Statement by Mr Subhash Chandra Garg, Secretary, Department of Economic Affairs, Ministry of Finance, Govt. of India

Statement by Mr Subhash Chandra Garg,

Secretary, Department of Economic Affairs, Ministry of Finance, Govt. of India
and
Alternate Governor of the World Bank and the IMF,
Representing the Constituency of Bangladesh, Bhutan, India & Sri Lanka at the 97th Meeting of the Development Committee, World Bank,on April 21st, 2018in Washington DC, USA

Following is the text of the Statement by Mr Subhash Chandra Garg, Secretary, Department of Economic Affairs, Ministry of Finance, Govt. of India and Alternate Governor of the World Bank and the IMF, representing the Constituency of Bangladesh, Bhutan, India & Sri Lanka at the 97^th Meeting of the Development Committee, World Bank in Washington DC, USA yesterday, 21^st April, 2018:

1. “Global economic recovery and growth in the last year has been reasonably reassuring. Supported by macroeconomic policy accommodations, trade is now growing faster than global GDP.Global investment rate has also risen. Emerging marketand frontier countries’ growth is poised to be quite widespread in 2018 with improved performance also in the United States, Canada and Europe.

2. The member countries in our constituency continue to grow; spurred by active efforts of the governments to promote investment and undertake structural reforms for private sector growth and integration with the world economy. The regional growth momentum is backed by robust domestic demand, strong FDI inflows, infrastructure spending, and supportive macroeconomic policies. India is poised to remain as the fastest growing large economy in the world. In 2018, we expect India to grow at over 7.4%, Bangladesh at 7.2%, Sri Lanka at about 4.6 % and Bhutan at 7.5%.

3. Our constituency members continue to make notable progress and set an example for other EMDCs. ThusBangladesh has made significantprogress in reducing poverty. Over 20 million people have been lifted out of poverty in last two decades with poverty rate declining below 24%. It has also made rapid progress in human development. Its Infant Mortality Rate (34 per 1,000 live births) and Maternal Mortality Rate (176 per 100,000 live births) are much improved and better than the global averages. Bangladesh's progress towards LMIC category and its eventual transition to 'gap' and 'blend' status under World Bank group are testimony of the massive developmental efforts of the Government.

4. Sri Lanka shines through its momentous progress in human development with its social indicators ranking among the highest in South Asia. The Government launched its Vision 2025 recently which envisions Sri Lanka as a hub of Indian Ocean by transforming it into a knowledge based, highly competitive social market economy. With the Government’s strong focus on fiscal reforms, physical infrastructure, industrial competitiveness and sound financial management, Sri Lankan economy is expected to achieve GDP growth exceeding4.5% in the medium-term.

5. Bhutan has been successful in ensuring inclusive growth with extreme poverty being almost eradicated. Bhutan has also maintained solid growth through focus on hydropower construction and supportive fiscal and monetary policies. Its macroeconomic stability isevident in terms of single-digit inflation, stable exchange rate, and strong international reserves. Bhutan remains one of fastest growing global economies with annual average growth in last decade reaching 7.5%.

6. India continues to be a beacon of growth in the region. Inthe last few years, India has undertaken massive structuralreforms towards formalization of the economy and fostering digital financial inclusion. The country has grown at an average of 7.2% per annum in the last four years and is continuing on the trajectory of sustained growth. India's GDP is expected to reach a volume of $5 trillion by FY2025 by leveraging on digitization, globalization, favorable demographics, and structural reforms. Transformational reforms such as Goods and Services Tax (GST), and initiatives such as Insolvency and Bankruptcy code, recapitalization of banks, and debottlenecking infrastructure investments, will support such elevated growth.

7. India has accorded great priority to addressing its infrastructure deficit to sustain economicgrowth. Steps have been taken to mobilize funds from various sources for development of infrastructure which inter-alia includes launching of innovative financial vehicles such as Infrastructure Debt Funds, Infrastructure Investment Trusts, Real Estate Investment Trusts, laying down a framework for issuance of municipal bonds, relaxation in External Commercial Borrowing (ECB) norms, mainstreaming of Public Private Partnerships (PPPs) across infrastructure sectors, establishment of National Investment and Infrastructure Fund (NIIF) and monetization of brownfield projects through Toll-Operate-Transfer(TOT) model etc. India has begun undertaking a major programme of monetizing Brownfield Assets of Central Public Sector Undertakings (CPSUs)as a separate asset class for infrastructure investments.

8. In the field of digitization, India has completed the ambitious task of connecting one hundred thousand gram panchayats through high speed optical fiber network under phase I of the BharatNet project. This has enabled broadband access to over 200 million rural Indians in about two hundred and fifty thousand villages. The Government also proposes to setup five hundred thousand wi-fi hotspots which will provide broadband access to fifty million rural citizens. Further, digitization has been extended to other areas. Around 470 Agricultural Produce Market Committees (APMCs)have been connected to the electronic-National Agriculture Market (e-NAM) network providing a unified national market for agricultural commodities.

9. One of the key features of India’s economic performance in recent years has been the speed and scale of implementation. Recent upgrade of the sovereign rating reflects India’s strength, speed and scale of these ongoing reforms. India rolled out the GST in July 2017, unifying 1.3 billion people into one market. Within a short span of eight months, the monthly earnings from GST have crossed the $12.7 billion mark. Number of dealers registered in GST increased by about 4 million in the fiscal year of rollout which is about 60% higher than unique assesses registered earlier in the VAT network in the country.

10. India’s massive leap in the Ease of Doing Business rankings from 142 in 2014 to 100 in 2017is testimony to India’s commitment to long-term reforms for an open and vibrant economy. This is also reflected in strong FDI inflows which have grown from $34.3 billion in 2012-13 to $60.1 billion in 2016-17.

11. In the arena of financial inclusion, the Jan-DhanYojana, launched in August, 2014, has rapidly expanded banking services for the hitherto deprived sections. Till date, over313 million bank accounts have been opened and savings of about $11.510 billion has been mobilized under the scheme. For providing access to financial facilities by small businesses, India rapidly rolled out the Mudra Yojana in April 2015 and has supported over 115 million small businesses by sanctioning loans of $77.66 billion so far.

12. India is pursuing a path of clean and climate responsible growth. It aims to achieve about 40 percent cumulative installed power capacity from non-fossil fuel based energy resources by 2030 with the help of transfer of technology and low cost international finance.

13. Further, in the social sector, India has initiated several ambitious programmes. India is committed towards ensuring affordable housing for all. For this purpose, Prime Minister AwasYojana has been launched in rural and urban areas of the country. Under this programme, 5.1 million houses each will be constructed in 2017-18 and in 2018-19 exclusively in rural areas. In urban areas, the assistance has been sanctioned to construct 3.7 million Houses. In the recent budget announcement, India has proposed to establish a dedicated Affordable Housing Fund (AHF) in National Housing Bank, funded from priority sector lending shortfall and fully serviced bonds authorized by the Government of India.

14. India has launched Prime Minister SaubhagyaYojana for providing electricity to all households of the country. Under sanitation, we have launched theSwachh Bharat Mission, under which more than 60 million toilets have been constructed. For healthcare, the Indian cabinet has recently approved the National Health Protection Mission, which aims to provide healthcare to more than 100 million families belonging to poor and vulnerablepopulation.India is also committed to double farmers’ income by 2022 as part of India’s firm resolve towards inclusive growth.

15. India’s commitment towards gender equality and education under ‘‘BetiBachaoBetiPadhao’’ is unflinching. SukanyaSamriddhi Account Scheme launched in January 2015 has been a great success. Until November, 2017 more than 12.6 million accounts have been opened across the country in the name of girl-child.

16. Further, India is committed to making education accessible for all. To realize this mission, it has been decided that by the year 2022, every block with more than 50% Scheduled Tribe (ST) population and at least 20,000 tribal persons, will have an Ekalavya Model Residential School, which will have special facilities for preserving local art and culture besides providing training in sports and skill development.

17. I now turn to developments in the World Bank Group.

18. Capital Package for IBRD and IFC: India has been at the forefront ofdesigning and completing the shareholding review of 2015 and also of building consensus for the voice reforms in the World Bank Group.Building on the work done and momentum built, we had collectively decided in the Annual Meetings 2017 that a well-considered proposal on capital increase for the World Bank Group be placed before the Governors in the Spring meeting 2018 for a decision. We are pleased to note that the Board of Directors has pursued this agenda assiduously and we have before us a capital review proposal for consideration.

19. The World Bank Group has been the global leader in efforts to eliminate poverty and to bring about shared prosperity and sustainable development. With a capital infusion of $19 billion by shareholders over the last 70 odd years, the World Bank Group has made investments of over $900 billion in attacking extreme poverty, building infrastructure, improving access and quality in delivery of basic services, combating climate change, and supporting poor countries in macro-economic crisis, natural disasters, pandemics, conflict and climate change. This ability to leverage funds on a global scale is largely dependent on the continued AAA rating enjoyed by the Bank supported by the Preferred Creditor Status accorded to the Bank by client countries. It is therefore, our responsibility to ensure that this institution is adequately resourced to carry on the developmental work with renewed vigor for achieving SDG 2030.

20. We support the proposed joint package of $13 billion paid in capital for IBRD and IFC. This 2X2 recapitalization package represents by & large a balanced and consensual approach to align interests of all stakeholders, with the institutional objectives.Ideally, we would have liked IBRD to stoptransfers from its incometo IDA and avoid any increasein loan pricing. The package arrived at after much deliberations, blends the additional Capital infusion with higher loan pricesand the increased administrative savings from improved budget efficiencies. Hence, we support this package in the spirit of consensus and conciliation for enabling the Bank group to implement its mission effectively.

21. We must, however, state thatas the financing deficit of developing nations has crossed $ 4 trillion per year, this package is still less ambitious, especially for IBRD. Since 2015 –16, we have argued for a minimum $40 billion of annual IBRD lending to effectively support the 2030 Agenda. The background paper for last Annual Meeting spelt out an ambition of $130 billion for the WBG. We are now looking at a further lowered ambition of only $100 billion (nominal terms). We feel that the entire objective of a capital increase exercise should have led to a much higher ambition.

22. The limited lending volume along with competing demands has made resource allocation among different sections of the developing world a critical element of the proposed package. While remaining strongly committed to Bank’s policy to remain engaged with all clients, we appreciate the gradual trend in resource allocation towards the poorer countries. However, the diluted ambition for IBRD limits the funds available for development financing and may have the possible undesirable result of underfinancing of poorer MICs, as assessed against the massive SDG funding requirement in these countries. Hence, we urge that the WBG’s focus on the agenda of poverty reduction, human capital formation and bridginginfrastructure gaps in lower MICs must be pursued vigorously. At the same time, we appreciate the specific challenges of inequality and economic vulnerability faced by many of the UMICs and suggest that the Bank group devise specific innovative products that can efficiently address these in a focused and cost-effective manner.

23. We have taken note of the elements introduced in the proposal for ensuring the sustainability of lending by the Bank. In our judgment, setting aside of capital for a buffer is not very efficient use of paid in capital.We need to explore better options for meeting the requirement of cyclical and systemic crisis lending.We should,therefore,ensure that such buffer is designed in such a way that lending volumes available to poorer countries are enhancedduring normal years. In the days to come, we expect that the design of the buffer will be prudently framed using all options including the three levers of budget efficiency, deferral of income transfers and loan pricing in a balanced manner.

24. The Bank has built a sizable equity from the retained earnings funded largely by the loan pricing income from borrower countries. The loan pricing of IBRD has been increased thrice in the last decade. As against $7.5 billion paid in capital from all share holder members, borrower countries will be bringing about $ 19 billion in loan price income to the Bank in the period 2018-30. The effectiveness of the Bank as a global leader in development agenda arises to a large part from its ability for cost effective financial intermediation.For funding development at low interest rates, leveraging its AAA rating is fundamental raison d'êtreof IBRD’s existence. We had opposed any general price increase as IBRD loans are already very costly. However, to increase lending capacity, we are agreeing to the increase in maturity premium.The provision of some relief to poorer countries through discount and temporary exemption to blends, small states, FCS countries and recent IDA graduates will ameliorate the harshness of another loan price increase in the IBRD.

25. The package may have missed the opportunityfor increasing the share of retained earnings for building the equity base of the Bank Group, since it does not eliminate the transfer of income from IBRD and IFC to IDA. While we recognize the absolute necessity and utility of IDA for financing development in poor countries, we must note that IDA now has built massive equity base of $ 160 billion and its Deployable Strategic Capital stands at 37%. In contrast, the policy ratios and AAA ratings of IBRD and IFC – which have supported IDA - are under real threat. While the transfers comprise a relatively small proportion of IDA funding, they constitute a significant erosion of income of IBRD and IFC. Hence, we have consistently advocated complete cessation of income transfers to IDA. We note with appreciationthe suspension of IDA transfers from IFC income, along with the attendant conditionality of IFC reaching the goal of 40% of its investments in IDA and FCS countries by FY 2030. We would like the Bank managementto explorealternatives to strengthen IDA and to cease dependence of IDA on income transfers from IBRD.

26. On the Compensation methodology review proposals contained in the Package, we welcome the proposed changes in Structure Adjustment component of salary increase which is now capped and aligned to inflation. This is a correct and transparent way to determine annual increase. But, we are still opposedto using savings from salary erosion due to Staff turnover for funding thenewly proposed merit element to replace earlier Salary Progressive Adjustment and Supplementary Merit Increase. We recognize such savings need to accrue to the organization.

27. We welcome World Bank Group’s commitment and accelerated action on the global agendas of Climate Change, Gender and Disaster Risk Management. We believe that climate change poses real threats to development and there is need for balanced mitigation and adaptation action globally, including by the Bank Group, in the spirit of Paris Agreement. We continue to support WBG’s Climate Change informed Development Agendawhich needs to be client driven. Under its Nationally Determined Contributions, India has ambitiously committed to reducing the emissions intensity of GDP by 33%-35% by 2030 relative to its 2005 levels. There is lot of visible action in terms of Renewable Energy generation and positive outcomes in energy efficiency. We are also committed to cooperationin harnessing solar energy and helping other developing countries through the International Solar Alliance..

28. We are fully supportive of the World Bank Group’s FY16-23 Gender Strategy. The Bank has significantly upped the quality, scope and depth of its analytical work on gender equality. Lower women participation in the labour force is a major challengebefore us. We are committed to work on overcoming attitudinal challenges relating to the status, role and empowerment of women in the society at all levels.

29. Progress Report of the Shareholding Review: We have taken note of the Progress Report on the Shareholding Review as part of the Lima Roadmap. In our view, increasing weight of the Developing and Transition Countries (DTC) in the ownership and management of these institutions is quite necessary. We support selective capital increase (SCI) to bring about voice reform to ensure higher representation to the under-represented and support the use of the dynamic formula which would guide us in rebalancing the voice in line with economic weight and IDA contributions.

30.We would have liked to see a stronger and bigger Bank with a larger SCI for IBRD, but have agreed to SCI of 250,000 shares in the spirit of cooperation. On the same lines, we had felt that the use of unallocated shares for adjustment for all under represented shareholders, would have been a fairer method.

31. We find that the Shareholding Report now before the Governors that will enable the increase of the vote share of DTCs in IBRDfrom 46.9% to 47.4%. We would like to underline that this increase has come entirely as a result of dynamic formula and shareholdingrules application and membersdid not have to apply additional level to supporthigher share of DTCs. We are quite confident that in next shareholding review, DTCs share would rise to 50%.

32. IFC has not had a meaningful capital increase since 1992. Even in the last Capital Package during 2010-12, IFC got only $0.2 billion paid in capital compared to $5.1 billion for IBRD. We support the proposal to strengthen IFC to give impetus to the development of private sector for achieving SDGs, building infrastructure and climate resilience. We therefore strongly support the proposal for paid-in capital of $ 4.6 billion by GCI, and $ 920 million by SCI, agreeing to the proposal to align IFC shareholding with that of IBRD as an expedient interim measure. For achieving a stronger IFC ambition, we will also support expeditious work on possible alternatives to callable capital, including risk sharing facility. Such facility will help IFC reach in IDA and FCS countries effectively and efficiently and also ensure financial sustainability of IFC.

33. Although IFC works on a largely commercial basis, with no sovereign guarantees to back its investments, several policy commitments have been proposed in the package relating to investment in IDA and FCS markets and in climate related financing. We hope that IFC will rise to the challenge of delivering on market creation and development impact through its investments within this commitment framework. In this context we would urge IBRD and MIGA to provide effective partnership to IFC in the form of policy support and guarantees support respectively. Working as a coordinated World Bank Group would unlock the value of investments in developing countries in a sustainable and transformative sense.

34. Progress Report on Mainstreaming Disaster Risk Management in WB operations: Natural disasters can impose significant economic losses and costs on the affected countries in terms of rehabilitation and reconstruction. Today, natural disasters cost cities approximately $250 billion and this is estimated to rise to $314 billion per year by 2030. In this regard, we appreciate the leadership role played by the World Bank Group in supporting investments in early warning systems to develop capacity for monitoring and forecasting. Mainstreaming of disaster risk management in World Bank Group operations, leading to incorporation of disaster and climate risks in country strategies and facilitating the creation of resilient infrastructure through innovative financing tools, is a welcome step. However, these measures should take into account borrower’s implementation capacity and not price out WB loans for some borrowers on account of their higher implementation costs.

35. India believes in a holistic approach to disaster risk management as detailed in the Prime Minister’s Ten-point Agenda for disaster risk reduction. We support greater emphasis on cross-country learning in this area, especially in hazard risk assessment, disaster resilient technologies and mechanism for integrating risk reduction in infrastructure financing.India hopes to work with WBG in establishing a coalition of countries for Disaster Risk Resilience which would also address Climate Change related disasters.

36. Update in the Forward Look: The global developmental vision, embodied in theForward Look, calls on the World Bank Group to serve all clients, maximize finance for development through private sector, lead on global issues, and improve its business model.We affirm support for the Forward Look Approach of serving all clients.The World Bank Group will need to stay engaged with all client groups, so as to fulfill the primary objective to end global extreme poverty by 2030. Of the 767 million people still in extreme poverty, over 50% are in LMICs, many of which are recent IDA graduates. We would like the World Bank to focus on the challenges and to clearly articulatethe measures for focusing on poverty alleviation and creation of shared prosperity in the LMICs.

37. We are supportive of thestrategic work being done by the World Bank Group for Maximizing Finance for Development. This would potentially restrict the diversion of public funding to sectors and projects that are amenable to private sector financing.While the management is implementing the Cascade Approachthrough IFC and MIGA, we believe that developmental financing operations of IBRD and IDAparticularly in sectors such as education, primary heath, sanitation, are not always amenable to commercial ventures, nor may such an option be desirable without appropriate and robust regulatory framework being put in place. Hence IBRD and IDA’s development operations for supporting human capital, inclusion, resilience and governance must be promoted and enhanced through sovereign financing, even as we make efforts mobilize private capital for the areas of development, offering more immediate returns on investment.

38. We support the ongoing efforts to focus on efficiency and productivity in the business model of the World Bank Group. We welcome measures in this direction, with respect toworkforce growth, corporate procurement, administrative simplification and real estate.The World Bank’s reach and responsiveness to clients in developing countries will have to be measured through improvements in process efficiency, strong knowledge focus, and proactive coordination. This will help us build synergies between the World Bank’s efforts and national initiatives.

39. Gender Diversity Update: It is now universally recognized that greatergender parity has enormous economic and developmental benefits. As the world’s largest democracy, India has constitutionally mandated political representation for women by reserving 33% of seats in local self-governments for them. SomeStates in India have increased thisreservation for women in the local bodies to 50% for stronger empowerment.

40. It is heartening to note that currently, gender diversity of the World Bank Group Board of Executive Directors is better than the average for the last ten years and is, in fact, thehighest for the positions of Senior Advisors and Advisors. We may also mention with pride that the first woman Executive Director was appointed recently for the Constituency of Bangladesh, Bhutan, India and Sri Lanka. We recognize that much needs to be done to reduce gender gap in every field and we support the Bank’s movement towards this end. We hope that the next steps proposed for enhancing gender diversity on the Board will form the basis of a shared and collective responsibility of shareholder members.

41. Way forward: We have developed the global multilateral compact over the years to deliver growth, shared prosperity and poverty reduction. The attempt to change the discourse and to focus on increased protectionism will only hurt the global economy and welfare of people. We need to renew our compact to prevent spiral down of slow economic growth, rising inequality and irreversible climate impact, conflict and fragility.

42. Without adequate capital and the cooperation and magnanimity of all shareholders, the World Bank Group runs the risk of becoming peripheral to the global challenges and development agenda.As a global cooperative, we must be committed to the inclusive prosperity of our future generations.Hence, I urge all Governors to commit to more ambitious proposals on the financial strengthening and policy commitments of the IBRD and IFC”.