The sheer mention of the World Bank evokes mixed reflections, from an unbridled aid agency that is in the business of fighting poverty to a financial trap that twists borrower’s economic sovereignty. It has further been charged for pushing developing countries into ‘perpetual debt’ by promoting the agenda of the ‘multi-national corporations’. Despite such mixed reactions, the 1946 Bretton Woods Conference created Bank has expanded its near-universal engagement with as many as 188 countries as its members. Yet, there is little doubt that in its seven decades of consistent lending for worldwide reconstruction and development the Bank has not been able to reach its goal of making poverty history. Curiously, why then has India continued to seek assistance from the World Bank?
Simply put, the World Bank needs India as much as India needs it. It may not be an exaggeration as India has been the greatest success story that the World Bank has been able to showcase on the impact of its aid. A cumulative aid of US$ 100 billion, which is less than 1 per cent of GDP, has helped the country cut its poverty rate to 22 per cent from a high of over 50 per cent three decades ago. The flip side of the story, however, is that aid-triggered economic reforms have accelerated growth but not without widening income inequality and increasing environmental distress. As poverty is deeply rooted in many social and structural factors, it is argued that financial aid and technical expertise can only have limited impact.
That being the case, what future a developing country should see in continuing its association with the global lending agency? In his comprehensive assessment of the political economy of World Bank lending, Nagesh Prabhu argues in favor of this institution that in addition to being dedicated to poverty reduction can create fiscal cushion to counter global market failures. Having made economic reforms a politically durable currency, how far can external aid help in pulling ‘other India’ out from the throes of unending farm distress remains an open-ended question?
Reflective Shadows is as much a primer on the birth, formation, and functioning of the apex bank as an objective reflections on its lending instruments and policy. Being its founding member, India and the Bank have grown up facing different challenges at different times. While holding reservations on Bank’s criticism of the government’s over-emphasis on public sector during the first decade to opening-up the economy for attaining better ranking on Bank’s ‘ease of doing business’ index six decades later, India has come full circle in creating appropriate institutional and policy instruments to not only make the aid work but to attract foreign direct investment to keep the economy reasonably oiled as well. The World Bank influence seems evident!
While there is little doubt that the Bank’s funding has made development possible in several sectors of the economy, how much poverty alleviation has indeed taken place on account of this aid remains inconclusive. But the fact of matter is that in the process India has graduated out from concessional lending from the International Development Association (IDA), one of the five institutions that constitute the World Bank Group, signaling its arrival as a global economic power. While the present government doesn’t seem much concerned about cut in this concessional aid, the author wonders how the country will tackle yawing gaps in infrastructure and institutional constraints to achieve faster growth and poverty reduction.
Prabhu is somewhat contrived in his assessment on the country’s handling of its new economic status in the light of its pending development challenges. Aren’t there other lending windows to tap into, including the New Development Bank funded by BRICS? It would be interesting, however, to see how the Bank reinvents itself to remain relevant amidst growing competition. Despite the possible decline in lending in the future, the Bank’s accumulated knowledge is likely to come handy in providing software support on project management, technological innovations and institutional reforms. In addition, the Bank has its task cut out in assisting lagging states, some of whom are bigger than many African countries. For the Bank which has always sold ideas, and not just loans, each fresh challenge opens a new window of opportunity.
Reflective Shadows takes a sympathetic view of the World Bank, despite the presence of conflicting views on the impact of external aid on economy and poverty. While at a macro level aid does help bring about significant economic change, at the micro level it is considered to benefit the wealthy elite at the cost of the poor. No wonder, the impact of World Bank lending has been ‘somewhat mixed’, with almost equal number of hits and misses.. That sustained lending has led lagging states to embrace good governance with public accountability is the essential take home from the voluminous book, which is a valuable addition to literature on the unending role of the World Bank in fighting global poverty.
by Nagesh Prabhu
Oxford University Press, New Delhi
Extent: 584, Price: Rs 995.
Firs published in The Hindustan Times, dated August 05, 2017.