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GDP is passe, Human capital takes center stage for WB, IMF

October 27, 2017

This article appeared in Deccan Herald on 27th October, 2017 and can be seen here:

Deccan Herald Fri 27 10 17The article can also be read here –

While the Indian media and political analysts have been talking about how the slowing down Indian economy is likely to hurt the electoral prospects of the BJP and slow down the Modi-Shah juggernaut, a different scene unfolded last week in distant Washington DC. The annual meetings of the Boards of Governors of the World Bank (WB) and the International Monetary Fund (IMF) was held then and it brought together central bankers, ministers of finance and development, parliamentarians, private sector executives, representatives from civil society organizations and academics. The core agenda was to discuss issues of global concern, including the world economic outlook, poverty eradication, economic development and aid effectiveness.

Only a few years ago, India’s growth story was being touted as the only shining patch in an otherwise depressing economic world order and experts were quick to offer differing explanations for the same. Equally quickly are the experts again explaining the dip as possible outcomes of the demonetization or the introduction of the GST and poor handling of the nation’s economy by the government. Somewhere in this narrative, human development and the fate of the ordinary citizen on the street does not find any mention. It is in this context, the meetings of the WB and IMF offer a shift in the way these global bodies are beginning to view development.

For several decades, the World Bank and its allied Institutions were seen with suspicion and as mere political instruments with very little appreciation of grassroots development and of being insensitive to local community interests. They have also been accused of turning a blind eye to citizen engagement, to environmental concerns and to mis-governance and mal-administration in the implementation of projects funded by them. They have been working over the last decade and more to shed this image and are now actively soliciting engagement with local community groups, in ensuring social accountability of the projects funded by them; and of looking internally to address inherent structural flaws in their aid and loan processes. But despite all this, their primary focus was on income growth and economic development. This year’s meetings saw a quiet and subtle shift which if sustained, could have long term consequences on how the world sees human development and progress.

While the WB President Jim Yong Kim and the IMF Chief, Christine Lagarde stressed on the relevance and effectiveness of Institutions like the WB and IMF, they also conceded that the Multilateral banking systems need to evolve and become more responsive and accepting of the changing geo-political realities of the day. The challenges of the Globalization backlash, of countries becoming fiercely nationalist and losing interest in multilateralism, technology transforming labour, and the global economic slowdown were some of the key concerns articulated. The newly announced Global Concessional Financing Facility appears to make it more strategic and flexible but one needs to see if the Bank can take it forward with the kind of lukewarm response that was shown by the member countries to a call for increased capital infusion. One also needs to appreciate the challenge that the WB will face keeping in mind the view of the United States regarding the WB funding of middle income countries, especially China. It is to be seen whether the World Bank will truly be a bank owned by the member countries and operate in a free, fair, just and democratic manner or continue to stay as extended political arms of powerful governments in the Global North?

Another major shift that was announced was the recognition of expanding human capital before any meaningful economic development can happen. The WB’s decision to publish ‘Human Capital Index’ reports annually like the ‘Ease of doing business index’ reports will push countries to now reassess how they will begin to view human development. Focus on Nutrition and the impact of stunting on the GDP of countries were highlighted in the discussions.

A call for participation of private capital in WB funded projects sounds like a monster waiting to be unleashed and paradoxical to the call for enhanced social accountability frameworks. With many countries including India already grappling with ‘Policy Capture’ by select corporates, this could result in policies being skewed to the advantage of powerful forces and drowning out the needs and voices of the common citizen. Dr Jim also raised the controversial topic of enhancing ‘sin taxes’ and presented the enormous health benefits by making tobacco products increasingly unaffordable. Though agreeing with him was politically correct for many of the finance ministers present, it needs to be seen how many will walk the talk and take on the powerful tobacco lobbies. Focus on women entrepreneurs and creating platforms to promote them is being spoken about for some time now. But it should gain more legitimacy and momentum, now that these Institutions have provided formal space. This welcome change needs to be reflected in clear and specific policies at the country level and presents a unique opportunity for India as untapped potential in millions of Self Help Groups is waiting to be unleashed.

Going by the past, one is hesitant to believe that all these major shifts will get operationalized immediately or if these agencies will be de-politicized soon. For too long have policy debates been distorted by over emphasis on incomes alone. It is indeed a welcome move for these Institutions to focus on other deprivations like poor health, lack of education, stunting, social exclusion and unemployment which reflect in poor human capital within nations. It is in this context that India needs to present a refashioned narrative and look to building the human and social capital of its citizens rather than get lost in the debate of the state of the economy and mere GDP numbers.

-Balu