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India Needs to Maintain Reform Momentum to Reverse Current Economic Slowdown

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India needs to continue to implement critical reforms in key areas such as health, labor, land, skills and finance to come out stronger from the impact of the COVID-19 pandemic. These reforms should aim at enhancing productivity of the Indian economy and spur private investments and exports, says a new World Bank report.

The India Development Update, released today, is a biannual flagship publication of the World Bank that takes stock of the Indian economy. The current issue describes the state of the Indian economy over the previous six months and places these in a longer-term and global context. It also provides a more in-depth analysis of selected economic and policy issues and highlights the economic reforms that India has been undertaking and needs to continue with in the medium to long-term. 

Outlook for the Indian economy

The World Bank projections in this report are from May 2020 when it projected the economy to contract by 3.2 percent in FY20/21, and rebound slowly in FY21/22. It further estimated that the COVID-19 outbreak is likely to have significant fiscal implications. The fiscal deficit of the central government is likely to increase to 6.6 percent of GDP in FY20/21 and is expected to remain elevated at 5.5 percent in the following year. Assuming that the states’ deficit is contained within 3.5-4.5 percent of GDP, the combined deficit could rise to around 11 percent in FY20/21. While there is a significant level of uncertainty around the projections, the general government debt-to-GDP ratio is projected to peak at around 89 percent in FY22/23 before gradually declining thereafter. 

The outlook comes predicated with several downside risks. Further challenges have emerged in recent weeks which are likely to weigh on the prospects in the near term. These risks include the virus continuing to spread; a further deterioration in the global outlook; and additional strains projected on the financial sector. Keeping these factors in mind, a steeper contraction may be projected in the revised outlook that will be available in October 2020.

“While the Government of India, with the support of the Reserve Bank, is continuing to take action to limit the impact of the COVID-19 pandemic, there is a recognition of both the uncertainty of the nature of the economic revival globally and the emergence of opportunities opened by the current crisis,” said Junaid Ahmad, World Bank Country Director in India. “Countries that invest in sectoral reforms – infrastructure, labor and land, human capital — and ensure that their national systems are connected to the Global Value Chains, are more able to respond to uncertainties and are better placed to take advantage of any global shifts. Investing in these areas will give India the ability to navigate these uncertainties and be more competitive as the world emerges from the pandemic.”

Priority areas of reforms

COVID-19 has come at a time when the Indian economy had already been decelerating for nearly two years. The pandemic has exacerbated some of those challenges. Besides the immediate relief and recovery measures, the government has announced significant reform measures for agriculture, education, public sector, and micro, small and medium enterprises. The report says furthering such reforms will help put the economy back on a 7 percent growth path.

i) Strengthening fiscal reforms

In order to instill fiscal discipline in handling COVID-19 related implications, the report suggests India may:  

· Reassess subsidies to leverage any scope for efficiency gains;

· Evaluate how much can be borrowed domestically and externally;

· Generate nontax revenues more aggressively; and

· Link the repayment of new borrowings to disinvestment receipts.

ii) Financial sector reforms

To put the financial sector on a sounder footing, the report identifies specific areas of reform. These include:

Financial sector stability. The RBI’s continued focus on risk-based regulation and supervision will be important as the temporary forbearance measures are phased out. Further strengthening of financial sector safety nets; close monitoring of liquidity and capital buffers; and regulatory and institutional framework for debt restructuring and insolvency could help deal with any spike in non-performing loans.

Reforms in the Non-Banking Finance Company (NBFC) sector. Reforms in the NBFC sector are needed to support its role in channeling credit to the real sector. In order to diversify the funding base and to strengthen the NBFC sector, recently launched liquidity schemes for NBFCs could be institutionalized. It would also be important to continue strengthening risk-based regulation and oversight of NBFCs.

Deeper capital market reforms. Deeper capital markets are critical for increasing the availability of long-term finance. The report calls for the government to continue its focus on easing demand and supply side constraints, and to build on recent initiatives. The report also suggests revisiting investment guidelines for institutional investors to crowd in long-term finance and address asset liability mismatch issues.

Role of fintech. The fintech sector has the potential to close the gap in access to financial services and help firms, especially MSMEs, access much needed credit and liquidity. The report suggests mainstreaming fintech to reach firms faster and at a lower cost.

Moving to a more strategic public-sector footprint. Recent efforts including consolidation of public sector banks and strengthening of corporate governance are encouraging steps towards a more strategic public sector footprint. Moving forward, gradually scaling back the statutory requirement for state banks to provide liquidity, as well as the priority-sector lending policy, will help reduce market distortions.

“The recent liquidity and performance issues in the financial sector, exacerbated by the COVID-19 crisis, present policymakers with a strong reason — and an opportunity — to accelerate efforts towards building a more efficient, stable, and market-oriented financial system,” said Poonam Gupta, Lead Economist, World Bank and Dhruv Sharma, Senior Economist, World Bank and co-authors of the report. “It is encouraging that the government is moving to a more selective and strategic public sector footprint in the financial sector. International experience shows this can boost the banking sector’s ability to support credit, facilitate effective financial intermediation, and reduce fiscal exposure.” 

The current crisis has also brought to the forefront new economic opportunities in the areas of digital technology, retail, health-technology and education-technology services; and global demand in areas such as pharmaceuticals, medical equipment, and protective gear. These opportunities can provide new growth levers for India, the report adds.

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Curbing Corruption in the Midst of a Pandemic is More Important Than Ever

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Progress against corruption can be made even under the most challenging conditions, a new World Bank report finds. At a time when unprecedented levels of emergency funds have been mobilized to respond to the COVID-19 pandemic, the report offers a fresh look at some of the most effective approaches and tools to enhance government accountability.

Enhancing Government Effectiveness and Transparency: The Fight Against Corruption focuses on ways to enhance the effectiveness of anti-corruption strategies in the sectors most affected. It serves as a reference guide to policy makers and anti-corruption champions as further work is needed to sharpen the application of traditional tools.

“The COVID-19 pandemic has resulted in large scale emergency spending by governments at rapid speed to revive the economy as well as protect the poor and vulnerable who suffer disproportionately. As countries embark on the road to a more resilient and inclusive recovery, prudent use of scarce resources in a transparent manner is critical,” said World Bank Managing Director Mari Pangestu, “Progress is possible in all environments and we are committed to work closely with our partners in government, civil society, and the private sector to address corruption and its corrosive impacts.”

Some of the unprecedented emergency spending against COVID-19 has occurred without adhering to the regular checks and balances. While speed is understandable, without proper controls, it exposes governments to a variety of corruption risks that may undermine the effectiveness of their responses. To foster greater accountability, the report calls on governments to clearly articulate their actions, enforce rules, address violations, and remedy problems as quickly as possible, and in a transparent manner.

The report covers five key thematic areas: public procurement, infrastructure, state-owned enterprises, customs administration, and service delivery, and cross-cutting themes such as open government initiatives and GovTech, with case study examples from around the world. It will help equip public sector officials and civil society with a modular set of approaches and tools that can be drawn upon and adapted to their specific country context. 

The report’s case studies show that measures to curb corruption are often opportunistic, targeting specific areas of vulnerability where and when the political space allows. But even when actions have apparently limited impact, they can provide important foundation for future progress.

In Bangladesh, the implementation of the e-Government Procurement, combined with increased transparency and citizen participation, halved the number of single bidder tenders which improved competition significantly; increased the number of contracts awarded to non-local firms; and led to better prices with successful bidders.

Colombia updated its e-procurement system to publish data in an open way following international standards.  As a result, single bid tenders in the public roads agency, INVIAS, went down from 30% to 22%, while cities like Cali saw competitive processes increase from 31% to 56% in about two years.

In Ukraine, making wealth declaration forms of public officials available online was recognized by citizens and the international community as a key tool in the fight against corruption. The latest data shows that close to 5,3 million documents in the e-declarations system are accessible to the public. As of mid-2020, the High Anti-Corruption Court of Ukraine had 19 cases against officials accused of submitting false information in the Asset and Interest Declaration or intentionally not submitting a declaration.

In Afghanistan, the customs department has been progressively implementing a countrywide computerization of customs clearance operations. Although significant vulnerabilities exist and revenue loss at the borders remains a substantial challenge, revenue collected by customs has increased seven-fold between 2004 and 2019, and clearance time and the transparency of trade transactions has improved significantly.

The land reform program in Rwanda helped manage the conflicts around land and led to increased efficiency, transparency, citizen participation, and development of viable land governance institutions. Automation of land records reduced bribes paid to land registry officials as the information was in public domain.

“Institutions are incredibly important for implementing government policies, engaging civil society, and ensuring greater transparency in government operations,” said Ed Olowo-Okere, World Bank Global Director for Governance, “The global report highlights the importance of complimenting the traditional methods of dealing with corruption with advanced ones like GovTech and e-Procurement to address corruption, even in the most challenging and fragile environments.”

The World Bank Group, one of the largest sources of funding and knowledge for developing countries, is taking broad, fast action to help developing countries strengthen their pandemic response. We are supporting public health interventions, working to ensure the flow of critical supplies and equipment, and helping the private sector continue to operate and sustain jobs. We will be deploying up to $160 billion in financial support over 15 months to help more than 100 countries protect the poor and vulnerable, support businesses, and bolster economic recovery. This includes $50 billion of new IDA resources through grants and highly concessional loans.

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A rapid rise in battery innovation is playing a key role in clean energy transitions

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Affordable and flexible electricity storage technologies are set to catalyse transitions to clean energy around the world, enabling cleaner electricity to penetrate a burgeoning range of applications. Between 2005 and 2018, patenting activity in batteries and other electricity storage technologies grew at an average annual rate of 14% worldwide, four times faster than the average of all technology fields, according to a new joint study published today by the European Patent Office (EPO) and the International Energy Agency.

The report, Innovation in batteries and electricity storage – a global analysis based on patent data, shows that batteries account for nearly 90% of all patenting activity in the area of electricity storage, and that the rise in innovation is chiefly driven by advances in rechargeable lithium-ion batteries used in consumer electronic devices and electric cars. Electric mobility in particular is fostering the development of new lithium-ion chemistries aimed at improving power output, durability, charge/discharge speed and recyclability. Technological progress is also being fuelled by the need to integrate larger quantities of renewable energy such as wind and solar power into electricity networks.

The joint study shows that Japan and Korea have established a strong lead in battery technology globally, and that technical progress and mass production in an increasingly mature industry have led to a significant drop in battery prices in recent years. Prices have declined by nearly 90% since 2010 in the case of lithium-ion batteries for electric vehicles, and by around two-thirds over the same period for stationary applications, including electricity grid management.

Developing better and cheaper electricity storage is a major challenge for the future. According to the IEA’s Sustainable Development Scenario, for the world to meet climate and sustainable energy goals, close to 10 000 gigawatt-hours of batteries and other forms of energy storage will be required worldwide by 2040 – 50 times the size of the current market.

“IEA projections make it clear that energy storage will need to grow exponentially in the coming decades to enable the world to meet international climate and sustainable energy goals. Accelerated innovation will be essential for achieving that growth,” said IEA Executive Director Fatih Birol. “By combining the complementary strengths of the IEA and the EPO, this report sheds new light on today’s innovation trends to help governments and businesses make smart decisions for our energy future.”

“Electricity storage technology is critical when it comes to meeting the demand for electric mobility and achieving the shift towards renewable energy that is needed if we are to mitigate climate change,” said EPO President António Campinos. “The rapid and sustained rise in electricity storage innovation shows that inventors and businesses are tackling the challenge of the energy transition. The patent data reveals that while Asia has a strong lead in this strategic industry, the US and Europe can count on a rich innovation ecosystem, including a large number of SMEs and research institutions, to help them stay in the race for the next generation of batteries.”

The joint study follows the publication earlier in September of the major IEA report Energy Technology Perspectives 2020, which has deepened the IEA’s technology analysis, setting out the challenges and opportunities associated with rapid clean energy transitions.

As governments and companies seek to make informed investments in clean energy innovation for the future, sector-specific insights like those offered by the joint study will be highly valuable, including for helping bring about a sustainable economic recovery from the Covid-19 crisis. The innovation study provides an authoritative overview of the technologies and applications receiving research attention – and of those that are underserved. It also shows where they stand in the competitive landscape.

Innovation is increasingly recognised as a core part of energy policy, and this year the IEA has been introducing more tools to help decision-makers understand the technology landscape and their role in it – and to track progress in innovation and the deployment of technologies. This includes a comprehensive new interactive guide to the market readiness of more than 400 clean energy technologies.

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Russia Among Global Top Ten Improvers for Progress Made in Health and Education

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Russia is among the top ten countries globally for improvements to human capital development over the last decade, according to the latest update of the World Bank’s Human Capital Index (HCI).

The 2020 Human Capital Index includes health and education data for 174 countries covering 98 percent of the world’s population up to March 2020.

Russia’s improvements were largely in health, reflected in better child and adult survival rates and reduced stunting. Across the Europe and Central Asia region, Russia, along with Azerbaijan, Albania, Montenegro, and Poland, also made the largest gains in increasing expected years of schooling – mainly due to improvements in secondary school and pre-primary enrollments. The report also shows that over the last 10 years Russia has seen a reduction in adult mortality rates. However, absolute values of this indicator remain high in the country with this progress now at risk due to the global Covid-19 pandemic.

Human capital contributes greatly to improving of economic growth in every country. Investments in knowledge and health that people accumulate during their lives are of paramount concern to governments around the world. Russia is among the top improvers globally in the Index. However, challenges persist and much needs to be done to improve the absolute values of Index indicators,” said Renaud Seligmann, the World Bank Country Director in Russia.

The HCI, first launched in 2018, looks at a child’s trajectory, from birth to age 18, on such critical metrics as child survival (birth to age 5); expected years of primary and secondary education adjusted for quality; child stunting; and adult survival rates. HCI 2020, based on data up to March of this year, provides a crucial pre-pandemic baseline that can help inform health and education policies and investments for the post-pandemic recovery.

Of the 48 countries in Europe and Central Asia included in the 2020 Human Capital Index (HCI), 33 are among the upper-third in the world, and almost all are in the top half. However, there are significant variations within the region.

In Russia, a child born today can expect to achieve 68 percent of the productivity of a fully educated adult in optimal health. It is at the average level for Europe and Central Asia countries and the third result globally among the countries of the same income group. There is a stark contrast between education and health subscales in Russia. While the education outcomes of the country are high and outperform many high-income peers, its health outcomes are below the global average.

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