Haruhiko Kuroda, who was re-elected president of the Asian Development Bank for a five-year term starting November, is in India to finalize the Bank’s India Country Partnership Strategy (CPS) for 2008–12. To be closely aligned with the priorities of India’s 11th Plan which runs through 2012, the draft CPS envisages a lending of $2.9 billion in 2008, $3.1 billion in 2009 and $3.2 billion in 2010. Kuroda, who is still bullish on India’s growth prospects, said in an interview with Mint that the country needs to push reforms in the infrastructure sector. Edited excerpts:
You’ve been talking to the Indian government during this visit. What have you been discussing with them, and how have the talks gone?
My talks have gone very well. We basically discussed continued and strengthened cooperation, particularly in (the area of ) infrastructure. Next week is also the six-country conference on climate change. But the major purpose (of this visit) was to meet the PM (Prime Minister) to discuss the new country partnership strategy. We envisage an increase in our financial and technical assistance to India and also (expect to) find some new areas to cooperate (in). Already, India is the biggest borrower, our biggest client. It is growing quite rapidly. Our official forecast is for 8.5% growth for this fiscal and next, but the economy may easily grow at 9% this year -- the momentum is still very strong. But equally important is the fact that this makes the infrastructure gap even more acute. Seaport, airport, water supply, sanitation, rural as well as urban infrastructure -- all need to significantly improve. If this is done, then the 8-9% growth today can be accelerated to 10-11% growth. Also if you improve rural infrastructure, you can make the growth inclusive and reduce poverty significantly.
Haruhiko Kuroda, president, Asian Development Bank
You spoke of some new areas of cooperation. What are the areas you are looking at?
We have been very active in transport and highways. Also, electricity and powergrid improvement. The focus on transport and power will continue. At the same time, we would strengthen our support in rural areas—rural transport, irrigation, water management and flood control. Another area is tourism-related infrastructure. Tourism is expanding quite rapidly; it also creates a lot of jobs, particularly in rural areas.
So we are looking to increase our volume of lending in the coming years. Our lending to India this year (2007) is $2.8 billion. This is quite large and represents a significant rise from the average of last five years, which was less than $2 billion, I think. This increasing trend will continue.
Of course, everything will depend on how well the projects are designed and the portfolios are managed, monitored and implemented. But I am hopeful that this improving trend will continue in the next three years.
India is your biggest borrower, but is it the best performer with respect to some of your projects here?
I think India is one of the best performers. Certainly, China is better in some sectors in terms of implementation of projects. One reason why China has performed quite well in respect to ADB’s projects is that it has become quite experienced in project implementation. Also, China and India are both big countries. In many cases, implementation is left to state governments (provincial governments in China). But implementation has accelerated in the past couple of years, portfolio management has improved, and disbursement has become quicker. Thus the impact of the project is also increasing more rapidly. One reason is (because) ADB and the federal government have discussed efficient implementation practices, and state governments too are getting more experienced in implementation.
What about corruption? Is it coming down?
This is a complicated issue. But in general, yes, financial management has become tighter, and results are coming quicker.
Apart from infrastructure, what are the other areas India should improve in if it is to compete with China?
I always emphasise physical infrastructure, but reform is also crucial. After all, the private sector is the engine for growth and technology development. It makes the main contribution for production capacity increase. Unless you have good investment climate, appropriate regulatory frameworks, good governance.... If you are to sustain high growth, you need to look after infrastructure and reforms for private sector.
You mean, India should have rules to encourage more private sector participation in more areas?
We don’t say that private sector should do everything. But in many cases privatisation of public enterprises leads to better efficiency.
Do you have specific areas in mind where the government should stay and others where it shouldn’t?
One way to push for greater economic reform is to commit oneself to open international trade. The fate of the Doha round (of WTO talks) has become uncertain, but it will benefit developing countries like India. You have to reduce tariffs, you have to deregulate some sectors to get better market access in other countries. So, you need to develop industries in those areas where you will gain. In this connection, labour market reforms are needed for industrial growth and more jobs. Some other areas are fiscal issues--social welfare reform and tax reforms. These are not easy in any country. So Doha round could be a good opportunity.
In a situation when most Asian countries are resource surplus and won’t need the ADB so much, what do you see as the bank’s future role?
Money is abundant in Asia, even in India, which is getting large capital inflows. But infrastructure requires long-term financial commitment, which also has a knowledge component. The hardest thing is to design a good, viable long-term project so that financing is possible. So we help countries make such good, result-oriented projects, of which the private sector may finance half (the project cost). Our financing is not simply money but other things such as safeguard policies, international procurement systems, etc. Increasingly, we are financing only about 20% of the project costs. The larger part is coming from private sector and government. India is money-rich now. But it doesn’t mean you don’t need World Bank-ADB assistance anymore for such projects.
Have you accepted the recommendations of the Eminent Persons’ Report?
It is a stimulating and thoughtful report. But it is only an input. We are also getting feedback from all quarters, including member governments and NGOs (non governmental organizations). By doing this inclusive consultation, we will finalise our new long-term strategy framework which should be comprehensive, and should be made by ourselves.
What are the barriers for India to join ASEAN (Association of South East Asian Nations)?
Asia is so diverse compared to Europe that it is not possible to have a blueprint or goal. We need to adopt more pragmatic, step-by-step goals. At this stage the most integrated area is ASEAN, which is set to become an economic community by 2015 by harmonizing internal tariffs and domestic regulations. India should become a part of this community in the long run by doing the same. Free trade agreements (FTAs)are also a good way (to do this).
You are recommending both the Doha round which is essentially about a multi-lateral agreement as well as free trade agreements. Isn’t there a conflict?
FTAs are not a substitute, definitely. Many FTAs in east Asia include tariff reduction or elimination, but also liberalization measures and harmonization of domestic regulations. The multilateral treaty and the FTAs complement each other.