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World bank on Indian economy

World bank on Indian economy

Tag:GS3||Economy||External Sector||World Bank

Why in news?

  • Recently, World Bank Group President David Malpass visited India.
  • During the visit, Mr. Malpass will focus on understanding the emerging priorities of the Indian government in its new term as it strives to boost growth and meet the aspirations of its people, and developing the World Bank Group’s partnership with India.

About the World Bank:

The World Bank Group consists of five organizations:

  • The International Bank for Reconstruction and Development
    The International Bank for Reconstruction and Development (IBRD) lends to governments of middle-income and creditworthy low-income countries.
  • The International Development Association
    The International Development Association (IDA) provides interest-free loans — called credits — and grants to governments of the poorest countries.
  • Together, IBRD and IDA make up the World Bank.
  • The International Finance Corporation
    The International Finance Corporation (IFC) is the largest global development institution focused exclusively on the private sector. It helps developing countries achieve sustainable growth by financing investment, mobilizing capital in international financial markets, and providing advisory services to businesses and governments.
  • The Multilateral Investment Guarantee Agency
    The Multilateral Investment Guarantee Agency (MIGA) was created in 1988 to promote foreign direct investment into developing countries to support economic growth, reduce poverty, and improve people’s lives. MIGA fulfils this mandate by offering political risk insurance (guarantees) to investors and lenders.
  • The International Centre for Settlement of Investment Disputes
    The International Centre for Settlement of Investment Disputes (ICSID) provides international facilities for conciliation and arbitration of investment disputes.

  • David Malpass had discussed the ways with government in which the financial sector can move forward.
  • The Indian financial sector has made quite a bit of progress.
  • It has made progress in terms of monitoring of assets, the bankruptcy process and the deepening of the banking system.

Funding from the World Bank:

  • Between July 2018 and June 2019, the World Bank Group provided $5.17 billion in financing to India.
  • World Bank currently has 97 projects with over $24 billion committed in the country.
  • Malpass said the World Bank will continue with the $6 billion lending target for India.

Current challenges of the Indian economy:

  • The World Bank joins a parade of multilateral institutions, rating firms and brokerages in cutting economic growth estimates for India, after Asia’s third-largest economy grew at the slowest pace in six years in the June quarter because of a demand slump.
  • The remarkable weakness of Indian economic activity during the first half of 2019 is largely driven by external and cyclical factors.
  • The over-leveraged balance sheets of the corporate sector are also a problem.

Need for reforms:

  • The World Bank observed that NBFCs in India remain vulnerable to financial stress despite liquidity enhancing steps.
  • The investment would benefit from the recent cut in the effective corporate tax rate for domestic companies in the medium term.
  • To address the sources of softening private consumption and the structural factors behind weak investment.
  • This will require restoring the health of the financial sector through reforms of public sector bank governance and a gradual strengthening of the regulatory framework for NBFCs while ensuring that solvent NBFCs retain access to adequate liquidity.
  • To mitigate these risks, the authorities would need to ensure that there was adequate liquidity in the financial system while strengthening the regulatory framework for the NBFCs.

  • There is needed for reform in the capital market.
  • Ease of doing business:
    • In its latest World Bank global report, the World Bank placed India at 163 and 154 positions, respectively, on enforcing contracts and registering property.
    • Enforcing Contracts: India needs to provide adequate resources to commercial courts at the district level for judgments to flow faster. “Small claims courts are needed to help people enter into contracts which they know can be enforced.
    • Land management reforms: “With regard to land management reforms, digitization of the land data and making the data readily available throughout India would facilitate the buying and selling of land

Conclusion:

  • The Government shall have to work with other stakeholders to support India’s efforts toward boosting broad-based growth, reducing extreme poverty and raising living standards.

References: