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Infrastructure Stimulus and Finance: A Rethink



Can infrastructure investments provide a strong stimulus for the Indian economy? The answer is a resounding but conditional yes: conditional on how the investments will be financed and spent.

Size versus Leverage

The policy discussions on how to finance infrastructure inevitably focus on the size of a potential fiscal stimulus. This is surely an important aspect of financing infrastructure and is well reflected in the GoI’s fiscal allocations through various centrally sponsored schemes, different funds like the Consolidated Roads Infrastructure Fund (CRIF), the allocations of the Finance Commissions, and directly and indirectly through the multiple Development Finance Institutions (DFI).  Increasing fiscal allocations through these channels is always possible and is being actively pursued.  But, the amount of resources needed to finance the infrastructure deficit – at least 7-8% of GDP per annum – would be a challenge to fund directly from the annual fiscal allocation of government.  Rather, the need of the hour is to pivot from a focus on the size of a fiscal stimulus to an emphasis on leveragehow much can public resources crowd-in the financial markets. The latter allows for a more efficient and equitable way of financing infrastructure. First, by smoothening the cost of financing the investments over time and second, by sharing the cost with future beneficiaries of investments made today.

But leveraging should not be about piggy backing on the public banking system. Public banks in India are in the middle of an evolving reform process that needs to continue. And, the maturity of their money does not match the need for long term infrastructure finance. The alternative of strengthening public DFIFs to tap into financial markets and ensure on-lending for investment purposes is already part of GoI’s arsenal. DFIs can be further leveraged but their track record is mixed and like the public banks, their roles would benefit from a rethink in terms of purpose and operational framework. Instead, the power of the fiscus is perhaps best used to offer different mechanisms to access capital markets and institutional investors – pension funds and life insurance agencies – to finance infrastructure. A second generation of DFIs which offer credit enhancement and bond insurance is the need of the day. These institutions would offer credit enhancement, first loss, and partial guarantees to enable infrastructure providers to access long term finance from international and local markets.  Such an approach would receive additional fillip if the regulatory framework also enabled domestic institutional investors to increase their funding for infrastructure.  

DFIs with credit enhancement approach has three distinct advantages over traditional DFIs. Government can share more of the risks of the investments with markets while relying on market assessments of the creditworthiness of the projects. Second, infrastructure providers will seek to establish greater creditworthiness of their investments as the incentive is to rely primarily on market finance with government enhancements offering only additional support.  Third, while political interference in credit decision is difficult to eliminate completely, it is less in a credit enhancement system which has a clearer separation between public and private actors.

From Hardware to Services: Bankable Infrastructure Companies

Leveraging finance is, however, only one part of the equation. The other part is on the expenditure side — focusing on how the finance is spent.  Traditionally, the emphasis has been on the hardware such as expanding the road network; investing in pipes and wires for water and electricity; building the ports and the airports; and expanding public housing. As these examples suggest, ensuring adequate capital expenditure for the hardware has traditionally been the focus of infrastructure programs.  Even more important, however, is to ensure that infrastructure expenditures are successfully converted into infrastructure services. By themselves, more water pipes may not lead to regular water supply. More buses will not automatically give rise to an efficient urban transport system and more airplanes will not necessarily translate into better airline services.  India needs accountable and effective utilities, companies, and corporatized agencies that can translate infrastructure spending into, for example, continuous not intermittent water supply, reliable electricity supply, efficient transport services, effective solid waste collection and disposal, and efficient port services.

An infrastructure stimulus program must therefore include a concerted and long overdue push to convert existing public sector departments and agencies into efficient and accountable public sector companies. Australia which lost its place as a top industrialized country in the late nineties, reformed its infrastructure sector along these lines to give its economy a boost. England has long reformed its infrastructure agencies linked to financial markets. The examples of PowerGrid, EESL, ConCorp, Delhi electricity companies, Shimla and Belgaum-Hubli-Dharwad water companies, and corporatized airports, however, suggest that India does not need to go beyond its borders to find the innovations in infrastructure service delivery. Rather, India needs to pivot from a focus on bankable projects (more hardware) to supporting bankable institutions (scaling up infrastructure services). Such a shift has greater multiplier effect on economic growth and is a pre-requisite for delivering on the PM’s challenge on ease of living.

Bankable institutions are directly linked to the strategy of leveraging financial markets. These institutions can float bonds to tap into long term finance from the markets and take advantage of any credit enhancement programs of GoI. In turn they strengthen the bond market and deepen the financial markets.  The demand for financing operations and maintenance by bankable companies also allows the banking sector to participate more efficiently in infrastructure financing.  In addition, it would enable the NIIF with its deep pockets to scale up its equity investments.

Importantly, bankable institutions open the door for creating more inclusive institutions.  Appropriately structured, an infrastructure company can distribute shares to its workers or, even more ambitiously, government can buy a percentage of the shares and distribute it to households below a certain income threshold. India’s impressive IT platforms and growing experience with DBTs suggest this approach is amply feasible. Even India’s federal structure would stand to benefit as all tiers of government can co-own shares in an infrastructure company. Take, for example, the possibility of creating a global class commuter railway company in Mumbai. The city of Mumbai, the State of Maharashtra, and Indian Railways, as representative of the center, could co-invest and co-own shares in such a company very much in the spirit of cooperative federalism.  Such an approach would also enable a State to devolve certain service delivery systems – water is an excellent example – to city governments in exchange for a commitment to create a water company with joint shareholding between the State and the local tier. A different approach to evolving India’s city governments.  

The debate about Public-Private Partnership is also related to the discussion about creating bankable infrastructure companies. A public sector company can contract in a private operator. This is, however, not necessary. The Sao Paulo Water Company is the world’s largest water utility. It is a public sector company that raises resources from the capital markets and over time has leveraged private capacity in managing some parts of its operation. DFCL in India is a public sector company that is expected to run the freight corridors as open networks offering access to private and public freight operators. These examples suggest that PPP is an approach or instrument that can be leveraged by a creditworthy infrastructure company.  The goal should be to create bankable institutions and PPP is an instrument that the former can leverage. The latter need not be an objective by itself.  

Infrastructure and Social Protection: An Important Link

A possible concern about creating infrastructure companies capable of tapping into financial markets is the issue of user charges. A bankable discom, for example, would need some level of user charges as a revenue source. The possibility of free electricity would then be difficult to deliver if attracting finance from the markets based on bankability was the objective. It is far easier – politically – to rely on a public sector banking system, blanket government underwriting, or direct fiscal transfers, all to sustain free electricity.  Herein lies a possible gordian knot to resolve.

The cost of the ‘free electricity’ is well known: an inefficient discom system;  erosion of India’s natural resource base especially ground water; the burden on the financial sector and its consequences for economic growth; and the inequity of the system which subsidizes the better off. The solutions are also known. At their core is the need to partially delink the focus on redistribution (eg. free water or electricity) from incentivizing efficient and bankable infrastructure companies. India’s evolving social protection architecture with its pivot towards cash transfers – e.g. JAM, cash transfers for farmers – for targeted groups allows governments to credibly and directly support the income of women headed households, farmers, and the poor. Combining this approach with some user charge subsidy – but now more targeted because of a parallel social protection architecture – and linking it to service delivery reform helps resolve the gordian knot. A social protection architecture is thus an important part of infrastructure strategy.

Infrastructure and Climate Change

The linkage between climate change and infrastructure finance requires a separate discussion and analysis.  For this note, however, it is important to flag that in today’s context of climate change, the standards, technology, and regulation around infrastructure are rapidly changing and financing will respond accordingly. Capital markets will favour investments in resilient infrastructure. Governments are taxing climate inefficient infrastructure, making it harder for old style infrastructure to maintain sufficient margins to access capital markets. In effect, investments in infrastructure that are not climate friendly will be costlier to finance.

In this context, it is essential to allow public sector infrastructure agencies the bandwidth and flexibility to adapt and change and reap the benefit of the various mechanisms that are emerging in the context of “green financing.” Bankable infrastructure companies as defined in this note are therefore even more important in today’s setting of climate change. In India, efficient and viable discoms, for example, are essential to ensure that GoI’s goal of 450 GW of renewable energy is achieved.  Effective and credit worthy infrastructure institutions are therefore a prerequisite for a world where green infrastructure is now critical for sustainable, economic growth.  

In conclusion…

So yes, infrastructure spending will have growth multipliers. It will depend on whether these investments are financed by leveraging financial markets and undertaken by creditworthy infrastructure companies. While technocratically possible, the implementation of this approach will require active political shepherding. Prices will have to be restructured; roles and responsibilities between tiers of governments reimagined; and public policies shaped to leverage markets. The availability of a new social protection architecture, a global class IT system, and India’s past and on-going experience in infrastructure management offers the capacity for India to unleash a rethinking of how infrastructure can be delivered at scale. Climate considerations further add to this imperative. Ultimately, India needs a new class of infrastructure companies modelled as modern utilities under company law capable of accessing financial markets to accompany any infrastructure stimulus from GoI. In this context, the next generation of DFIs can play a critical role.

The article was originally published on – via World Bank

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Brick By Brick, BRICS Now a New Bridge for a New World

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Measuring BRICS in single decades, in 2001, BRIC started as an acronym for Brazil, Russia, India, and China; Goldman Sachs economist Jim O’Neill claimed that by 2050 the four BRIC economies would come to dominate the global economy. So South Africa was added to BRIC in 2010. The following countries are now expressing interest in joining: Afghanistan, Algeria, Argentina, Bahrain, Bangladesh, Belarus, Egypt, Indonesia, Iran, Kazakhstan, Mexico, Nicaragua, Nigeria, Pakistan, Saudi Arabia, Senegal, Sudan, Syria, the United Arab Emirates, Thailand, Tunisia, Turkey, Uruguay, Venezuela, and Zimbabwe. Is this now the awakening of BRICS+ or BRICS power?

BRICS+ by 2030 will add dozen new members and carve new indices, and by 2040, it will lead to new intellectualism on geopolitics and socio-economies for the super complex 2050 age of smart living.  

Historically, BRICS nations pushed on their people-power agenda over super-power titles. They made extreme value-creation economic models over focusing on powerful military-industrial complexes. They focused on nation-building and avoided special mandates to manage global affairs. They have been on a quest to upgrade them. They were feeding hungry mouths, as they were population rich, constantly up-skilling, and improving value creation as they were SME rich. They kept a steady watch to create multilateralism to uplift humankind.

They, too, made mistakes, as did the rest of the world

In the third decade of the third millennium, come 2020, three transformations erupted. First, futurism changed the rules on the ‘physicality of work’ and created a new imbalance with the ‘mentality of performance’; this has divided the workforce of world; the old system of over a billion commuting daily to the center of a complex maze to arrive daily at the sanctum of the company and create climate change. So now, in response, some 50% of the world’s workforce has chosen to stay away and work remotely in the surroundings of wide-open choices. Furthermore, technology uplifted micro-power-nations and exposed Western economies now stripped naked in bubble baths on slippery floors, they tippy-toe practicing conga-lines

Newly magnified economy: Behold, what microscopes exposed the magnified inner workings of the body. Similarly, the integrated networks have exposed the digital connectivity and working of millions of villages, cities, and nations with additional billions of people to interact, trade, improve grassroots prosperity and create a well-informed and opinionated citizenry. Some 100 years ago, if only 1% of the world’s population knew what was happening, today it is a dozen times more, and by 2030 double again. Why would these numbers change the global economic matrix when translated into micro-trading, micro-manufacturing, and micro-exporting? International opinion today is already strong enough to crush any national opinion of any nation still lingering under the illusion of a self-promoted victory.

When the SME sector already exists within each nation, the global markets are always hungry for good quality goods and services, and the rains of almost free digital technologies make such transformation a quick turnaround. Therefore, mindsets are critically essential; the need to define the difference between the job seeker mindset that builds the organizations and the job creator mindset that originates and creates that organization in the first place.

So what are the lessons, key features, and blueprints in sight?

Mistakes and new lessons: Last many decades, as the new world was rising, Western citizens felt like China experts, and their regular visits to local China towns restaurants in each city misguided them that Laundromat trained Chinese could only produce some chicken fried rice. Ever since the advent of the camera, the East was always projected as poor and dysfunctional; mesmerized by the media coverage during the last many decades, the West was equally convinced that India, a land of only snake charmers and fakirs, finally someday speak better English. The general perceptions about Asia, besides eating rice, if they could ever make cheaper products for the West. The rest is history, mistakes, and lessons.

After the big ding-dong nights of 2000 New Year’s Eve, today’s new story starts from the 20th chapter. Now China and India alone have created some 500 million new entrepreneurs, not by a magic pill or meta-crypto-wand but by National Mobilization of Entrepreneurialism, a slow, painful deployment of SMEs across the nation, and by creating mobilization protocols to identify, classify, and digitizing based on multiple factors from type and size to the evaluation of their “respectable” role in future communities and economic factors. This methodology was far more advanced in strategy and stern management over the globalization frenzy from the West, where sudden exporting of manufacturing of the industrial plants to kill manufacturing and destroying the middle class out of the West already declared globalization a great success.

The other mistake is to assume this is an economic or an academic study, at best, like an Oscar Slap on sleepy rotundas occupied with endless printing of money across the Western economies. Instead, this is an entrepreneurial response for the entrepreneurial nations to awaken hidden entrepreneurial talents in up-skilling SMEs and re-skilling manufacturers at national levels.

Recommendations and warnings: No airline can survive with only Flight Engineers and Frequent Flyers stuffed inside the cockpits; that space is only reserved for highly trained pilots. Henceforth, across the world, any economic development of any size, shape, or authority may find other more suitable alternate paths of occupation if they still cannot demonstrate any levels of understanding, applicable skills, or mobilization mastery on the National Mobilization of Entrepreneurialism to up-skill exporters and re-skill manufactures and uplift national SME sector as the most prominent economic contributor of the nation. Study the biggest error of economic thinking  

Underestimating the hidden powers of early thinking and starting a tiny unknown SME is a mistake of mindsets; here, entrepreneurialism like a saga unfolds, like a voluminous piece of literature but demanding literacy, understanding the job seeker mindsets and the ability to differentiate with entrepreneurial job creator mindset is already winning half the battle. Study the Mindset Hypotheses

Nations failing to realize the power of the billion SME rising in Asia and still unable to declare a national agenda of national mobilization of SMEs now must acquire an understanding of the 4B Factor: a billion displaced due to the pandemic, a billion replaced due to technology, a billion misplaced in wrong jobs now a billion on starvation watch. Furthermore, this 4 billion ever digitally connected mass of people ever in the history of humankind is now the most significant force of global opinion. Notice nations are already intoxicated with joy over the popularity of their national public opinion while having just an opposite international opinion on the world stage.

Recommendation; everyone is born an entrepreneur; our system chips away at this talent. Nevertheless, 10% to 50% high potential SMEs of any nation once are identified, classified, and digitized within 100 days. The uplifting digital platforms of up-skilling exporters and re-skilling manufacturers will result in 10% to 50% quadrupling their performance, productivity, and profitability. Imagine how much-regimented efforts will activate a positive national economic revolution based on real value creation, uplifting grassroots prosperity. How soon is a nation ready for a significant change? The rest is easy.

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Promoting Economic Security: Enhancing Stability and Well-being

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The stability and well-being of people, communities, and countries are critically dependent on economic security. It covers a range of topics, such as access to necessities, work opportunities, stable incomes, and defense against economic shocks. The need of guaranteeing economic security has increased significantly in the modern world, which is characterized by technical developments, geopolitical shifts, and unexpected disasters. The importance of economic security is examined in this article, along with important tactics for promoting adaptability and preserving people’s quality of life.

The value of economic security to individuals, communities, and countries cannot be overstated. By fostering an atmosphere where people and families can achieve their basic needs without suffering undue stress, it promotes stability. Because of this stability, people can recuperate and start over after severe shocks like economic downturns, natural disasters, or health crises.

Furthermore, economic security contributes to social cohesion by reducing inequality and fostering inclusivity. When individuals feel economically secure, they are more likely to actively participate in society, contribute to their communities, and engage in productive endeavors. This sense of security leads to greater social harmony and a collective feeling of prosperity.

Moreover, economic security is vital for long-term sustainable development. It enables individuals and societies to invest in education, healthcare, infrastructure, and innovation. These investments drive economic growth, improve overall well-being, and create the foundation for a prosperous future. By ensuring economic security, countries can build resilient and sustainable economies that benefit their citizens and contribute to global progress.

To enhance economic security, several key strategies can be implemented. Firstly, governments and businesses should prioritize diversifying their economies by promoting sectors with growth potential and resilience. By reducing reliance on a single industry or market, countries can mitigate the impact of economic downturns and build a more robust and diversified economy.

Investing in education and skills development is another crucial strategy. Governments and organizations must focus on providing quality education, vocational training, and lifelong learning opportunities. Equipping individuals with the necessary tools and knowledge enables them to adapt to changing economic landscapes and remain competitive in the job market.

Strong social safety nets are necessary to protect people during times of economic upheaval. The most disadvantaged populations should be given priority in the design and implementation of comprehensive social welfare systems by the government. Creating a safety net for all citizens entails implementing programs for income support, healthcare coverage, and unemployment benefits.

Promoting entrepreneurship and innovation can create new opportunities for economic growth and job creation. Governments can support aspiring entrepreneurs by providing access to capital, mentorship programs, and favorable regulatory environments. Embracing technological advancements and fostering a culture of innovation further enhances economic security, particularly in an increasingly digital world.

International cooperation is essential since economic security is a global issue. Cooperation between nations is necessary to advance ethical business practices, lessen economic inequality, and improve financial stability. Initiating discourse, coordinating policy, and assisting nations in economic crises are all important functions of multilateral organizations.

Societies can improve their economic security and create a more secure and prosperous future by putting these strategies into practice: diversifying the economy, investing in education and skills, creating social safety nets, encouraging entrepreneurship and innovation, and fostering international cooperation.

Having economic security is crucial in a world that is uncertain and changing quickly. Governments, corporations, and individuals may all work together to create an environment that promotes economic security by putting a priority on stability, resilience, and inclusivity. We can create a more resilient and prosperous future for everybody through diversity, education, social safety nets, entrepreneurship, and international cooperation. By making investments in financial stability, we build a more just and sustainable world.

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The Impact of Globalization on the South Asian Economy



Globalization refers to the process by which economies, societies, and cultures from different countries become integrated with one another. The economies of the countries that make up South-East Asia, which include India, Pakistan, Bangladesh, Nepal, and Sri Lanka, have been significantly impacted by the spread of globalization in recent decades. The effects of globalization on the economies of South Asian countries have been mixed, with some positive and some negative results.

Positive Impacts of Globalization on the South Asian Economy

The expansion of South-East Asia’s trade and investment opportunities is one of the aspects of globalization that has had the most positive impact on the region’s economy. Because of its large consumer base, low labor costs, and strategic location, the region has become an attractive destination for foreign investors. As a consequence of this, the level of foreign direct investment (FDI) in South Asia has significantly increased, which has led to the development of new industries and the production of new jobs.

The expansion of the service industry in Sout-East Asia can also be attributed to the effects of globalization. South Asian countries have emerged as a hub for the outsourcing of services such as information technology (IT) and business process outsourcing as a result of the emergence of new technologies and the increased availability of skilled labor (BPO). As a direct consequence of this, the area has benefited from an increase in both the number of available jobs and the amount of money it brings.

Last but not least, globalization has facilitated greater cultural interaction and integration throughout South-East Asia. The region possesses a significant cultural legacy, and the advent of globalization has made it possible for South Asian music, films, and cuisine to become popular all over the world. This has not only contributed to a greater awareness of the region’s cultural heritage, but it has also opened up new doors for the travel and hospitality industry.

Negative Impacts of Globalization on the South-East Asian Economy

Even though there have been some positive effects, there have also been some negative effects that globalization has had on the South Asian economy. The widening gap between rich and poor is one of the most pressing problems that we face today. The advantages brought about by globalization have accrued almost entirely to a relatively small number of people, which has contributed to a widening income gap. As a consequence of this, social unrest and a wider gap in incomes have emerged.

Another significant obstacle that has been presented is the displacement of workers and traditional industries. Due to the effects of globalization, many smaller businesses have been forced to shut down, and their employees have been relocated to larger companies that are more productive. As a consequence of this, there has been an increase in unemployment as well as social unrest, particularly in rural areas.

Globalization has contributed to the deterioration of the environment in South Asia. The region has seen a growth in industries such as the textile industry, both of which have had a significant impact on the environment as a result of their expansion. The population’s health and well-being have suffered as a direct result of environmental degradation, which can be traced back to the increased consumption of natural resources and the improper disposal of waste produced by industrial processes.


The economy of the South-East Asian region has been affected in both positive and negative ways by the phenomenon of globalization. While it has resulted in the growth of industries and increased cultural exchange, it has also resulted in the displacement of workers and the widening of income inequality. While it has contributed to the growth of industries and increased cultural exchange, it has also resulted in the displacement of workers. In order to address these challenges, policy interventions that foster inclusive growth, protect the environment, and create new opportunities for the population will be required. By acting in this manner, countries in South Asia will be able to take advantage of globalization’s positive aspects while mitigating some of its more damaging effects.

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