Subir Gokarn: Interdependence in development

The World Bank recognises its dependence on India in achieving the millennium goals

During his visit to India last week, Mr James Wolfensohn, president of the World Bank, delivered a public speech. Talking about challenges to Indian policymakers, he made the point that, as blueprints go, the government's Common Minimum Programme (CMP) was about as good a document as there was.

Given the controversy that raged a few weeks ago about the inclusion of representatives of the World Bank and other external agencies in the mid-term review of the Tenth Plan, such effusive praise from Mr Wolfensohn may have come as a bit of a jolt to the parties supporting the government, which are believed to have had substantial inputs into the CMP. If the World Bank endorses it so wholeheartedly, surely there must be something wrong with it?

Maybe not. After all, the World Bank has not survived for 60 years without being pragmatic. It obviously recognises that, in order to carry out its agenda, it has to deal with national governments.

It is clearly not in the interest of managing relationships with governments to express criticism, or even scepticism, about their strategies, particularly when, on the face of it, the two appear to be so much in sync with each other.

The World Bank has been talking of sustainable poverty alleviation for a long time, way before the CMP came into existence. There is hardly any inconsistency between its basic objectives and the idea that economic growth must translate into an improvement in the quality of life of as many people as possible.

But, going beyond the visions and objectives, there is the nitty-gritty of implementation. And, there lie the makings of a dilemma. From the Bank's perspective, how much room should it give borrower governments, which are juggling short-term political compulsions and inefficient institutions with the more loft objectives?

From the borrowers' standpoint, are the resources--financial, technical, intellectual, or any other--of the World Bank worth the conditionalities that they come with, particularly when such conditions impose constraints on political options and require drastic changes in the mechanisms of governance?

For India to derive full benefit from Bank resources and for the Bank to see its objectives fulfilled in India, that dilemma needs to be resolved. The Bank's approach to this can be gleaned from its Country Strategy for India, published a couple of months ago.

The document lays out the principles and objectives of the Bank with respect to India for the next three years. It clearly illustrates the fine balance that needs to be maintained in order to preserve mutual "face" and, in the process, improve the quality of life of a large number of people.

The strategy is based on three principles. First, there is a "focus on outcomes", which means that all activities will be evaluated in terms of their contribution to the achievement of the Millennium Development Goals, which, apart from reduction in poverty levels, also include a number of quality-of-life indicators.

Second, there is an emphasis on "selectivity", which means that engagement will be restricted to those activities in which "assistance is welcomed and where contributions can also be the most effective". The third principle involves an expansion of the Bank's role as a "politically realistic knowledge provider and generator".

None of the principles goes against the resolution of the dilemma that was described earlier. The second and third explicitly recognise the room that borrowers need to be given when they transact with the Bank.

But, by bringing to the fore such notions as "acceptability" and "political realism", they do run the risk of both reducing the levels of engagement in crucial areas and diluting the enforcement of performance standards.

It is conceivable that, for a given set of lending priorities (and the document goes on to spell these out), the accompanying conditions are simply not acceptable to the government, for whatever reason.

Who gives in? Or, does political realism induce the lender to continue with a programme, which, by its standards, is being sabotaged by immediate electoral compulsions?

The principles lead to a statement of lending priorities--infrastructure across-the-board, human development-related programmes and rural livelihoods.

Again, while no one can deny the relevance of these priorities as far as lender and borrower objectives are concerned, the record on all these sectors over the last decade has been, for the most part, disappointing, even dismal.

The deep involvement of sub-national government mechanisms in these activities ensures that good intentions and hard resources are offset by the weaknesses inherent in these mechanisms.

In fact, the intention expressed in the strategy document to strengthen the Bank's engagement with the central government is a reflection of the difficulties it has had working with sub-national governments.

In the past, the Bank, as well as other multilateral and bilateral development agencies, has attempted two kinds of "bypass" strategies to deal with the obvious difficulties in running programmes through the central government.

The first was to use a civil society framework, either existing organisations or specially established ones, to bring programmes closer to the people. The second was a focus on states, in which comprehensive programmes covering a variety of complementary needs were designed for individual states.

The results of both approaches have been mixed. In the civil society approach, if the government, at whatever level, was not directly involved, it could always play the part of a spoiler.

In the state focus approach, the size and complexity of commitments to individual states made it difficult for any lending institution to exert a credible threat on the borrower. Centre-state political relations were also bound to enter the picture. It is no surprise then, that the Bank would seek a new balance between different levels of government with respect to lending and accountability.

The Bank clearly recognises its own dependence on India as far as achieving the millennium goals are concerned. Mr Wolfensohn indicated as much in his speech, when he said that, by virtue of the fact that India has the largest number of the world's poor, India's success against poverty would determine the world's success against it.

But, as was argued above, in a situation of interdependence, the articulation of strategic principles by one side does not plug all the holes.

India needs to respond to the Bank and all the other agencies on the scene with an explicit statement of the principles and conditions under which it will transact with them.

That should contribute to unambiguous priorities, smoother resource flows and greater accountability on both sides. And, then hopefully, the objectives that bo th sides claim to have no disagreement on, will be a little more within reach.

The author is chief economist, Crisil. The views expressed are his own)