How India's expertise in addressing critical challenges can help the global economy

THE CURRENT ECONOMIC epoch is fascinating, and India’s exceptional achievements make the country stand out. The country has successfully handled several challenges, including healthcare issues during the Covid-19 outbreak and recent events in Europe, without causing significant disruptions or economic spillovers. These successes offer valuable lessons for the world, particularly in the areas of interest rate management, inflation control, supply chain resilience and healthcare. India’s experiences could serve as a model for other countries, leading to a necessary refresh or rewrite of economics textbooks for modern times and elevating India’s presidency to a new normal.

In fact, India’s inclusive model has been exemplified through Jan Dhan accounts, Aadhaar and mobile connectivity. Together, these fundamental pillars make up the India Stack, a powerful inclusive model that presents a significant global opportunity. The India Stack has enabled millions of previously unbanked individuals to access financial services, providing them with a pathway to economic empowerment. Moreover, the inclusive model’s success can serve as a blueprint for G20 and other nations seeking to address similar challenges in healthcare, education and other sectors.

Since Indian enterprises have mastered the process of inclusion, they have a compelling case for expanding to other regions including Africa, a significant portion of Europe and South America. By exporting their inclusive model, Indian businesses can play a pivotal role in transforming the lives of underserved populations in various parts of the world. This expansion would not only create new economic opportunities but also foster sustainable development and bridge the digital divide.

Sovereign debt is an extremely sensitive subject that has far-reaching consequences for countries around the world. As various nations have accumulated their national debt through diverse means, including borrowing through state enterprises, the complexity of the matter demands a nuanced and meticulous approach. We will see very interesting outcomes as time progresses. The evolving economic landscape necessitates a far more granular examination of the issue, unlike the approaches taken in the past. Understanding the intricacies of each country’s debt accumulation process is crucial for devising effective solutions and ensuring economic stability.

In my view, the coordination between monetary and fiscal policy is likely to be constrained due to the differing approaches taken by countries such as the US and the European region in managing their monetary policies. However, I believe that through deliberations, we can witness the emergence of innovative mechanisms for co-operation, resource deployment and financial settlement. Also, we may not see countries abandoning ideas of the past all of a sudden; rather it will be a gradual process.

Reforming multilateral institutions stands as a significant pillar of the G20 agenda. This task is being facilitated by N.K. Singh, Co-convenor of the G20 independent expert group focussed on reforms within multilateral development banks (MDBs). The group engages in vital discussions with multiple stakeholders, including representatives from multilateral banks and borrowers, with the aim of addressing the crucial matter of the lending pipeline.

Capital constraints are typically regarded as the main obstacle to MDBs’ ability to grow their lending pipeline. So how can you increase the lending pipeline? These institutions’ access to leverage depends on their credit rating. As a result, this becomes a key aspect of MDB reforms. In my own experience, I have observed that MDBs operate under strict self-imposed guidelines in order to maintain their coveted AAA status with credit rating agencies. Significant additional borrowing could occur if they choose to operate one or two notches below AAA. It is essential to recognise that MDBs are among the world’s largest borrowers, and their debt demand cannot be easily substituted.

At the New Development Bank (the multilateral bank set up by the BRICS group of emerging nations), we were given an AA+ rating despite the fact that we didn’t have an AAA parent and our weighted average rating was just above BBB. This demonstrates the relevance of southern countries or borrowing countries working together to improve their standing in the market and their ability to access funding. This collaborative strategy also creates novel ways to use existing capital effectively and raise additional debt for green projects, poverty alleviation and other developmental needs in the developing world. Overall, the difficulty is balancing credit ratings and finance for global development.

Business finance is changing. In the past three and a half years, alternative financial settlement systems have grown alongside SWIFT. These innovative mechanisms are reshaping business transactions, promising a more efficient and dynamic global financial environment.

Central Bank Digital Currency (CBDC) is an intriguing and feasible financial development. The regulator’s actions will determine its deployment, although pilot projects seem encouraging. CBDC adoption provides a smooth and efficient financial market settlement system, making it highly desirable. As we revamp settlement systems, CBDC will play a major role in transactions and asset management.

Artificial intelligence (AI) is another transformational force that has become indispensable. It is being used to increase efficiency and customer service across industries. Let’s take regulations, for example. In the financial and markets regulatory space, numerous regulations and circulars have been put forth, leading to diverse interpretations. Due diligence is part of the regulatory process, but consensus is difficult. AI can transform this procedure. By utilising AI engines to analyse the vast array of regulatory actions, a clear and concise view can be generated to facilitate compliance. This represents a significant advancement, revolutionising the way regulated entities respond to regulatory demands. While some concerns have been raised regarding the dangers of AI, the positive potential it holds is immense. I am confident that regulators worldwide will embrace and lead with this transformative technology.

K.V. Kamath, Chairman of National Bank for Financial Infrastructure and Development (NaBFID), told to Anand Adhikari. (Views are personal)