Pranab faces two-Indias challenge K.P. NAYAR

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Pranab faces two-Indias challenge

K.P. NAYAR

Union finance minister Pranab Mukherjee arrives at New York's JFK airport on Wednesday. Jay Mandal/On Assignment Washington, April 18: Finance minister Pranab Mukherjee arrived in New York today on his way to Washington to represent not one but two Indias at the spring meetings of the World Bank and the International Monetary Fund (IMF). India's schizophrenia as "an important force for designing a future global architecture" — as outgoing World Bank president Robert Zoellick puts it — and also as home to "one in three of the world's poor" — again to quote Zoellick — represents the most challenging international dimension to any Indian finance minister's agenda yet, with the country at the crossroads of reforms for potential growth and a relapse into the old ways of equal misery for all. That challenge will come to a head here this week as the International Development Association (IDA), which aids the world's poorest people, decides in principle whether India will become ineligible for interest-free credits and grants in 2015 because it is a rising global economic power and has weathered the impact of the world's ongoing economic crisis. China, which used to be an IDA beneficiary, went through a similar phase in its growth and is no longer eligible for IDA money. In preparation for this Washington challenge, Mukherjee applied for anticipatory bail for India in the weeks before travelling for the spring meetings, according to sources in the World Bank and the IMF. In the first place, India strongly supported the candidature of Korean American Jim Yong Kim as Zoellick's successor in the first ever election of a World Bank president and voted for him in a straw poll at a meeting of the bank's executive directors two days ago. In doing so, North Block, the seat of Mukherjee's ministry, departed from its old non-aligned habits which would have made it tempting to support Jim's developing country opponent from Nigeria, its finance minister Ngozi Okonjo-Iweala. For Mukherjee personally, it was not an easy decision to vote against Okonjo-Iweala. She had previously been Nigeria's foreign minister as well as finance minister, two of three jobs Mukherjee has held in the UPA government. Mukherjee had also worked with her when she was a managing director of the World Bank from late 2007 until last July. Okonjo-Iweala has other friends in high places in India. As managing director, she had won plaudits on record at meetings of the bank's executive directors from Pulok Chatterjee, now principal secretary to the Prime Minister, and Dhanendra Kumar, chairman of the committee on the National Competition Policy. Both men served as India's executive directors to the World Bank, one succeeding the other. B.V.R. Subrahmanyam, who was private secretary to the Prime Minister and is back now in Manmohan Singh's office dealing with India's economic relations and Singh's Economic Advisory Council, also worked with Okonjo-Iweala in the bank. But in the end, Mukherjee's pragmatism won over ideology, especially after the Korean American travelled to New Delhi as a candidate and had a long meeting with him and Jairam Ramesh, minister for rural development. Obama administration officials who prepared Jim's talking points with Mukherjee told this correspondent on background that they were fearful that given the current populist mood in Indian politics, the UPA government may decide to vote for the nominee of Nigeria, with which India has much in common as another emerging economy. So they told Jim to emphasise in his conversation with Mukherjee that India should vote for him not because he is American but in consideration of his record. Jim claimed that his has always been the voice of the poor, and his priorities in life and work have never been financial institutions or the corporate world, but issues that are important for India such as health care and education. In a statement two days ago, thanking India and other countries which voted for him, Jim spoke again in a similar vein and said "we must raise our sights to match the aspirations of those most excluded." What Jim was unaware was that North Block had decided to vote for him precisely because he was an American. Currently, the US and Britain are the biggest contributors to the IDA and will have a definite say on whether to continue interest-free credits and grants for India beyond 2014. In the run-up to the spring meetings, North Block also invited a group of executive directors from the bank to tour India and get a first-hand understanding of the state of the country. Britain's executive director led this group and came back to Washington with a very favourable impression of India. That tour, which was organised with the same foresight with which Mukherjee patiently steered the Indo-US nuclear deal, will hopefully help not only in continued IDA grants and credits for India, but also in other World Bank Group assistance. India is the bank's biggest recipient of funds. Zoellick said at the annual Boao Forum in China a fortnight ago that "frankly, we have been somewhat limited about what we can do in India going forward, in part because our shareholders say, well, you don't want (to give) too much to one country and so on and so forth". At the same time, he acknowledged that "in India it is very much a concern that they want more multilateral financing. Their needs for infrastructure financing are very great. They have drawn on the bank support over years. I think our total outstandings are about $38 billion from different sources in India." Within the World Bank Group, there is a growing view that instead of pursuing a "one country" approach, India should approach the IDA on a state-by-state basis which would enable states like Bengal, Bihar and Uttar Pradesh, for example, where development has been lagging, to continue to get interest-free credits and concessional grants. If such an approach is accepted, states like Karnataka, Maharashtra or Gujarat, which are developing faster, will become ineligible for IDA funds. Such an approach would require a fundamental change in the IDA's policies and will be possible only if Mukherjee realistically represents two Indias in practice and speaks in two voices — one for developed states and another for less developed states. The finance minister has clearly tried shrewd diplomacy to avoid such an approach so far, but it could produce mixed results. Events this week will show whether such a new, unconventional approach is inevitable to ensure balanced growth of India.