India: We are very ambitious for India, says the Managing Director of the International Finance Corporation

The International Finance Corporation (IFC) wants to double its lending to India to $2.5-3 billion over the next two years, pouring money into newer areas such as renewable energy, climate change, circular economy and logistics.
Makhtar Diop, Managing Director of IFC supports a greater emphasis on the development agenda which includes support for border states and aid for MSMEs. Edited excerpts from an interview with
Deepshikha Sikarwar and Vinay Pandey:

India is already IFC’s largest program. What type of exhibition do you envision and what are the main areas of interest?

IFC would and should do more in terms of financial commitment because India’s economy is at a stage where we can provide more. India can take advantage of supply chain developments to localize supply chains. On the manufacturing side, India now has a good opportunity to attract FDI. Renewable energies and the energy transition also represent an opportunity. IFC will provide financing to MSMEs to build their capacity and contribute to India’s efforts to become a manufacturing hub. IFC is also keen to partner with cities on subnational financing.

IFC is a private sector investor with a strong development agenda. How do you marry the two objectives?

IFC is the world’s largest development institution focused on the private sector in emerging markets. In FY22, IFC committed a record $32.8 billion to private businesses and financial institutions in developing countries, leveraging the power of the private sector to end poverty. extreme poverty and boost shared prosperity as economies grapple with a deepening global crisis. We focus on development while making profit.

Within the development mandate, are there enough private investment opportunities in the market?

India is now the fifth largest economy. FDI is picking up and the country is expected to experience medium-term growth of 7%. The Indian economy has shown a good rebound from the pandemic. There is a desire within the government to make improvements, to make it easier for companies to do business. Some measures have been taken to simplify procedures at company level. What the private sector sees as fast growing areas are those surrounding the economics of climate change. The circular economy also takes center stage. These are some of the areas where investments would come in the near future. India emphasizes playing an important role in global supply chains. It is a medium-term ambition. It is also possible to be part of the semiconductor supply chain. In healthcare and pharmaceuticals, from traditional medicines to future vaccines and genomics. More than 20% of our portfolio is in disruptive technologies, as we see an opportunity to combine research and innovations in India with digitization to play an important role in the design of new, more targeted types of medicines based on genomics and adapted to diverse populations.

In India, we are looking at renewable energy. We would also look at border states. How can we help them attract more private investment. We are very ambitious for India. We are looking to double our commitments to $1.3-2.5-3 billion over the next two years. We seek to engage further with NaBFID and in large-scale infrastructure development.

Changing supply chains offer multiple opportunities for countries. How do you see this playing out for India?

I was very impressed with how the private sector views the government’s initiative to improve the business environment. There is a strong sense of confidence that the new measures are having an impact and attracting investment. The government is taking steps to encourage investment, targeted investments for the use of renewable energy will help. The workforce is skilled to support private sector investment, with the government taking strong action. The PLI and targeted incentives to subsidize energy for state governments will also help attract investment. India must continue to invest in renewable energy supply chain, healthcare and logistics.

The global economy is facing a big challenge of high inflation and monetary response. How should emerging economies like India deal with it?

This is the toughest time to be a central banker due to the nature of the shock. This kind of crisis, especially after two years of a pandemic, is quite difficult. This kind of slowdown has never happened, so central bank governors have to be very creative. Major economies are experiencing a sharp rise in interest rates due to inflation. The challenge would be to synchronize your tightening with that of the US Federal Reserve so as not to face large capital outflows from countries and at the same time neither too much nor too soon to have an impact on your growth. Maintaining this temporal consistency is, I think, the hardest part. India has a very robust foreign exchange reserve. Thus, the central bank has a few buffers. The central bank has been very careful in building up foreign exchange reserves during good times. If RBI had not done this then, India would have been in a tough spot now.

You mentioned MSMEs as a priority area. What approach are you going to have for this sector which can be very risky?

One of the characteristics of large middle-income countries is the missing middle. If you look at the distribution of income and the distribution of productivity at the firm level, you will have a lower level of productivity in firms in the informal sector whereas there will be large firms that are very productive and efficient. But what is missing is the middle. The great challenge is to solve this problem and to use all the instruments at our disposal to reduce the risks. We need to align our lending with government grant or support programs to build a strong MSME framework. This includes technical assistance, advice, market access and opportunities.

India will take over the presidency of the G20. What kind of agenda would you like to see?

India can play a bigger role in the energy transition. Increase South-South investments. Emphasis should also be placed on increasing foreign investment in fragile countries and renewable energy supply chains. India can play a bigger role in mobilizing resources in the health sector in view of the pandemic as well as in the social sector.

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