Removing ‘brics’ on the road to growth

Given India’s significant financing needs for infrastructure, ranging from roads and energy to water supply and sanitation systems, there is little wonder that the World Bank Group annual meetings that took place for only the second time in 50 years in Tokyo, from October 12-14, are continuing to attract the attention of government officials around the country eager for additional loans and funding support.

Recently, the World Bank offered India a $500 million loan to improve access to secondary education and educational quality.

This support for education for all — Rashtriya Madhyamik Shiksha Abhiyan (RMSA) — is one of 80 active bank projects in the country, and comes as part of billions of dollars in annual borrowings by the Government of India. The World Bank has an exposure limit of $17.5 billion in lending to India.

Similarly, India continues to be a major borrower and shareholder of the Asian Development Bank.

The ADB lending programme to India is expected to average $2.2 billion over 2012-14. Recently, approved loans focused on improving India’s Railways, transmissions lines and agri-businesses — all are critical needs.

At the end of the day, however, the 20,000 participants in Tokyo for the annual Bank and International Monetary Fund meetings — including senior delegations from Delhi and other South Asian capitals — might well ponder over a simple truth. The prescription for future growth is simple and straightforward — improve the bureaucracy, regulate fairly, intervene rarely, stamp out corruption and reduce sectarianism. Capital and investment will follow.

Red-tapism

India is very much a part of the quintet of large emerging economies — Brazil, Russia, India, China and South Africa — that, earlier this year at a summit in Delhi, began exploring the setting up of a “BRICS development bank.” A complement, not a rival to the World Bank, it was pointedly noted.

Yet, the economies of India and the rest of the BRICS have also slowed, held back by “brics” — bureaucracy, regulation, interventionism, corruption and increasingly, sectarianism.

Ironically, the challenge of these “brics” may, in the long run, stymie the sustainable rise of the BRICS and other large economies — developed and developing. With recent policy pronouncements, the Government may indeed be recognising this.

In Delhi and elsewhere, however, people, with everyday problems, should ask their leaders five simple questions:

Is government hindering or fostering economic growth?

Whether in Asia and the Pacific, or in the Americas, Europe or Africa, a real fight against bureaucracy is less about new organisation charts, and more about assessing what works and what doesn’t. It’s not just the size, but also the service quality of the bureaucracy that matters.

How are regulations impacting job creation?

Businesses and investors are often challenged by not just too many or too few regulations, but more critically, by unevenly enforced regulations. Clearly, not all regulation is bad.

Safeguards are essential — and indeed, the new World Bank President should commit publicly to no weakening of existing environmental and social safeguards — but policymakers must ask if near-term job creation and growth are losing out to red tape and regulatory excess.

When is government intervention appropriate?

Governments in Asia, including India, have long been praised and criticised for distorting the market in favour of national players. Too often, however, government interventions and inefficiency can go together.

Policymakers need to ensure such interventions, if any, are limited and a matter of last resort.

What more can be done to root out corruption?

Allegations of favouritism or leniency must be investigated, institutions strengthened, and individuals held accountable, if people from all walks of life are to regain confidence in their leaders and systems of governance.

What level, if any, of sectarianism is appropriate?

Understandably, once disenfranchised or marginalised minorities are seeking to right past wrongs and calling for greater respect and recognition.

As dictators have fallen, however, tensions and conflict have risen. Whether in Egypt, Nepal or elsewhere, politicians must put their own nation’s interests first and foremost, rather than those of their own sect, party or denomination.

At the heart of these five simple questions is the notion that leaders and policies are needed to tear down walls built of bureaucracy, regulation, interventionism, corruption and sectarianism.

These “brics” are blocking the way and hindering sustained, private sector-led growth.

Dismantling capital misallocations built of the new “brics” would also spur business innovation, increase investment in infrastructure and other projects, and create the private sector jobs that are the true building blocks of economic growth.

(The author served as the US Ambassador to the Asian Development Bank. )

COMMENT NOW