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Lending with knowledge, and lessons of effective lending

As the head of the Independent Evaluation Group (IEG) of the World Bank, Vinod Thomas is entrusted with the task of evaluating the bank’s work. He spoke to Mint about the challenges that India faces. Excerpts.

business Updated: Nov 05, 2007 22:52 IST
Anil Padmananbhan

As the head of the Independent Evaluation Group (IEG) of the World Bank, Vinod Thomas is entrusted with the task of evaluating the bank’s work. He spoke to Mint about the challenges that India faces. Excerpts:

These are interesting times at the World Bank. What do you make of all these developments and changes that are underway?

The dramatic changes at the World Bank Group are really two-fold. On the external side, the greater liquidity that the capital markets are providing to developing countries has meant that the World Bank, while an important player, is in the aggregate a smaller player. You have more than $600 billion in private capital, as compared to the Bank Group lending roughly $34 billion.

The value of the Bank more and more will be the combination of lending with knowledge and lessons of effective lending. So externally there is a change in the role of the Bank that obliges it to be far more agile, flexible, effective not only in the Middle Income Countries (MIC), but covering countries across the spectrum. Internally as you also know, the Bank went through a difficult period recently, which led to changes at the top. With a new leadership the question of the Bank’s strategy going forward is attracting central attention.

Inequalities are widening in countries such as India. Do the experiences of

the middle-income countries (such as China, Brazil and Russia) hold lessons for India?

Yes. Absolutely. I would say it is a two-way link. I say that because India’s income inequality is far lower than that of China. But the trend in India (as with China) is worrisome. In India the regional differences are a big factor. You would expect that states that are poorer or lagging, have a much better chance to grow faster; because you are so far inside the so-called production possibility frontier, and there is so much scope to grow faster. But, this has not applied to regional differences in India and China at the moment, although it is changing in India.

In China though, the richer states have grown faster than the average and poorer states have grown slower than the average. In India, over the last 10 years, states like Gujarat, and Andhra Pradesh have grown much faster, while others like Bihar and Uttar Pradesh have grown much slower.

Are there lessons for India?

Yes. Employment-guarantee schemes with conditional cash transfers can be a quick win-win. The downside (avoiding poor targetting and leakages for example) needs to be addressed. Politically it is great. (Luiz Inacio) Lula (da Silva) won his second term (as President of Brazil) partly on the basis of the conditional cash-transfer programs.

It also can be good economics. India, China and Brazil have not yet seriously begun to tackle income inequality among the older generation.

What about urban poverty in India where urbanisation is fast gaining momentum?

Demographics and urbanisation, for which answers are not clear and adequate attention is not being given, are among the top development challenges going forward. Typically, rural poverty dominates in India and China; but urban poverty dominates Brazil and Latin America.

This is because urbanisation is over 80 per cent in Latin America, while it is 30 per cent in India and 40 per cent in China.

India’s urbanisation will go up by 10 percentage points by 2030. Urban centers are already excessively crowded. The issues of poverty as well as environmental pollution are not luxuries to be dealt with. They will determine whether the growth is sustainable. In that sense it is urgent.