The World Bank group’s investments in Bengal are set to cross the $1-billion threshold soon — and it is looking to raise commitments by another $1 billion once it rejigs the mechanism through which it funnels funds into the state.
“Our investments (in Bengal) have really grown in the last 4-5 years. I anticipate that in the next couple of years, we will easily be able to pump in an additional billion dollars,” says Junaid Kamal Ahmad, India’s country director of the World Bank.
In an exclusive interview with The Telegraph on the sidelines of the Bengal Global Business Summit, Ahmad said the multilateral financial institution wanted to step up its investments in the areas of logistics, social security programmes and urban administration.
The Washington DC-based Bank is enthused by the “fiscal space” that has been created for “capital investment” by the state budget presented earlier this month and believes that the Bank can expand existing state-specific programmes and add new ones in consultation with the Mamata Banerjee-government.
The Bank has so far ploughed around $365 million into state-specific programmes in the areas of irrigation and capacity building for gram panchayats. However, it is taking projects worth $545 million to its board in sectors such as logistics and transport, irrigation, flood management among others by June. These schemes are likely to be implemented in the next two to three years.
A state government official said it was aware of the interest shown by the World Bank group, which has been appreciative of the fact that Bengal has opted to stick to targets for fiscal rectitude set under the Fiscal Responsibility and Budget Management (FRBM) Act.
“We have reduced the debt to GDP ratio despite a crushing loan burden and also allocated funds for capital investment which has a multiplier effect on the state’s economy,” the government official added.
Ahmed says a substantial part of the Bank’s funds will be used to build basic public infrastructure such as roads and jetties as the institution sees big potential for inland waterways.
“The greater Calcutta area can become a transit logistics gateway for the entire East … It is becoming extremely important to create accessibility and connectivity,” Ahmad explained.
“The combination of the eastern dedicated freight corridor which will end here, the waterways, railways, roads, and ports provides an opportunity for massive stimulation of growth,” the World Bank country director added.
“I was absolutely stunned to discover that land prices around the eastern dedicated freight corridor (EDFC) have surged 10 times over the last five years. We are seeing investments in railways, jetties, and railways,” he said.
Regional hub
Ahmad believes that the state government should not be satisfied with just the “quick wins” and thinks it is important to ignite a sub-regional dialogue that the Bengal government can initiate.
Bengal has within its power to create a regulatory environment that will enable it to build a robust hub in the region.
“In my opinion, we need to start a conversation among Calcutta, Dhaka, Guwahati, Sikkim, Thimpu, and Kathmandu. Because the pie is not fixed; it can grow if conversations take place. For instance, Dhaka and Calcutta must discuss where the deep sea port ought to come up. If both of them can jointly own a deep sea port, this will change the face of development in this part of the world,” Ahmad says.
The discussions have already begun and started yielding results. Bengal is selling electricity to Bangladesh, and the waterways are now connecting Calcutta with Narayangunj for eco-tourism.
“This is important but we are only scratching the surface,” Ahmad adds. “Now, it is time that the state-level leadership broadens the scope of talks with the surrounding countries and we are hoping to facilitate that dialogue,” he adds.
Funding mechanism
The Bank is aiming to change its funding mechanism — by morphing its role from a lending bank to a leveraging bank.
To make this transition, the Bank is trying to bring in the private sector to create new infrastructure and manage them. The idea is to provide private investors with some level of comfort with respect to fund exposures.
“Instead of investing $1 billion in a project, it will work as a sort of risk insurance for private money. That way I can double or triple the amount of money coming in. This is what we call risk insurance credit enhancement tool — in the logistic/transport sector, my goal would be to put $200 million of World Bank money. This will catalyse an investment of at least a $1 billion of private money. If we do that, then it is just not a $1 billion we are investing, but a billion dollars that will leverage 4-5 times,” says Ahmad.
The World Bank’s country director explains how this risk insurance concept works.
“If a private sector is willing to invest but for only up to five years because of the risk perceptions, the Bank’s guarantee could give them the comfort to take it up to 10 years. And then if there is any issue, the institution will pay from the 5th year to the 10th year. You then begin to stretch the maturity of the private money to the 10th year because we are putting a credit enhancement to it. That’s what we mean by becoming a leveraging bank — and it will be a game changer,” says Harvard and Standford-educated Ahmad, who hails from Bangladesh but has ancestral roots in Bengal.
“We have done this with Energy Efficiency Services Ltd (EESL), a public sector entity. Under the programme, EESL will deploy 219 million LED bulbs and tube lights, 5.8 million ceiling fans and 7.2 million street lights, which will be supplied by private sector manufacturers and suppliers.
“We have given it a line of credit $300 million (comprising a $220-million loan agreement and a $80-million guarantee agreement),” says Ahmad.
This is the first-ever IBRD guarantee in India and is expected to help leverage about $200 million in additional financing, according to the EESL website.
“We have also invested $1 billion in Powergrid Corporation Corporation Ltd (PGCL) which can go to market and raise international money. But what they can do is also swap… they could say take the World Bank money and swap it,” he adds.
Potential projects
The Bank’s proposed intervention in the social sector schemes also merits mention. It plans to put together a common infrastructure that will include creating a social registry to identify all girl students, farmers and unemployed youth who need state support. It aims to build a robust financial management system to ensure money flows seamlessly from the government to the bank account of the recipients.
Moreover, it is trying to work with municipalities and corporations to help them raise more revenue from taxes, manage the revenue and state grants for projects efficiently and operate and maintain the assets (roads, markets and solid waste management projects) created by the fund to prevent them from decaying.