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India in a Multipolar World

May 13, 2011

India in a Multipolar World

Speech by Dr. Ngozi Okonjo-Iweala,

Managing Director of the World Bank

International Habitat Center

May 13, 2011


I.              Introduction -- A new multipolar world

It is a pleasure to be with you tonight to reflect on India's role in a changing world.

            The economic crisis of 2008 will certainly prove to be a landmark—it belongs to the category of events that separate “before” from “after—as were 1929, or 1991.  After 1929 our understanding of the functioning of markets and role of governments was never the same.  The world changed again in 1991 when the “second world” disappeared with the fall of the Soviet Union and we ceased to think in terms of two competing economic and political systems.  The 2008 economic crisis will no doubt prove to be another such watershed.  India and China, together with other East Asian countries and even Sub-Saharan Africa, helped anchor the world’s faltering economy.  The crisis accelerated the relative shift in power—the developing world’s share of global GDP in purchasing power parity terms has risen from some 33% in 1980 to 43% in 2010. In this, Asia’s share alone stands at 21%.  And Asia’s stock markets now account for almost a third of global market capitalization, ahead of those of the US and Europe.  The financial crisis also made it clear that emerging economies need to be involved in decisions affecting the global economy.  In the formulation of a response to the economic crisis the G7 evolved into the G20. 

            In this new multipolar world, India has clearly emerged as a key player.  While scenarios differ on whether India will overtake China in terms of growth rates, there is no doubt that India will be one of the powerhouses of this century.

II.            Two Indias

India’s global profile is rising—from a slow-growing poor country to a burgeoning economic power:

· India grew fast before the crisis--9% per year--and has resumed fast growth--8.6% in the fiscal year that ended in March.

· India is globally recognized as a key player in the IT revolution, and in sectors as diverse as pharmaceutical, cement, steel and space

· Indian nationals hold key positions in corporations, academia and policy making worldwide

· India has acquired a prominent voice in global fora; it is playing a historic role in fostering South-South exchanges and has an influential position in the BRICs.

But there is also another India:

· India’s GNI per capita ($1170) is lower than that of 161 other countries.  World Bank’s poverty numbers show 456 million people in India are poor—about one-third of the world’s poor, and more than in all of Sub-Saharan Africa. 

· India lags significantly on health and nutrition targets:  It is home to half of world’s underweight children, and it accounts for 1 in 5 maternal and child deaths worldwide.

· Social exclusion remains a stark reality—Scheduled Tribes lag twenty years behind the general population, Scheduled Castes ten years; gender norms can be quite restrictive and gender gap persists in realms such as child mortality and labor force participation.

            If India is to play a crucial role in the new multipolar world—as an engine of growth, as a provider of knowledge, as an example of social and economic transformation under democratic auspices—it will need to close the gap between these two realities.  Closing the gap will require addressing some key challenges in the areas of infrastructure, agriculture, education, gender, and governance.  Note that there are other challenges that are important—but I believe these are the most crucial.

III.           Infrastructure: Address institutional constraints to public provision

            9% growth hides an infrastructure crisis.  Innovation in the private sector has often got around this—60% of firms and a large percentage of homes rely on back-up generation, and on an industry of logistical firms.  But this has costs, and sooner or later infrastructure constraints will bite, and growth will slow, absent major change.  This is especially true in urban areas.

            PPPs are often hailed as a solution.  Private participation in infrastructure took off in the early 1990s in telecoms and power supply.  Highway, port, and airport concessions began to emerge in the late 1990s, with water supply and solid waste management following.  We have been here before. In the 1990s Latin America had major infrastructural gaps, and PPPs were thought to be the solution (including by the World Bank).  But gaps were effectively closed only in telecoms (which was not an issue for India) and in Chile (a small country with by far the best governance to manage private sector involvement).  Elsewhere, there was insufficient private involvement, or private involvement that was high cost, often corrupt, and with frequent renegotiation to extract better deals from the state and society.

            The lesson is that improving governance, and solving institutional problems, is unavoidable to improve infrastructure provision, and is necessary for effective private involvement.

IV.           Agriculture: Feeding India and the world

            The challenge here is so well-known that I do not need to dwell on it much.  India has enormous untapped potential—productivity in Eastern states, for instance, is well below what it is in Punjab, and sustainability is an issue in states like Punjab.

            The policy reforms that are needed to increase agricultural productivity have been discussed extensively—infrastructure provision; subsidy reform; marketing reforms, a more predictable regulatory environment to encourage private sector initiative, to name a few—and both the union government and some states have taken important steps, such as in building rural roads.  But much more needs to be done.  Higher productivity in India is essential to feed India and feed the world. 

V.            Education: Focus on results, not inputs

            The two Indias are very visible in education: Graduates of India's famed Institutes of Technology literally drive growth.  But basic and secondary education are dismal.  In fact, even in tertiary education quality is in islands of excellence, not widespread.  The demographic dividend can turn into a demographic curse if the millions of young people entering the labor market every year are not equipped to take up the jobs that a fast-growing economy can create.

            There has been progress in enrollments, including of girls, and this should not be overlooked—it is an impressive achievement.  But the issue is quality.  The evidence (for example from the Annual State of Education Report) is that quality remains extraordinarily low and has not improved in the last five years, despite big increases in the inputs going into the system.

            The Right to Education is a great aspiration—but it only tackles part of the agenda.  It is weak on the quality issue, and is primarily input-focused.  Getting better school facilities is a good thing, but will have little or no impact on quality.  Indeed requirements on meeting the curriculum may make it more difficult to improve quality, since teachers may strive, not to raise competencies based on where children are, but to stick to the curriculum.

            The imposition of infrastructural and teaching norms on the burgeoning private system could also be highly costly, since it could make the low-cost private schools unviable or push them into illegality or resort to bribing school inspectors for licenses.  The private sector is no panacea—its quality is only slightly better than that of the public sector. But the answer should be to work out ways to support the quality agenda there too, not impose top-down input standards.

            The pedagogy for tackling basic education is known—and tested in the field­—but the incentives now are not there.  This is also an institutional problem.

VI.           Gender: Growth alone is not enough

            Women have gained in India—more girls going into school, benefiting from the progress in poverty reduction. Two women just ranked first and second in the Civil Services Exam.  But historically-shaped gender disparities are still important, especially in Northern India, and are both a burden on girls and women and a lost resource for social and economic change.  Three areas merit attention:

· As everyone here knows, the provisional 2011 Census report shows a sex ratio for children 0-6 at 914 females per 1,000 males, the lowest since Independence, and declining since 2001 in all but seven states.  Rising prosperity doesn't deliver for girl children.  This happened in China and Korea also—sex ratios in highly patriarchal societies initially worsened with rising prosperity.  This needs to be tackled head-on.

· There are also many "missing women"—relative to what one observes in countries with low discrimination—in older age groups, as observed in the forthcoming World Development Report on Gender Equality and Development.  The main explanation appears to be that general institutional weaknesses in public health, water and sanitation and health systems hurt women more in countries where there is more subtle discrimination.  Maternal mortality is part of this story—Indian women have a 1 in 70 chance of dying during childbirth, compared to 1 in 280 for Vietnamese women and 1 in 1400 for Chinese women!  Early marriage also contributes—about 60% of Indian women are married by the time they turn 18 and almost 25% have had their first child by then, compared to only 4% in Vietnam.  This has serious health implications.

· A major issue concerns the role of the political system in bringing about change.  There are very few women in national politics.  Yet evidence from reservations in panchayat finds (a) that women panchayat leaders lead to different local choices over public goods (against the view that they would be puppets of their husbands) and, even more significant, (b) men who experience women leaders significantly change their view and are more likely to vote for women when there is no reservation.  Countries have experimented with various mechanisms to increase the representation of women in national politics, but seldom has this happened automatically.

VII.         Governance: A domestic as well as international agenda

Most issues come back to governance and institutions.

            Governance ranks as high on the international agenda, as it does on the political agenda in India. Governance is not only an issue to be left to law enforcement agencies; it is by itself a major development challenge and needs to be addressed as part of any development strategy. Not only because it affects primarily the poorest and most vulnerable but because misgovernance or corruption undermines the effectiveness of public policies, the proper targeting of social programs, the quality of service delivery,  the exercise of fundamental rights, etc.

India’s public discourse is focused on these sets of issues at this time. Approaches and solutions that have been spelled out by senior policymakers are welcome and in the right direction.

            The President of India has recently spelled out among the priorities of her government a set of reforms on governance.  This includes initiatives to promote e-governance, which is potentially an effective tool for enhanced transparency, equity and accountability as well as hopefully for administrative reforms.  I met Nandan Nilekani this morning and was impressed by the potential impact of the Unique ID scheme for service delivery—more than 5 million Unique IDs have been issued since Sept 2010, providing people with a legal identity they probably did not have before.  Innovative ICT tools such as this can be an effective mechanism to both supply information and services to citizens and receive feedback from citizens.  And of course India has enacted a Right to Information legislation which is a model throughout the world.

            I understand that several states in India are also innovating on governance and that these innovations are often mainstreamed at the national level.  I find this dynamic extremely promising. The Public Services Guarantee Act, recently enacted in Madhya Pradesh were I am travelling tomorrow, by which civil servants are to be sanctioned for unwarranted delays in the provision of public services such as a power and water connections, or the granting of legal documents and social allowances, is a promising incentive mechanism towards improving service delivery.

            Of course governance reforms are not uncontroversial.  I am aware of the vibrant debates on governance in India, the popular mobilization against corruption and red tape, and people's aspirations for better service delivery and more transparent and accountable public service.  The Government took an innovative step in setting up a joint drafting group for the Lokpal bill.

            As much as India can contribute to the international agenda on governance, it can also benefit from it. Grand corruption is increasingly international, as it involves illicit international financial flows, sophisticated financial schemes, tax evasion, money laundering, and the theft of public assets.  It can hardly be dealt with unilaterally and requires a high level of cooperation between defrauded countries and recipient ones for effective legal action. Grand corruption and security are also closely related which is why India recently joined the Financial Action Task Force on money laundering and combating terrorism.  The Prime Minister announced today the completion of the process of ratification of the UN Convention Againts Corruption, which is also an effective instrument to fight grand corruption.

VIII.        Conclusions

            India is playing a progressively larger role in the new multipolar world we inhabit.  Other countries increasingly look at India as an engine of growth, a source of knowledge, and an example on how a pluralistic society evolves over time.  Dealing with the challenges outlined here—addressing institutional constraints to better deliver infrastructure and quality education, spur  agricultural productivity increases, fully include women in the development process, and strengthen governance, which in the end will translate in a wealthier, more equitable India in 20 years—calls for political will and commitment.  But it can be done.  India has shown itself to be capable of momentous transformations.

The World Bank is honored to be a partner in this process and will continue to assist India by providing knowledge and funding.  World Bank lending to India reached a record $9.3 billion in fiscal 2010 and is expected to reach $5.5 billion this fiscal year.  This includes substantial support for infrastructure, with a focus not just on physical investment but on strengthening institutions—PowerGrid, is an example. In education, we are supporting efforts o strengthen vocational and technical education, in addition to primary and secondary.  Knowledge complements lending, as exemplified in a recent study on groundwater management, which highlights possible solutions to overexploitation.  Recent work on poverty and social exclusion documented the extent to which women lag behind in human development indicators.  We have also supported a number of learning exchanges, such as a recent visit of farmers from Tanzania interested in replicating India’s dairy policies and approaches for small farmers.

India has so much to share with other developing countries and indeed the whole world can learn from India.  I look forward to India taking an even larger role in the new multipolar world.

            Thank you.