India has proven more resilient and emerged from the pandemic relatively stronger than others, Banga said, adding that he is more optimistic than before as the country is focusing on growth and jobs, the two things crucial to reducing poverty.
Banga, 63, former Mastercard CEO, was appointed World Bank chief last month.
“India’s opportunity currently is to cash in on the China+1 opportunity,” Banga said. “This opportunity will not stay open for 10 years. This is a three-to-five-year opportunity when the supply chains start relocating or… let’s say not relocating but adding on in another location.”
Banga said this was one of the topics of discussion with the Indian government.
China+1, a post-Covid development, refers to the establishment of manufacturing elsewhere to address supply chain disruption risks because of concentration in one country. The one thing India has going for it is the “very high” percentage of gross domestic product (GDP) that comes from local production, Banga said.”Your exposure to the typical impact of global slowdowns, caused by trade slowdown,… is cushioned by the relatively high percentage of the economy that comes from domestic consumption, which is very helpful at a time (like this),” he said.
India’s economy grew 7.2% in FY23 and the World Bank expects it to grow 6.3% in FY24.
Banga emphasised that India can maintain this momentum and that growth and jobs are the best way to tackle poverty.
On demographic dividend, he said the number of jobs that needs to be generated is 15-20 million -some of which will come via manufacturing and technology while a large number would be in the service sector.
The gains made across the world to reduce poverty in the past three or four decades have faced a setback because of the Covid pandemic, climate change, fragility, wars and high debt, he said.
“The best way to drive a nail in the coffin of poverty is growth and jobs,” he said. “So I’m actually more optimistic today, with all the infrastructure that’s going on, investment – digital and physical, skilling infrastructure.”
On the global economic outlook, he said there is more risk on the downside in terms of a slowdown over the early part of next year.
“Forecasts are not destiny and so you shouldn’t just think that the forecast is right,” he said.
Blended Capital
The World Bank chief also called for private capital investments to aid global efforts for renewable energy funding. The lender estimates that $1 trillion will be required by developing nations for the green energy transition to help achieve net-zero targets.
“The fact remains we will need different forms of concessional capital,” Banga said. “We will also need different forms of multilateral bank capital and government capital and philanthropy capital to take first-risk positions or help enable the blended finance to come through.”
On hybrid capital, he said the evolution roadmap has been presented to all countries as well as philanthropies. The annual World Bank-International Monetary Fund meetings will be held in October.
“The US has already indicated that they were going to commit to some…The first is to take our loan-to-equity ratio from 20 to 19, which does not require any additional money to come in, it’s our own handle to manage it,” Banga said.
As per the World Bank chief, for every $1 billion that comes in, the capacity to lend over a decade increases by $5-7 billion, depending on the repayment patterns.
“We will need a pool of bankable projects that are ready,” he said.
The World Bank has created a private sector investment lab headed by former Bank of England governor Mark Carney and 15 CEOs to identify the barriers to the growth of private sector investments. Banga said that the first meeting of the lab will be held soon.
“We can do a few things to help take away a few of the risks that the private sector does not understand in the emerging markets. It could be foreign exchange, regulatory policy, political risk insurance,” he said.
FM Meeting
Banga also met finance minister Nirmala Sitharaman and spoke about the G20 bloc, whose presidency India currently holds. He also discussed cooperation between the World Bank and India.
“We talked about everything we did at G20 and how the meeting went,” he said. “We talked about what the World Bank and India can do further as well as the G20 part of it. India is the largest market for the World Bank in terms of our portfolio here. There is a lot of interest here.”
