WORLD BANK - INTERNATIONAL RELATIONS
News: World Bank revs up growth hopes to 6.9%
What's in the news?
● The
World Bank lifted its growth forecast for India’s economy this year to 6.9%, after having downgraded it to
6.5% in October, citing resilience in economic activity despite a deteriorating
external environment.
● The
Bank said it revised the GDP forecast considering the strong upturn in the July
to September quarter of 2022-23, when it grew 6.3% despite inflationary
pressures and tighter financing conditions, “driven by strong private
consumption and investment”.
Key takeaways:
● India’s
economy has been remarkably resilient to
the deteriorating external environment, and strong macroeconomic fundamentals
have placed it in good stead compared to other emerging market economies.
World Bank:
● The
World Bank is an international organization dedicated to providing financing,
advice, and research to developing nations to aid their economic advancement.
● It
is headquartered in Washington, D.C.
● The
bank predominantly acts as an organization that attempts to fight poverty by
offering developmental assistance to
middle- and low-income countries.
Backdrop:
● The
United Nations Monetary and Financial
Conference, often known as the Bretton Woods Conference, took place in 1944 and resulted in the establishment
of the International Monetary Fund (IMF) and the International Bank for
Reconstruction and Development (IBRD) in 1945. (IBRD in 1944).
● The
IBRD's core objective was to use loans to help rebuild countries that had been
devastated by World War II.
● Gradually,
the focus shifted from reconstruction to development, with infrastructure,
electricity grids, roads and transit, dams, and other projects receiving
special attention.
World Bank Group:
1. International Bank for Reconstruction and
Development (IBRD) - providing loans,
guarantees, advice services, and risk management tools IBRD only works with
sovereign governments, not private companies.
2. International Development Association (IDA)
- provide grants and low-interest loans to the world's poorest countries.
3. International Finance Corporation (IFC)
- focuses on the private sector in underdeveloped countries serves as the WBG's
commercial sector wing.promotes economic development by funding for-profit and
commercial ventures aimed at alleviating poverty and advancing development.
4. Multilateral Investment Guarantee Agency (MIGA)
- To increase cross-border investment in poor countries by providing lenders
and investors with guarantees (political risk insurance and credit
improvement). It has special emphasis on fragile and conflict-affected
countries.
5. International Centre for Settlement of Investment
Disputes (ICSID) - It resolves conflicts between
investors and governments. India is not
a member of the ICSID.
Membership:
● A country must first
become a member of the IMF before joining the World Bank Group.
● The
countries must first join the IBRD before they may join the IDA, IFC, or MIGA.
● All
of the following prerequisites must be met to become a member of the ICSID:
○ Membership
in the IBRD.
○ A
signatory to the International Court of Justice's Statute (ICJ).
○ Invitation
of the ICSID Administrative Council by a vote of two-thirds of its members.
Reports published by World Bank:
● Ease
of Doing Business
● World
Development Report
● Global
Economic Prospect (GEP) Report
● Logistics
Performance Index
● Remittance
Report
● Ease
of Living Index
● India
Development Update
● Universal
Health Coverage Index
● The
Service Trade Restriction Index.
India and IBRD:
● India is the largest
borrower from the World Bank (IBRD + IDA).
● India
is one of the founding members of IBRD, IFC, and IDA.
● World
Bank assistance in India started in 1948 when funding for the Agricultural
Machinery Project was approved.
● The
main sectors for IBRD assistance have been roads and highways; energy; urban
infrastructure (including water and sanitation); disaster management; the
financial services sector; and rural credit projects.
International Development Association:
● The
main characteristic of IDA which distinguishes it from other world bank
institutions is that it provides loans
and grants to poor countries at a very low interest rate, almost zero, and the
tenure of loans is very long, approximately 25 to 38 years. On top of that,
there is a grace period of 5 to 10 years also. These loans are termed “soft loans.”
● These
loans are highly beneficial for poor countries to develop themselves, which is
the agenda of IDA.
● The
IDA’s focus is to give loans and grants to poor member nations to uplift their economic growth, remove their
societal inequalities, and lead to the betterment of the living conditions of
people living in these poor nations.
● IDA
measures the per capita income of a country and gives loans and grants only to
those poor nations whose per capita income lies below a certain level (IDA
keeps updating the threshold as per time demands).
● The
major sectors of IDA assistance are health,
education, agriculture, and poverty reduction.
Some
World Bank funded projects in India
include:
● Skill
India Mission
● Clean
India Mission
● National
Ganga River Basin Project
● Pradhan
Mantri Gram Sadak Yojana
● The
National Rural Livelihoods Project
● Integrated
Child Development Services (ICDS)
● National
AIDS Control Support Project
● MSME
Growth Innovation and Inclusive Finance Project
● Sarva
Shiksha Abhiyan (SSA)
● Green
National Highways Corridor Project
● National
Nutrition Mission etc.
Significance of World Bank funding:
1. Poverty reduction
- The World Bank is the world’s single largest provider of external funding for
education" and it is "the largest external funding source for health.
2. Good Governance & fight against corruption.
3. Debt relief
- In 1996, the World Bank and the IMF launched the Heavily Indebted Poor Countries (HIPC) Initiative to provide debt
relief to the world’s poorest and most heavily indebted countries. It ensures
that the savings from debt relief are directed into areas such as health and
education which are proven poverty-fighting programs.
4. Inclusion of the poor
- A central point in all the actions of the World Bank is putting the poor at
the center of development.
5. Largest research centers in development
- It has specialized departments that use this knowledge to advise countries in
areas like health, education, nutrition, finance, justice, law and the
environment.
6. Stabilizing Assistance
- It supports international efforts to assist
war-ravaged populations, resume peaceful development, and prevent relapse into
violence.
7. Funds India’s growth
- Currently, the World Bank's support to India is spread over 127 active
projects with a combined worth of over $28 billion.