Reimagining South Asia in 2030

Parallel Session A3Financing Development in South Asia: Avenues and Institutional Arrangements

Presentation by

Dr Priyadarshi DashResearch Associate

Research and Information System for Developing Countries (RIS), India

16 October 2016

Financing Development in South Asia: Beyond Orthodox Approaches

Priyadarshi Dash

RIS, New Delhi

Email: pdash@ris.org.in

Major Issues

• The current magnitude of flows of financial resources in South Asia does not seem to be adequate given the level of development gaps.

• Public resources are not enough and also not properly mobilized for development projects.

• Private investment is low even for commercially viable infrastructure projects.

• Low level of financial integration and bank-based finance systems restricts the financing options.

• Absence of corporate bond markets.

• Inability of sub-national and municipal level governments to raise their own resources for building and maintenance of urban infrastructure.

• Fiscal space is eroded as efficiency in social sector expenditure is not satisfactorily achieved.

Extent of Development Gaps

Country Access to Electricity(% of Population) (2012)

Account at a FinancialInstitution (% of Age 15+) (2014)

Commercial Bank Branches(per 100,000 adults) (2014)

Health Expenditure(% of GDP) (2014)

Govt. Expenditure on Education (% of GDP) (2013)

Afghanistan43.0 10.0 2.5 8.2 4.5

Bangladesh59.6 29.1 8.2 2.8 2.0

Bhutan75.6 33.7 15.5 3.6 5.6

India78.7 52.8 13.0 4.7 3.8

Maldives100.0 13.9 13.7 5.2

Nepal76.3 33.8 8.5 5.8 4.1

Pakistan93.6 8.7 9.4 2.6 2.5

Sri Lanka88.7 82.7 18.7 3.5 1.6

Gross Domestic Savings (% of GDP)

-40

-30

-20

-10

0

10

20

30

40

50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka

GFCF (% of GDP)

-10

0

10

20

30

40

50

60

70

80

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka

Inward FDI Stock in South Asia(US$ Million)

Country 2010 2011 2012 2013 2014 CAGR (2005-09) CAGR (2010-14)

Afghanistan 1392 1475 1569 1638 1692 19.3 5.0

Bangladesh 6072 6166 7750 8593 9355 10.5 11.4

Bhutan 67 88 142 119 112 25.0 13.8

India 205,580 206354 224987 226552 252331 41.1 5.3

Maldives 1114 1538 1766 2126 2490 28.3 22.3

Nepal 253 348 440 511 541 6.9 21.0

Pakistan 19829 20916 23125 25091 30892 14.7 11.7

Sri Lanka 5008 5990 7454 8959 10511 17.6 20.4

Outward FDI Stock in South Asia(US$ Million)

Country 2010 2011 2012 2013 2014 CAGR (2005-09)

CAGR (2010-14)

Bangladesh 98 106 107 142 130 6.1 7.2

India 96901 109509 118072 119838 129578 69.7 7.5

Pakistan 1362 1401 1550 1614 1695 20.8 5.6

Sri Lanka 380 440 475 540 607 18.6 12.4

Public Resources (Fiscal Space)

Country CashSurplus/Deficit(% of GDP)

Tax Revenue (% of GDP)

Total Reserves (IncludingGold) (US$ billion)

Short-term Debt (% of Total Debt)

Other Taxes(% of Revenue)

Afghanistan-0.6 7.5 7.0 8.6 0.5

Bangladesh8.7 27.5 11.9 3.1

Bhutan9.2 1.1 0.5 0.1

India -3.8 10.8 353.3 18.5 0.1

Maldives13.7 0.6 14.5 4.1

Nepal-0.6 13.9 8.1 8.3 2.3

Pakistan-8.0 10.1 20.0 8.9 2.8

Sri Lanka-5.3 10.4 7.3 17.0 2.6

Development Expenditures of States of IndiaState 2013-14 2014-15 2015-16

DEV/GSDP SSE/GSDP CO/GSDP DEV/GSDP SSE/GSDP CP/GSDP DEV/GSDP SSE/GSDP CO/GSDP

AP 10.7 6.3 1.8 14.5 8.9 1.4 13.0 8.9 1.7

Bihar 15.7 10.2 4.1 23.7 16.7 6.9 18.1 12.3 5.5

Chhattisgarh 16.0 11.3 2.5 21.4 14.4 3.8 21.2 15.0 4.4

Goa 11.3 6.0 2.1 14.2 7.5 3.6 17.6 9.0 6.0

Gujarat 9.2 5.5 3.0 10.2 6.1 3.1 9.6 5.9 2.9

Haryana 8.3 4.7 1.0 9.8 6.1 1.3 9.2 5.9 1.1

Jharkhand 10.6 6.8 2.7 18.5 12.4 3.9 17.4 12.1 3.8

Karnataka 12.4 6.8 2.8 13.2 8.1 2.7 13.3 7.8 2.8

Kerala 8.7 6.0 1.1 8.7 6.3 1.0 9.2 6.4 1.6

MP 13.9 8.2 2.5 17.6 11.3 2.8 15.3 9.8 3.0

Maharashtra 7.9 5.2 1.3 9.0 5.9 1.4 8.1 5.8 1.4

Odisha 14.2 9.1 2.8 17.3 11.3 3.9 17.3 10.8 4.4

Punjab 7.2 4.1 0.7 8.4 5.1 1.1 8.2 4.6 1.2

Rajasthan 12.8 8.1 2.6 15.9 10.4 3.3 15.8 10.5 3.2

Tamil Nadu 9.8 6.5 2.0 10.6 7.0 2.1 10.0 6.4 2.2

Telengana - - - 17.5 10.8 3.5 17.1 10.0 3.1

UP 13.6 8.9 3.8 17.4 10.5 6.1 17.0 10.7 5.8

WB 8.2 6.5 1.0 9.5 7.4 1.7 8.6 6.7 1.7

Ar. P 40.3 18.9 12.4 55.2 26.6 15.1 45.4 22.8 16.1

Assam 14.0 9.1 2.0 24.4 15.4 5.7 21.3 14.0 4.7

HP 15.3 9.6 2.2 16.8 10.2 2.7 16.9 10.8 2.8

J&K 22.4 11.2 5.1 30.3 15.4 11.4 27.9 14.8 10.1

Manipur 28.0 14.7 9.0 43.8 27.7 11.6 31.1 17.8 6.8

Meghalaya 21.6 12.4 4.9 37.7 25.4 6.8 24.1 12.9 5.6

Mizoram 36.9 22.3 5.8 43.7 25.5 8.7 34.4 20.5 8.4

Nagaland 22.8 12.1 6.8 27.8 16.5 6.6 25.3 16.1 5.9

Sikkim 21.9 13.7 7.4 29.4 16.2 11.6 22.1 11.6 6.0

Tripura 18.2 12.1 6.1 27.5 19.4 11.9 28.2 20.3 15.0

Uttarakahnd 10.8 7.6 3.0 15.4 11.1 4.2 12.7 9.7 2.6

Dominant Paradigms

To bring efficiency in resource use, control unintended leakages and generate additional resources.

To liberalize foreign investment regimes without compromising domestic priorities and crisis prevention and resilience frameworks.

To undertake financial market development particularly equity and debt markets in a gradual and experimental fashion.

To develop financial safety nets by emphasizing upon inclusive finance, micro-finance, streamlining transfers, etc.

To improve tax base, tax compliance and arrest tax evasion with an aim to meet the ever-increasing demand for financing social sector expenditure.

Policy Options

Loans from World Bank, Asian Development Bank and other multilateral development banks.

Loans from New Development Bank, Asian Infrastructure Investment Bank and others.

Issuance of local currency bonds and other debt instruments for infrastructure projects.

Issuance of municipal bonds for building and maintenance of urban infrastructure projects.

Harmonization of regulations across South Asian capital markets.

Investing a fraction of surplus foreign exchange reserves for infrastructure development.

Strengthening fiscal resources at sub-national government levels by ensuring fair share in central pool of tax and non-tax revenues and providing autonomy to raise their own resources.