Coronavirus outbreak: World Bank approves $1-bn emergency fund for India

The World Bank on Thursday approved $1-billion emergency financing for India to tackle the coronavirus outbreak, which has claimed 76 lives and infected 2,500 others in the country.

The World Bank's first set of aid projects, amounting to $1.9 billion, will assist 25 countries, and new operations are moving forward in over 40 nations using the fast-track process, the bank said.

The largest chunk of the emergency financial assistance has gone to India -- $1 billion.

"In India, $1 billion emergency financing will support better screening, contact tracing, and laboratory diagnostics; procure personal protective equipment; and set up new isolation wards," the World Bank said after its Board of Executive Directors approved the first set of emergency support operations for developing countries around the world, using a dedicated, fast-track facility for COVID-19 response.

In South Asia, the World Bank also approved $200 million for Pakistan, $100 million for Afghanistan, $7.3 million for Maldives and $128.6 million for Sri Lanka.

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The World Bank said it is now working to grant up to $160 billion over the next 15 months to support measures to tackle the pandemic which will focus on the immediate health consequences and bolster economic recovery.

The broader economic program will aim to shorten the time to recovery, create conditions for growth, support small and medium enterprises, and help protect the poor and vulnerable.

There will be a strong poverty focus in these operations, with an emphasis on policy-based financing, and protecting the poorest households and the environment, it said.

"The World Bank Group is taking broad, fast action to reduce the spread of COVID-19 and we already have health response operations moving forward in over 65 countries," said World Bank Group President David Malpass.

"We are working to strengthen (the) developing nations' ability to respond to the COVID-19 pandemic and shorten the time to economic and social recovery. The poorest and most vulnerable countries will likely be hit the hardest, and our teams around the world remain focused on country-level and regional solutions to address the ongoing crisis," Malpass said.

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According to the bank, USD 100 million will support Afghanistan to slow and limit the spread of COVID-19 through enhanced detection, surveillance, and laboratory systems, as well as strengthen essential health care delivery and intensive care.

In Pakistan, USD 200 million will support preparedness and emergency response in the health sector and include social protection and education measures to help the poor and vulnerable cope with the immediate impacts of the pandemic, the bank said.

Responding to widespread supply chain disruptions, the World Bank is helping countries access critically needed medical supplies by reaching out to suppliers on behalf of the governments.

The World Bank is encouraging others to provide financial support to developing countries for the COVID-19 health response, said the media statement.

World Bank arm IFC to pick up 4.5 % stake in Sachin Bansal floated NAVI

World Bank investment arm International Finance Corporation (IFC) will buy a 4.5 per cent stake in Navi Technologies (NAVI), a company founded by Filpkart founder and former CEO Sachin Bansal, for $30 million.

NAVI is in the process of acquiring 100 per cent ownership Chaitanya Rural Intermediation Development Services (CRIDS) via shares from Sachin Bansal and existing investors. An application has been submitted to the Reserve Bank of India (RBI) for the same.

CRIDS has a wholly owned subsidiary Chaitanya India Fin Credit Private Limited (CIFCPL).

CRIDS and CIFCPL are collectively referred to as Chaitanya. They provide loans to low income customers in rural areas on the model of joint-liability-group lending (JLG).

CIFCPL has made an application to the RBI for a universal banking license under the RBI’s On-Tap Banking License Guidelines, 2016.

IFC’s investment in NAVI is to support the transformation of CIFCPL into a technology led universal bank or NAVI Bank, which would provide mass market banking solutions for individuals, micro, small and medium enterprises (MSME) and select corporates.

NAVI is headquartered in Bangalore. Chaitanya has operations in Karnataka, Uttar Pradesh, Bihar, Maharashtra and Jharkhand.

NAVI Bank seeks to leverage technology platform and data analytics to simplify loan application processes and tailor loan terms to individuals and MSMEs. It aims to rapidly scale and achieve higher usage and deposit rates by delivering better terms, convenient and tailored product offerings to individual customers and MSMEs compared to incumbent financial institutions by leveraging digital channels and a more efficient business model.

The Bank will also contribute to fostering competitiveness in the market by demonstrating the viability of product and service innovations delivered through a technology-based business model.

IFC expects that new Bank's success will contribute to increasing competitiveness in the retail and MSME banking segments in India, by leading incumbents to invest in technology-driven products for customer engagement and financial service provision, as well as by serving as a catalyst for the entry and growth of new digital banking models in the country.

World Bank pegs India's FY20 GDP growth at 5% as credit weakness lingers

The World Bank has projected a five per cent growth rate for India in the 2019-2020 financial year, but said it was likely to recover to 5.8 per cent in the following financial year.

The growth rate for Bangladesh has been projected to remain above seven per cent through the forecast horizon and, in Pakistan, it is projected to languish at three per cent or less through 2020 as macroeconomic stabilisation efforts weigh on economic activity, the bank said in its latest edition of the Global Economic Prospects.

"In India, where weakness in credit from non-bank financial companies is expected to linger, growth is projected to slow to five per cent in fiscal year 2019/20, which ends March 31, and recover to 5.8 per cent the following fiscal year," the World Bank said on Wednesday.

The global economic growth is forecast to edge up to 2.5 per cent in 2020 as investment and trade gradually recover from last year's significant weakness, but downward risks persist, it said.

The US' growth is forecast to slow to 1.8 per cent this year, reflecting the negative impact of earlier tariff increases and elevated uncertainty. The Euro area's growth is projected to slip to a downwardly revised one per cent in 2020 amid weak industrial activity, the bank said in the report.

"With the growth in emerging and developing economies likely to remain slow, policymakers should seize the opportunity to undertake structural reforms that boost broad-based growth, which is essential to poverty reduction," World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu, said.

"Steps to improve the business climate, the rule of law, debt management, and productivity can help achieve sustained growth," Pazarbasioglu said.

In the report's India section, the World Bank said tighter credit conditions in the non-banking sector are contributing to a substantial weakening of the domestic demand in the country.

"In India, activity was constrained by insufficient credit availability, as well as by subdued private consumption," the report stated.

The bank said the regional growth in South Asia is expected to pick up gradually, to six per cent in 2022, on the assumption of a modest rebound in domestic demand.

"Growth in India is projected to decelerate to five per cent in FY(financial year) 2019/20 amid enduring financial sector issues. Key risks to the outlook include a sharper-than-expected slowdown in major economies, a re-escalation of regional geopolitical tensions, and a setback in reforms to address impaired balance sheets in the financial and corporate sectors," the report said.

In India, economic activity slowed substantially in 2019, with the deceleration most pronounced in the manufacturing and agriculture sectors, whereas government-related services sub-sectors received significant support from public spending, the bank said.

GDP growth decelerated to five percent and 4.5 per cent in the April-June and July-September quarters of 2019, respectively, the lowest readings since 2013, it said.

Sharp slowdowns in household consumption and investment onset, the rise in government spending. High-frequency data suggest that activity continued to be weak for the rest of 2019, the World Bank said.

The bank, in the report, praised India's efforts to gradually eliminate subsidies on LPG. In India, starting in 2012, the government reformed its subsidy regime for liquified petroleum gas (LPG).

LPG subsidies to households encouraged the formation of black markets where subsidised LPG distributed to households was diverted to the commercial sector.

The government gradually increased the price of LPG for households while implementing a large-scale targeted cash transfer mechanism, the bank said.

"The programme successfully eliminated distortions in the LPG market, with limited adverse consequences for the poor, and the fiscal savings obtained from the reduction in subsidies fully offset the costs of the targeted cash transfer," the report stated.

Finance Commission chief N K Singh questions 'discriminatory' IMF scrutiny

N K Singh, chairman of the 15th Finance Commission, accused the World Bank as well as the International Monetary Fund (IMF) of “developing rigidities” while encountering new challenges, and assigning higher weighting to developed regions such as the Europe and US. He went on to say that the “rules of the game” were applied in a discriminatory manner between the rich and poor nations.

Singh questioned the way the IMF scrutinises macroeconomic policies of the developing world, which he claimed is done differently than for the richer nations. He stressed on the need for Asia to have a bigger say in decision-making.

Addressing a gathering of The Indian Economic Association in Surat on Friday, he gave an example of Article IV of the IMF, where each member nation must subject themselves to a detailed scrutiny of their overall macroeconomic policies.

This comes days after IMF Chief Economist Gita Gopinath cautioned the Fund may revise India’s growth forecast “significant downward”.

“How is it that the IMF failed to spot the global financial crisis of 2007-08 when there was such a dramatic meltdown of the US economy, which impaired the financial systems so severely? How did the Fund not spot a crisis of this scale much less prompt the US to take timely corrective action. How is it also that the rule of the game in terms of conditionalities of both for structural loans and for financial accommodation have more stringent conditions for developing world than other countries in Europe like Greece or Spain where these rules are more flexibly applied. Such discriminatory approach cannot inspire long-term confidence, both in terms of their technical competence or in terms of an impartial approach,” he said.

“A disorderly international framework would not be in anyone’s interest," he said. “Over these decades both the World Bank and the IMF have developed many rigidities as they encounter new challenges. For one, in its decision-making process and quota rights, as they are called, notwithstanding recent changes they remain misaligned with the changing realities of the 21st Century.”

World Bank to continue with $6 bn annual lending support to India

World Bank President David Malpass on Saturday said the multi-lateral funding agency will continue with $6 billion lending target for India.

As many as 97 projects are being currently executed with loan assistance from the World Bank.

"World Bank right now has 97 projects with $24 billion committed. So, we expect the programme to continue and to reflect the projects and reforms that were going on in India. Maybe $5-6 billion per year," he told media in an interaction.

The visiting head of the World Bank earlier in the day met Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman.

On his meeting with the prime minister, Malpass said he had a discussion on a range of topics, including infrastructure finance, strengthening of financial sector, regional connectivity and civil services reforms.

"We also spoke about water and skilling. I appreciate the prime minister's vision on these topics," he said.

Focus on export, reducing stimulus of domestic demand: World Bank to India

India's economic growth in recent years has been "too much" driven by domestic demand and its exports were about one third of its potential, a World Bank official said, asserting that the next government needs to focus on export-led growth.

Praising attempts to liberalize markets within India, Hans Timmer, World Bank Chief Economist for the South Asia Region said "that is what is needed to become more competitive."

"At the same time you've seen also of the last couple of years that the current account deficit widened - an indication that increasingly growth came from the non-tradable sector -- from the domestic sector, and that makes it difficult to export more, Timmer told PTI in an interview.

The polling for first phase of seven-phase parliamentary polls in the country is scheduled to take place on April 11, with the last phase on May 19 and the results will be announced on May 23.

In the last five years, he said, India's overall growth was "too much" driven by domestic demand, which resulted in double digit growth of imports, and four to five per cent growth in exports.

"In more recent months, that turned around somewhat. But the broader picture was that's a minus, he said.

The pluses were that we have seen the GST trying to create more flexibility within the country, so that it's easier to trade between states. That's what you need if you want to trade also with foreign countries, he said.

Responding to a question, the World Bank official said the focus of the next government should be on reducing the stimulus of domestic demand.

"That would be one. I think looking at trade liberalization on the import side - that would be another to create more competition. I would look at what people feel as impediment in the labour market. Is it difficult to go to those new jobs? What about the startups of young people do they feel restrictions or not? he said, adding that it is also about female labour force participation.

"I think, the most important thing is the understanding that you need export-led growth because that's where you increase productivity when you compete in international markets; that's where you gain knowledge by interacting with competitors and with customers abroad. And so, it is that mindset," the top World Bank official said.

India, Timmer said, is exporting only 10 per cent of its GDP.

"What they should have exported is 30 per cent of the export of GDP, given all their characteristics. India is a big country, so normally a big country doesn't export that much in per cent of their GDP because when you're small you're a lot more open.

"But even for India, 30 per cent would have been normal if you look at the experience of other countries. It's only 10 per cent. So that's an enormous gap. And the gap is widening in the last couple of years, he told PTI.

According to him, friction between India and Pakistan is unhelpful to the trade and economic growth in the region.

The lack of regional integration is not the main course of the under performance in exports. And that's often the assumption. When people look at South Asia, immediately the problem of very limited regional integration jumps up, he said.

A latest report of the World bank on South Asia, he said, asserts that the economic under performance of South Asian countries is mainly because they are locked on fundamental issues within the domestic economies that have prevented the countries to become much more export-led, like one sees in East Asia.

Trade liberalization, flexible labour markets skills, trying to address the big problem of the difference between the formal economy and the informal economy, he said are some of his recommendations for the South Asian countries.

"So, it's a lot of domestic issues also. It's not just trade policies. A lot of domestic issues that have to be addressed to unleash that potential that has not been utilized now in exports. It's not one single issue that can solve , he said.

Responding to a question, Timmer said the South Asian countries need to learn from China.

"The fact that China has been so competitive for so long means that China did something right whereas South Asia didn't do it right. There was a clear focus in China to have export-led growth and to integrate into global markets. And you see a sharp increase in productivity at all. This is not an explanation that we couldn't compete. Somehow, the Chinese did it better than South Asia, he said.

The top bank official asserted that China is a "big opportunity" for South Asia.

The slowdown in China is not a cyclical slowdown. It's not because they don't demand anymore. They are slowing down because of the supply side. They're running out of cheap labour in general because of their success. They are no longer that competitive, and they have now that policy that they want to rebalance their economy much more towards domestic services, less towards exports," he said.

That means that it has become easier to export to China which is very important, Timmer said.

It has become easier to compete with the Chinese. So for me China is, what is happening at the moment, is a big opportunity for South Asia, he stressed.