewhere, in Europe, America or Africa, because these will also provide a market for Indian exports.

Second, which is in India’s hands, is private investment. There is a need to find ways by which public investment can crowd in private investment so that public investment doesn’t have to bear all the weight of creating growth. Another thing that is in India’s hands is to ensure that the skills that are needed by the labour market are provided, and this requires reskilling and investing in new skills that are needed (by industry) so that there is a match between supply and demand at the local level.

Third, India has done very well in financial inclusion and the financial sector, so the private sector can get access to some financing, but it’s not broad-based. Some MSMEs (micro, small and medium enterprises) are still struggling to have access to finance, so there is a need to ensure that there is financing, especially for MSMEs, and that the cost is not as high.

Finally, firms have struggled to have access to other inputs and other factors of production. Land is one of them, and it is not very easy to access here.

What is the impact of Indian bonds being included in JPMorgan’s government bond index for emerging markets? We’re told this will attract investments of $25-40 billion.

So, first, I fully agree with your analysis that the inclusion of India in the JPMorgan Emerging Market Bond Index can attract $25 billion in investments, maybe more. Inclusion will not be affected before 2024, but even in the lead-up to it, just the announcement and the expectation can attract up to $7 billion worth of investments. It can help Indian firms raise money globally. Indian corporates would benefit from it when they go out to invest, whether it is in Asia, Europe, America, Africa or Latin America; when India is connected to the global market, whether through global value chains or other means, it changes the way we do business here in India, and businesses are now increasingly embracing global standards.

The World Bank has been talking about including more women in the workforce, especially in countries like India.

Having more women in the labour force is absolutely important. According to our analysis, increasing India’s female labour force participation from where it is today, which is about 25%, to 50%, which is the average for India, alone will add 1 percentage point to GDP growth. So, that alone will almost be sufficient to help India achieve the 8% growth rate that it needs without even spending more money to buy more equipment, more capital or whatever. That low-hanging fruit, to me, is the biggest opportunity for India to achieve an 8% growth rate.

It would also be better for the macroeconomy because when you spend more money to buy more equipment or investment, you’re buying things; therefore, you’re increasing demand and, in turn, putting pressure on prices because supply may be limited. So, 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 a fair salary, which you should, you also need to be mindful that it will create more demand, but that that demand will be met because you are also employing women to increase supply. So, on banners, this is the best, you know; I call it the Milky Way to achieve 8% growth. If you do that, no worries, everything will fall into place, and that’s what we might do. If I were Indian, that would be my dream.

There is increasing realization 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 artificial intelligence (AI). What should be India’s focus for sustained growth?

The government of India has the ambition to increase the share of manufacturing in GDP from 17% now 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, but the two are not mutually exclusive. You need to also embrace manufacturing, and I think India is going in the right direction. Having said that, 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 and increasingly in AI. 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 agenda. We need to find out what are the constraints to manufacturing growth in various states, be it access or restrictions due to regulation. It’s also important to connect the state and local investors to global investors, especially for modern manufacturing, and we at the World Bank can help with that.

Tell us your views on reforming the World Bank and the need to look inward.

Multilateral development banks (MDBs)—we are a global public good. We belong to countries, to the world. In the World Bank, we’re looking at this very carefully. Our new president, Ajay Banga, came in very strongly and said we need to look at our mission and vision—eliminating extreme poverty and boosting shared prosperity—it’s not enough. So, our new vision now is to eliminate poverty on a livable planet. Secondly, we need to look at how we operate internally. We were created maybe 75 years ago when development was a slow-paced process. We need to be faster at preparing projects, approving, implementing projects and getting results. Finally, we need to have more resources. Today, the world is a bigger world, economically speaking. Our size has remained more or less the same when the global economy has been growing. We’re not waiting for the resources to come to us. We’re trying to stretch our balance sheet, trying to find ways of mobilizing, leveraging what we have known to mobilize more resources from outside the MDB systems, 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. So, we’re trying to do some financial engineering to use what we have, the resources we have, more efficiently until such time when we get more resources from our shareholders.

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Updated: 03 Oct 2023, 11:52 PM IST