12-05-2025
India has 5 Years to Build on China+1 Supply Chain Change: Ajay Banga
The
worldwide churn
due to
tariffs
is a
chance
for developing countries to look at their
barriers
and consider how to change them so as to benefit from an evolving trade environment, World Bank Group president Ajay Banga told
Vinay Pandey
in an interview. Edited excerpts.
How do you see the world economy, given the context of tariffs and geopolitical turmoil?
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The global economy is still doing pretty well. The real problem is that conversations around geopolitics and tariffs have created a degree of uncertainty and volatility in the markets.
The stock market bounced around, although it is now doing pretty well. The bond market bounced, though that too has settled down. The dollar has declined a little. There is this feeling — if you have uncertainty, will that delay investment decisions; will consumers delay purchasing decisions? If that happens, then yes, you will see a slowdown in the global economy, including in developing countries, and that is not good because growth is important.
How do you see this playing out in terms of countries' positioning? What does it mean for globalisation?
If you look at the last 10 years, more than 100 bilateral and regional deals have been signed, (including) CPTPPs (Comprehensive and Progressive Agreement for Trans-Pacific Partnerships) and RCEPs (Regional Comprehensive Economic Partnerships). So, what is going on is a change in the pattern of trade, not globalisation going away.
The bilateral deals are not just with your neighbours (but also) with people two continents away. So, it is still globalisation, just done differently.
Second is supply chain, and I have said this in your paper actually, some years ago: India has five years to take advantage of the changes in the supply chain that are happening because of China+1. I don't think you have 10-15 years to fix it. You have to think about a few things that will help you get the full benefit of supply chains. One is the logistics cost.
India still has a relatively high cost of logistics compared to the East Asian economies. You are doing a lot of things there. Ports, bridges and reducing the friction in trade. But there is more work to be done.
A zero-for-zero kind of tariff might be very helpful. In a global supply chain, nobody wants to deal with tariffs coming in, getting VAT (value-added tax) back — it's too much work. India has manpower, but skilling needs to be focused on.
Is there a big opportunity? Yes, but work on logistics. Work on continuing regulatory reform, and skilling. And I think there is a real chance there.
What kind of impact can US tariffs have on India?
The US has had the lowest trade tariff barriers forever. Even with a 10% base, it will still be one of the lowest. The developing world tends to have much more tariff and non-tariff barriers, and there are economically proven facts that lower barriers improve trade and growth. So, this is a chance for the developing world to look at its own barriers and think about how to change those so they can benefit from a changed trading environment. India is very well placed to do things that could benefit it.
Global trade has doubled in nominal terms over the last 20 years. If you look at the share of that coming from developing countries, that has also doubled, from 20% to 40%. Within that 40%, the share coming from developing countries trading among themselves has also doubled to half (50%).
But the problem is inside that half. The share of regions such as South Asia, Africa, Latin America and the Caribbean is much lesser — low double digits, high single digits kinds of numbers — whereas east and central Asia, the Pacific and Europe are much higher.
There is also an opportunity for India to look at intra-regional trade. You've signed a deal with the UK and maybe you will do one with the European Union. Maybe, you will do some more with your neighbours, and that could be very helpful.
India has one big plus, which is that the economy is much more dependent on domestic consumption than it is on trading. So, if the world export system does take some uncertainty for a while, India will be impacted less than other countries. India, if anything, is in a better way through this coming period.
There was a G20 expert group set up by India with NK Singh and Larry Summers. You have talked about making the World Bank bigger and better. How are we placed on the recommendations?
There are 29 recommendations, of which 16 are done. The others are all on the way.
For instance, one recommendation was to get things done faster. It used to take us 19 months to get a project from conversation to board approval. We are now down to 14 months. I set an arbitrary target of 12 for the end of June. I think we will get pretty close to it. Some projects are being approved in 30 days, such as a healthcare clinic, but some things, like a hydroelectric dam, take three years. They are more complicated, and they should take longer.
Another was if we can raise more capital from squeezing the balance sheet. We raised almost $100 billion from loan to equity ratios and hybrid capital portfolio guarantees.
A third recommendation was to work better with other MDBs (multilateral development banks) and multinational banks. So, we have agreements with a number of them. We have launched a digital platform, where all banks are now putting projects they are financing—175 projects have come in and 10 have already been co-financed, totalling $14 billion.
What's the second phase of the private sector lab?
The private sector lab is deeply connected to the jobs council now—you know, those five sectors we are trying to work in. The lab had five work streams, the first (being)… why is it that trillions of dollars are not flowing into the emerging markets, given the obvious opportunity for investing?
We found five things. One, they don't have enough regulatory policy clarity.
Second, they need political risk insurance because governments change their minds. We have put all our insurances together under one part of the bank called MIGA (Multilateral Investment Guarantee Agency), and now we are simplifying them and making it easier to access. The insurance business is up 30% and we think we can double it in the next two to three years.
Third was (the World Bank) taking junior equity positions. That will make it more certain for investors to follow. So, we have set up the Frontier Opportunities Fund with $100 billion of our own retained earnings. The plan is to keep adding money, maybe raise money from some philanthropies.
Fourth was foreign exchange. The best way to build local currency lending is local capital markets. India has a pretty good capital market in width and depth… but in other countries, we are doing swaps with local commercial banks. We are taking their excess liquidity every night, giving them more than they would get from the central bank, lending it in local currency and then hedging the currency. We do a rolling hedge and take some of that risk on to ourselves, rather than the project.
Today, IFC (International Finance Corp) is (about) 40% of our lending in local currency, and a few years ago, that was (about) 20%, but it won't get to 80% this way. You need to find more things to do.
The last item is the idea of creating an asset class. If you go back to the logic of getting trillions in pension funds— you ask a pension fund, would you like exposure to water and projects in India. They will say yes, it's a great project, it makes sense. But if I go with one project in one state and another elsewhere, with different legal agreements and covenants, it will not work.
You have to incentivise the government to agree to standardisation on pricing and liquidity, which you can package with a rating agency sticker. Doug Peterson, who used to run Standard and Poor's, is doing this for us.
So, progress on all five.
What are your plans for India?
A new country partnership framework is going to be drawn up for India. It's going to focus on what I believe is the right thing for India at this stage—private sector-led growth, fiscal prudence in the government, domestic resource mobilisation and, hence, digitisation. But you'll see us focusing even more on IFC and MIGA for private sector-led growth.
Our country partnership framework for India will be private sector-led with some knowledge, a little bit of public financing, rural prosperity, urban development, skilling, MSMEs and growth — all oriented towards jobs, jobs and jobs.
