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Review: Reflective Shadows by Nagesh Prabhu

Reflective Shadows is as much a primer on the birth, formation, and functioning of the World Bank as an objective reflection on its lending instruments and policy

books Updated: Aug 04, 2017 19:59 IST
Sudhirendar Sharma
John Maynard Keynes addressing the Bretton Woods conference on Post War reconstruction and economic order, 1944. It was at this conference that the World Bank was conceived.
John Maynard Keynes addressing the Bretton Woods conference on Post War reconstruction and economic order, 1944. It was at this conference that the World Bank was conceived. (UIG via Getty Images)

A mere mention of the World Bank evokes mixed reactions. Depending on the individual, it could be viewed as an unbridled aid agency in the business of fighting poverty or as a financial trap that twists the economic sovereignty of the borrower. It has also been charged with pushing developing countries into perpetual debt by promoting the agenda of multinational corporations. Despite such mixed reactions, the 1944 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. This may not be an exaggeration as India has been the World Bank’s greatest success story in terms of showcasing 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 should a developing country 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 favour of this institution that, in addition to being dedicated to poverty reduction, can create a fiscal cushion to counter global market failures. Having made economic reforms a politically durable currency, how far can external aid help in pulling the ‘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 reflection on its lending instruments and policy. Being a founding member, India and the Bank have grown up facing different challenges at different times. While having reservations on the Bank’s criticism of the government’s overemphasis on the public sector during the nation’s first decade to opening up the economy to attain better ranking on the Bank’s ‘ease of doing business’ index decades later, India has come full circle. This has been seen in the creation of appropriate institutional and policy instruments to make the aid work and attract foreign direct investment to keep the economy reasonably oiled. 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. In the process, India has graduated from concessional lending from the International Development Association (IDA), one of the five institutions that constitute the World Bank Group, and has signalled its arrival as a global economic power. While the present government doesn’t seem too concerned about cuts 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 of 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.

Read more: World Bank clears $250-mn loan to train job seekers under Skill India Mission

Reflective Shadows takes a sympathetic view of the World Bank despite the conflicting perspectives 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 an almost equal number of hits and misses. The essential take home from this voluminous book is that sustained lending has led lagging states to embrace good governance with public accountability. This is a valuable addition to literature on the unending role of the World Bank in fighting global poverty.

Sudhirendar Sharma is an independent writer, researcher and academic.