Here is the full transcript of journalist Shereen Bhan in conversation with World Bank President Ajay Banga on Indus Water Treaty In Abeyance, Trump Tariffs, premiered May 11, 2025.
Listen to the audio version here:
Introduction and Welcome
SHEREEN BHAN: Hello and welcome to this very special edition of the Global Dialogue. I’m Shereen Bhan. Let me try and introduce my guest to you today in his own words. He’s a made in India product, having gone through the Indian education system, started his career at Nestle, worked at Pepsi City and then spent over a decade at MasterCard and then has made a very unusual turn taking over as the president of the World Bank Group. His mandate, again in his own words, is to make the bank bigger, bolder, better. Joining me today on this very special CNBC TV18 exclusive is the man himself, Ajay Banga. What an absolute pleasure. Thank you very much for joining us and may I say welcome home.
AJAY BANGA: Thank you very much. Shereen, it’s nice to be back.
India’s Growth Prospects
SHEREEN BHAN: Well, it’s great to have you here, Ajay. You know, since you are here in India, let me double down on your view on India. To start with, the World bank estimates a growth of 6.7% over the next two years for India. But you do believe that we need to do 7.8% on average over the next 22 years to be able to get to that high income aspiration by 2047. As you look at India today, size up the opportunity for me.
AJAY BANGA: Look, I think the first of all, I think the opportunity of becoming a fully developed country is a really cool target to aim for because I think when you set up a target like that, you set up a plan like that, you can get people driven and motivated with a single vision of where they want to go. So I’m a full believer in that perspective.
Getting from here to there. I don’t measure things in straight lines and therefore I don’t really care about the 6.7 and the 7.8 because you will have years when things will work better. You will have years when things will be difficult. Part of those will be outside of your control as a country. Part of those would be within your capacity as a country. The important thing to do is to figure out what you can do in your capacity to insulate yourself to the maximum extent possible from the vicissitudes of global economic systems.
So right now, for example, the global economic system was powering along just fine. We do have challenges currently, people believe that those challenges caused by a change in geopolitics, by the circumstances around tariffs could create a slowdown. No one’s been able to show that yet because if you look at the US numbers, they’re still powering along. So I think you’ve got to take this one step at a time rather than read too much into any one direction.
Global Growth and Trade Uncertainty
SHEREEN BHAN: So you don’t believe they’re heading into a situation where global growth is going to be impacted severely on account of the tariff uncertainty and the possibility of a recession in the U.S. I think.
AJAY BANGA: Those are all possibilities. Probabilities. As my old boss Bob Rubin used to say, life is full of probabilities. These are probabilities. My way of thinking about it is if things continue the way they are today, meaning if uncertainty and volatility remains part of the system, then definitely there will be a slowdown in global growth. But you don’t know that. You don’t know if tomorrow or the next 10 days, two or three trade deals get signed and all of a sudden people will say less uncertainty and it changes.
So my own vision of this is compared to where we were a little while ago, it is more volatile today. There’s no doubt on that. Volatility creates uncertainty for a CEO, for an investor. People will hold back on 10, 20, 30 year decisions. It takes a little while to turn that tide. So that will be a problem if it continues for a while. But you don’t know how long it will continue?
The New Era of Globalization
SHEREEN BHAN: No, we don’t know. And you talked about trade deals and one of course is, you know, the UK, India FTA is finally being done after many years of negotiation and President Trump tweeting, saying that there is a possibility of a deal being done later this evening and in all likelihood it’s going to be the agreement with UK. As we look at these bilateral agreements being signed up, how do you see this next wave of globalization, so to speak? Because there are concerns that we’re retreating from globalization, but are we perhaps in a new era of globalization?
AJAY BANGA: Somebody asked me this the other day and I said to them, actually this change of the model has been going on for a little while. So if you look at the data, in the last 10 years, 100 different regional and bilateral trade deals have been signed. If you go back 20 years, 250 of them have been signed. Today there are 375 plus regional and bilateral trade deals operating. It’s just that the public conversation was not about this and now it’s got focus onto this issue of bilateral and regional trade deals.
The reason that this model has been changing over time is, I think, quite fundamental. And the real fundamental issue is the idea that you could outsource an OECD job to a developing country by changing the location where something was made because of a change or because of an arbitrage in labor costs and eventually also an arbitrage in logistics because these developing countries tend to do logistics very efficiently when they start from scratch.
So if you moved a T shirt manufacturer from the Carolinas to Vietnam, you went there originally because of the labor cost difference and eventually you also got a logistics cost benefit.
At a micro level, the person in the factory in the Carolinas, their lives changed. And unless you believe that that is a one to one relationship where that person seamlessly moved into an outstanding higher productivity, higher paid job, which did not happen, then you have to believe that this model cannot persist forever. All you’re seeing today in the political firmament is that coming to be seen in the developed world.
And I think therefore what you’re going to find is jobs being created in the developing world, critical factor of jobs, but being created by probably in sectors that don’t rely as much on the preponderance of global trade caused by labor cost arbitrage or logistics arbitrage and I think some other form, which I’m happy to talk to you about, but that’s what I think, life.
The Global Reset and India’s Position
SHEREEN BHAN: So what is the new normal then likely to be when we talk about this reset, this global reset that you just kind of alluded to? And in the context of this global reset, then how do you find India positioned?
AJAY BANGA: So it’s not that global trade will stop. I’m just saying relying on that as the sole engine of driving jobs in the developing world. That’s something you should rethink. My belief is that jobs are even more critical in the coming 10 to 15 years than they were in the past 20. And that’s because if you look at the demographic numbers in the world, the emerging markets are going to have 1.2 billion young people coming through the pipe to become eligible for a job in the coming 10 to 15 years. The same countries are currently slated to generate about 400 million jobs. Now these aren’t forecasts and they’re made by economists. So you know, I would be careful about that. But we’re not going to be wrong by 800 million people, right?
SHEREEN BHAN: We hope.
Five Pillars for Job Creation
AJAY BANGA: We hope not. And forecasts are our destiny. So you can do something about them, but you’re not going to. You have to find a way to change what we’re doing today. If you’re going to step from 400 million to 1.2. And my belief is that you’ll get five sectors that address the topic we were discussing that will help to create these jobs.
The first is infrastructure. It’s construction, but then what it enables bridges, roads, airports, schools, skilling institutes, digitization, health care, electricity. And the World bank is very focused in that space.
The second big sector is agriculture as a business. I think the phenomenon of smallholder farmers and their children not wanting to be a farmer, selling off their property, thinking they’re rich and four years later ending up as urban poor is a very poor outcome of development. That’s not the way to get it done. We have to find a way to get smallholder farmers, children to feel that this is a productive opportunity for them as well. That requires an example like Amul to be repeated many times over in many countries. Cooperatives that have enabled you to access better techniques, better technology, better growing, better fertilizer, better seeds, better water systems, better prices for your produce AI app today that allows you to say that stain on my crop is this disease for which I can get this spray from my co op. I don’t need to be a rocket scientist to do that. I just need to be a farmer with access to a phone. That is to be a big opportunity. And the bank has said that we will put $9 billion a year into making smallholder farmers think about business of agriculture as a real opportunity. It’s not very different to what India wants to do with rural prosperity.
The third is primary health care. So obviously a healthy labor force is important, but actually what you do with the right primary health care systems is you will create jobs for nurses and medical diagnostic readers and technicians. You’ll create a job for PPE manufacturers, you’ll create jobs for pharmaceutical manufacturing, you’ll create jobs for midwives, things that are not just doctors, but create a ladder of jobs that you need to provide in a growing economy of the type you’re describing in the developing world. And a fourth category, and again there by the way, in primary health care, we’ve said we’ll reach 1.5 billion people by 2030 with improved access to healthcare. The other side of this is that the diseases of prosperity, blood pressure, diabetes, heart attacks and strokes, the non communicable diseases, if you diagnose them early, you can bring health care costs down in a country dramatically. So this will help with that.
The fourth one is tourism. That is a more obvious one to most people and I don’t mean over tourism and I don’t mean numbers, I mean quality tourism done the right way. I was in Sri Lanka. It’s a big opportunity for them. We’re not experts in tourism, but we are very good at designing skilling institutes that work backwards from what the opportunity of tomorrow’s jobs will be in the private sector. Work with the private sector to run those.
And the last one to me is manufacturing, both for local and regional consumption as well as global trade, but in a way in which you create value added jobs in the country. So if you’re a country that is blessed with minerals and metals for the energy transition, extraction is not where the money is. It’s the value added processing of that extracted material. That’s where the value of jobs is. And I’m trying to enable people to think about whether a job with a small company, medium sized, large one, whether as an entrepreneur think in these five sectors, you will notice there’s almost zero necessity here to outsource an OECD job.
Addressing India’s Jobs Challenge
SHEREEN BHAN: You know, Ajay, you’ve very clearly articulated for us the five pillars that you believe the bank needs to focus on and governments and policymakers need to focus on to address the jobs challenge. Because you know, you’ve said previously that jobs are the nail in the coffin of poverty, but address that in the context of the challenge that we find ourselves faced in India. You’ve got this young population, you’ve got an economy that’s growing, but jobs not being created at the pace at which we need. Of those five pillars, what do you believe India needs to prioritize as we look at addressing this jobs crisis?
Ajay Banga on Job Creation and Economic Development
AJAY BANGA: I think there’s two things I’ll come to the five pillars. There’s one other thing that you need to understand about jobs, which applies for India as well, but applies to many countries, and that is that to create jobs you need three things to happen.
You need infrastructure, what you were talking about, which India is doing a great deal of work on in the past 10 to 20 years, whether it’s roads or bridges or airports or electrification and water availability. And there’s work to be done on education and skilling. I don’t think that task is done yet, but there’s a fair amount of progress across the range.
The second part is the regulations and policy clarity that enables businesses to succeed. And there, while I think India has made a lot of progress, there’s much more still to be done. And I think that’s a topic of regular public debate. So I’m not telling you something new. It’s everything ranging from further land reform and labor reform to things in that form. That enable the private sector, which is the third pillar of this strategy, to actually grow and develop.
85% of jobs are created in the private sector, the overwhelming majority of them in small and medium businesses. They cannot navigate challenges on regulations and policy the way others can. And I think, therefore, thinking through these three pillars of infrastructure, the right kind of regulatory policy, enabling the private sector with blended finance and insurance and guarantees and the like, is how I think about the job cycle, the virtual cycle of it.
India in the context of those five sectors is doing fine on infrastructure. With work to be done on education and schooling, I think India can do much more on agribusiness. It has done Amul to me. I’ve been quoting Amul for the last eight or 10 years because of my days at Nestle. I used to admire Amul for what they got done and I think it’s just one example that I’m more like that. But because that one is such a shining star, I think it’s worth studying and understanding and trying to replicate to the extent possible in many countries around the world, including in other parts of India.
On primary health care, India has made progress, but there’s enormous more to do. India’s progress is on neonatal and maternal care and vaccinations and the like. This I’m talking about is an early diagnostic system spread across the country in a way that catches these diseases of prosperity earlier in their cycle. And in the process, you’ll also catch pandemics earlier while also creating jobs. There’s work there.
India’s tourism much improved from earlier. But if you look at the numbers of tourists that come to India, just remember to keep it in context. New York City gets 62 million a year. Just so we know what we’re talking about. London gets 64 million. Paris gets 64 million. So India, with its culture, beaches, mountains, history, food, shopping, fabulous people, I mean, there’s much more that we can do here. It starts with the infrastructure and works its way through.
Manufacturing is the one that India is very focused on as well. I think you guys are making enormous progress with things like what you’re doing for Apple. And the circumstances around the geopolitics now means that actually India could stand to pick up some more benefit from there. But I’m telling you, you don’t create a lot of jobs by manufacturing Apple phones in the numbers that you need to change the tide. In the Indian context, you do create fabulous jobs. Don’t get me wrong, anybody who works in an Apple assembly factory is very fortunate to have that job. But you’re talking about a challenge of many millions more than that. That requires a focus in all the other sectors as well.
India’s Manufacturing Opportunity
SHEREEN BHAN: But if I could specifically talk about manufacturing because India believes that this could potentially be the big manufacturing breakthrough in light of this global supply chain diversification, global supply chain resilience that people are talking about. You gave the Apple example as one of the examples. What do you believe needs to happen on the manufacturing side to really lever what has opened up as an opportunity for India today? And how big of an opportunity do you really see? Do you believe this is India’s manufacturing moment or could be India’s manufacturing moment?
AJAY BANGA: To be honest, if we don’t seize it quickly, the moment will pass us by because others are moving on to it very quickly as well. But that doesn’t mean India doesn’t have an opportunity. The real issue is India’s logistics cost is very high even now. And if you look at the arbitrages I was referring to in the beginning, labor and logistics, you know, you’ve got to be careful about the logistics cost and fixing that logistics cost arbitrage is going to take some out of the box thinking into how to change that. And I think those are not, it’s not a one year cycle to change that, but there’s work that can be done.
I believe that India has the benefit of a huge workforce that could be put to work. It will need Skilling. That’s why I kept talking about Skilling a little while ago. I think India wants to do it. I think the Prime Minister is very clear in where he wants to go with it. So that will help. On one side, working on logistics will help and clearing up the processes of opening a business, acquiring land, managing labor, those are going to be very important. Shireen, if you want to really get into the global supply chain the way you want to.
The other thing is, you know, what will help really in global supply chains is a zero for zero discussion. So if the trade deal that comes through is that kind of deal, boy, that will facilitate the reduction of friction enormously, which is what you need for a global supply chain. So there’s a number of pieces that happen to be falling into place. And India, through its effort on infrastructure construction over the past few years has managed to move itself into the right place. Now the question is, can you make the next move and take advantage of all that?
Regional Dynamics in South Asia
SHEREEN BHAN: Let me also get a view from you on what’s happening in the region. You’ve just come into India from Sri Lanka, the World bank has signed now a new agreement with the government of Sri Lanka for a billion dollars. This is a complex region and we’re currently also talking about an escalation of tensions between India and Pakistan. How do you see the region? Sri Lanka, Bangladesh, Pakistan and of course India.
AJAY BANGA: Look, first of all, civilians losing their lives is a disaster anywhere in the world. For those of you who are living in India, where you saw this happen a few weeks ago, you have to be feeling it even more acutely than somebody like me who now lives elsewhere. Even though I understand the situation on the ground in this region well, so that goes without saying. And that creates its own uncertainties and volatility in people’s minds. But this too shall pass, right?
The question really is this region, South Asia is one of the regions in the world where intra regional trade is abysmally low as a percentage of trade. So if you look at some trade numbers, you see started talking about the uncertainty in this space. Trade has doubled in nominal terms in the last 20 years. Globally the share of the developing countries in that has also doubled from around a quarter to around a half. The share of developing countries trade among themselves has also doubled in that period from around 20 to around 40 something.
But South Asia is single digits. Africa is single digits low double digits. Latin America and the Caribbean is similar. These three regions are not realizing the potential yet of trade among themselves as the great prophylactic from being over reliant on one or two or three large buyers for your produce otherwise.
And I think as part of this change of trade, this may be a good time as countries here strike individual deals with the US which they should as soon as possible to reduce the uncertainty. But at the same time they should look at their own tariff and non tariff barriers. The reality is the United States has the lowest tariff barriers of any country in the world. Even before this 10% flat rate. Even with the 10, it will be one of the lowest. The developing world has far higher tariff and non tariff barriers for various good and bad reasons. I’m not questioning the reasons, I’m just saying is this an opportunity to change that?
And everybody knows that reduce tariffs while you go through some pain, eventually you get growth out of it. And so the question really is, is this the right time to look at facilitating greater intra regional trade in these countries? And will that be helpful in itself? It won’t all work seamlessly, but it’s worth thinking through.
SHEREEN BHAN: But is it even a possibility? Given the geopolitics and the history, everything is possible.
AJAY BANGA: When politicians put their minds to it to find solutions. This is a political problem, not a development problem. I can’t, I’m not qualified to comment on that. I’m very clear what I do, what I don’t do, I don’t comment on politics. But I will say the economic opportunity to me is enormous.
And you know, take for example, electricity, if you, you know, I know that the Prime Minister has thought about this a few times, which is to think about connecting the electricity grid across at least some of these countries. And you don’t have to do everything across all of them. You can pick some where there is a commonality of thinking that would be enormously beneficial. Even Sri Lanka and India connecting an electricity grid could be enormously beneficial. And so intra regional trade of all types is generally a good thing to explore.
The Indus Water Treaty
SHEREEN BHAN: Speaking of inter regional connectivity trade, let me ask you about the Indus Water Treaty because India has decided to suspend the Indus Water Treaty at this point in time. The World bank in fact has been a facilitator of the Indus Water Treaty going back to 1960 when it was inked. Have you heard from the Indian government? Is the World bank planning to intervene in any form or fashion on this issue at this point in time?
AJAY BANGA: No, I’m not. The treaty is not suspended. It’s technically called something in abeyance is how the Indian government worded it. There is no provision in the treaty to allow for suspension. The way it was drawn up, it either needs to be gone or it needs to be replaced by another one that requires the two countries to want to agree.
The World Bank’s role is basically that of a facilitator. If they disagree, not by us making a decision, but by us being the party that goes through a process to find a neutral expert or an arbitrator court to settle it, we have to pay the fees of those guys through a trust fund that was set up at the bank at the time of creation of the treaty. That’s our role. We have no role to play beyond that.
I haven’t heard from either country yet about anything to do with the Indus Water Treaty. So that’s exactly where it is. I know there’s a lot of speculation in the media about how the World bank will either fix it or not, or be approached or not. It’s all bunk because we don’t have that role to play. And I wish you would help me tell the media that they should take a look at the treaty and realize that the treaty is a treaty between two sovereign nations and they have to decide whether that’s what they want to continue with, it’s their decision and, you know, so be it.
It’s worked for 60 years through ups and downs. It hasn’t worked perfectly. Both governments will tell you it’s been through ups and downs. So I’m not one to argue that you shouldn’t play with it or change it or amend it. I just think this is a topic for the countries to decide. And the World Bank’s role is what the World Bank’s role is as defined in the treaty. No more and no less.
World Bank’s Engagement with Shareholders
SHEREEN BHAN: Let’s shift focus away from India and talk about what’s happening in the world today. It’s been a complex time for the bank as well. I mean, you’ve seen a massive change across a large part of your shareholders. Almost all of your large shareholders have seen regime or administrative changes at this point in time. We heard from Secretary Scott Bessent, his comments on both the IMF as well as the World bank, as well as the U.S.’s decision not to pull out of the World Bank. How are you engaging now with your shareholders? How do you align the bank’s vision and purpose, your mandate, with what may not necessarily be priorities for some of these shareholders that you’re dealing with?
Ajay Banga on Global Governance Challenges
AJAY BANGA: So let me paint that picture a little bit. So, yes, in the last, I’d say 10 to 12 months, while we were going through a campaign to create funding for IDA, which is the part of the bank that deals with the 78 least fortunate countries in the world, essentially one third of what we give them is pure grants and 2/3 is deeply concessional loans. And so by the nature of that beast, you need to replenish it every three years. Unlike the other parts of the bank where capital injections with leverage in the bond market because of our triple A rating allow us to keep growing for quite a period of time.
So I was going through an IDA replenishment cycle. And during that cycle, the Japanese government changed, the Korean government fell. Because that entire episode of the martial law, in fact they declared martial law on the day of our IDA event in Seoul, for which they were the sponsor. So that was exciting. And the German government fell, the French government fell twice. The Dutch government changed, the Austrian government changed, the Italian government changed, the British government changed, the Canadian government fell, and the United. That’s all my large shareholders, other than China. And that was interesting, putting it mildly. Yes. That is my… what do you call, a baptism by fire.
But here’s an interesting thing which I believe is perfectly appropriate. Every one of these new governments have asked me and people who work with me explain to us what’s in it for us with you. And I actually don’t have a problem with that question because I think if I was in their shoes, I would want to know too. Because I am making a specific decision to work with a multilateral institution like the World Bank. I have to understand why I am doing it on behalf of my citizenry.
SHEREEN BHAN: Because there is taxpayer money involved as well.
AJAY BANGA: There is. For example, the IDA replenishment is taxpayer money. Yes, but otherwise our annual expenses are completely paid for by the repayment of the loans that we’ve already issued. And therefore, in a sense, the emerging markets taxpayer pays our administrative expenses. We are not an organization that relies on an annual subsidy from governments to pay for our administrative cost.
Similarly, the bank that caters to middle class countries like IBRD for India or IFC for the private sector, MIGA. And they receive capital once in a while. The last capital injection was in 2018. But because we have a triple A rating, which is a real gift, we’re able to leverage in the bond markets, private bond markets, up to 10 times, and then generate retained earnings because they’re profitable and therefore keep growing on that. And as a result, we haven’t needed to go back for any capital since that period of time. Now, if our appetite to grow the bigger, better thing comes through, yes, then you would need. But today we don’t.
So what I’ve done with all these shareholders, including the United States, is to clarify this angle, to clarify why I think we are interesting. One, the leverage compared to no leverage in bilateral aid. Second, the pivot to jobs that I had already made, which I believe most of these governments really care about. Whether you’re a donor or a receiver of work with us, tell me, which government gets elected to not create jobs? It’s the fundamental premise of why people vote for a government.
And therefore, when governments see us like in Sri Lanka, we were discussing this now, I was in Paraguay the week before, I was in Argentina, I was in Brazil. All these countries, their leadership. When you start talking about jobs, you talk about those three pillars of infrastructure, regulatory policy, private sector. You talk of those five sectors. You can see they focus on us with great intensity.
And so when you talk about jobs, which is driven by the private sector, all this vibes pretty well with most of these countries. I’m trying to say that you cannot rely on public sector money, you cannot rely on multilateral bank money to change economic growth. India is at that stage, India is very clear that its growth has to be private sector led. India is very clear that fiscal prudence is important for the country. India is very clear that domestic resource mobilization is important for the country. All of that shows a balanced thinking on growth driven by the private sector to create jobs. Most countries think like that, Shereen.
SHEREEN BHAN: So what are the questions that the US specifically is asking you?
US Priorities and Energy Strategy
AJAY BANGA: I repeat the same things to them and if you notice, they’ve come back and said we’re interested in working with them. In fact, they have come back with a commitment to IDA, which is 80% of what the prior administration had committed. I think that’s very generous of them and it’s a good thing and I’m delighted.
But that money doesn’t come without their desire to ensure that we continue to do certain things. One, we continue to reform the institution for speed, for efficiency, for less silos, for being more client friendly. Frankly, why not? Which of those words is the wrong thing to expect? So I’m all for that. And in fact, the more they encourage me, the more I feel that I have the wind in my sails to get it done.
The second part of it is they’re very clear that they would like to ensure that our energy, our thinking around energy expands to include an all of the above strategy. The World Bank has funded renewable energy and natural gas. Natural gas, normally we do about 5% of annual funding is in energy. One out of that was going to gas, four of that was going to renewable energy.
What they’re saying… In June last year, I asked the head of the IAEA to come to our board to begin to discuss the opportunities around nuclear energy. My thinking is very simple. If we get into AI, what today is the consumption of electricity, what today is the projected use of electricity. Forget about the number, it’s going to be many multiples of that. Now we can draw a distinction between small AI and big AI if we get into that, but it’ll still be multiples.
All the calculations that say you can do this through renewable energy I think are going to be hard. You’re going to need to think about natural gas. You’re going to need to think about baseload energy, geothermal, hydro, natural gas, nuclear. They’ll all have a role to play. And with small modular reactors, if they become commercially viable, then there’s a whole space there.
That discussion is something the US, France, a number of other countries would like us to pursue even more aggressively. Keep an issue, that’s fine. And this June, our board is going to have this conversation. And if the board approves it, then we will overturn a 30, 40 year absence of the World Bank from nuclear. And that to me is a good thing.
SHEREEN BHAN: And this is, as you point out, a significant departure. But you are a big believer in nuclear energy and small modular reactors. You believe that it could be transformative. So lay out for us what you intend to present in June. And also in the context of India.
AJAY BANGA: I’m not going to tell you what I’m going to tell the board.
SHEREEN BHAN: A sneak peek, but in the context, in…
AJAY BANGA: In the context you haven’t lost your touch.
SHEREEN BHAN: I tried, I tried, but in the context of India, because the Indian government in this budget in fact said that it would move ahead with amending the liability clauses to ensure that we can move forward with nuclear energy. What could it potentially mean for India the move towards SMRs?
Nuclear Energy and Electricity Access
AJAY BANGA: Well, the civil nuclear liability clause topic that you’re referring to is a clause that I believe if that gets through Parliament, it will greatly facilitate Western nuclear companies feeling comfortable with investing in India in nuclear energy. That’s a, again, it’s a political discussion that’s going on. And you know, my view is it’s a good idea, but it has to be approved by local circumstances.
I think the World Bank’s role is unlikely to expand greatly into construction of new large nuclear projects. They tend to be very expensive and they take a lot of time. I was joking with somebody the other day. It’s not a fair joke, but if, you know, when you get your apartment or your house redone and your contractor and architect tells you it’ll cost X and it’ll take Y, you know, in your mind it’s 2x and 3y that you should be calculating on. And I apologize if anybody here is an architect or contractor, but that’s the same thing with nuclear.
So my own view is the role we’ll play is extending the life of the existing fleet where there is enormous opportunity at a great good cost to enable accessible, affordable electricity. To me that’s the North Star. All the electrical plan, all the energy plan has to be based on accessible, affordable electricity, which at the same time is sensitive to the emission angle. So that 20, 30 years from today, we are not creating a situation which we will regret.
That’s how I’m thinking about it. And so to me, sort of doing things with natural gas where you can construct plants which can be adapted to green hydrogen. There’s nothing wrong with that if that’s the cheapest, most accessible way to move forward. After all, Europe lives on gas other than France. And the US is the largest exporter of gas. Why should Senegal not get a chance to explore the gas under its feet? And so you’ve got to think this through. If it’s affordable, if it’s accessible, if it’s the right item at the right time for that country.
I think getting people electricity. Electricity is a human right, Shereen. You cannot talk about development without electricity. You cannot talk about education, health care. I’ve seen visited places where the advent of electricity changes everybody’s lives. And that’s why in Africa, we’re trying to reach 300 million people with electricity by 2030. Half of the people in Africa today, 600 million, do not have electricity. Not brownouts, no electricity. That’s shameful. In the year 2025, it can be changed.
So we’re going to try and reach 300 million. That’s the reason why I believe that electricity is a human right. You got to do it in a way that’s accessible and affordable. That’s our plan. Let’s look after the existing fleet, probably look at what role we can play with SMRs. The challenge with SMRs is that there are multiple technologies being investigated. If we settle in on one or the other, you could get to scale, you could get to standardization. And standardization is the friend of growth in this sector. If we can get that done and then find a way, like happened in computer chips and solar chips, if you place adequate scale orders, can you bring the price down? These are things worthy of discussing. And over the coming months, that’s the kind of thing that I think the World Bank should be a part of.
AI and the Future of Jobs
SHEREEN BHAN: You know, speaking of the future. And you talked about AI, big and small AI, and I know that big focus area for you. Let me frame this in the context of the jobs challenge that you were addressing, because the fear is that as we move into an even more turbocharged technology world driven by AI, what happens to jobs? What happens to skills required to cater to the jobs of the future? How are you looking at AI? Both as an opportunity, but perhaps also as a threat when we talk about this demographic advantage, this demographic bulge.
AJAY BANGA: So you got to remember that the challenge to jobs, particularly what I would call service jobs, professional jobs, is much higher in the developed world than in the developing world from AI. And I’m talking about much higher by a gap of multiples. Therefore, I don’t think in my role, looking at the developing world as the bank, I don’t think this is as much of a worry for me as it would be if I were in the developed world, where I think there’s a real thing to be sorted through.
I have a different concern around AI, big AI in the developing world, and that is that to execute big AI well, four things have to happen. You need computing power, lots of it. You need electricity, lots of it. You need data, lots of it, kept in its simplest form with privacy and security, with national security, as you and I have discussed in the past, very quickly coming into play. And then you need people who know how to manage that and create the algorithms and massage the whole thing and make it work.
There are very few developing countries that have those four ingredients in adequate quality. If you therefore believe that in that case it will be large companies from the western world or China or India who will do this in the world, then I think the challenge with that argument will be the use of citizens data being given to companies that are outside your country beyond a certain amount. So I see a problem with that.
SHEREEN BHAN: Thinking, which is why the data localization norms came in.
AI, Data Localization and Global Models
AJAY BANGA: Yeah, but the moment you localize data, if you can’t still use it to create the predictive models, you will find that the predictability nature of those models comes down. Right. It’s like if you localize data into a country and you’re only using that country’s data to create the prediction. Let’s take a fraud score. In my old life in MasterCard, if somebody does something in Taiwan and I’m unable to build that learning into the fraud score I built for India, then they could duplicate the same thing in India. And I’d never figured it out till I caught onto it and learned it. That’s not the world’s most efficient way to manage these things. And therefore the whole power of AI is based on a principle of the global use of data. And I think countries have yet to come to terms with what that means for them. So that’s an interesting issue. In addition to computing power, electricity and the people.
Having said that, I think people misunderstand the power of small AI. So the example I was giving of that farmer figuring out this disease on his crop, or what you could do with education or health care locally, I think these are examples where you would operate on a much smaller model with local compute, much lower implications for electricity, much lower implications for data, much lower implications for computational power. And I believe that these will give immediate jolts in the army for these developing countries where AI will then become integral to the way they think and that will enable them to absorb big AI in its correct time in a much better way. So I’m actually a big believer in pushing small AI with the emerging world, getting them to start using it, and thereby moving along the path of using AI in a constructive way.
SHEREEN BHAN: How do you see that playing out currently for India and the path forward? I mean, how much of this should in fact be prioritized as far as India is concerned model that you spoke of?
AJAY BANGA: I think India is already using a lot of these small AI models in so many ways. It’s been happening because of the digital revolution that you have engineered in this country over the past 20 years. And I think a lot of these things are already happening here. I think the topic is very different. This is a country that is very advanced in its digital thinking compared to many others. And, you know, so this is a different place from the developing world countries I’m referring to. I don’t think this has the same challenge. You have computing power, you’re working very hard on the electrification, although there’s more work to do in energy security for sure. You have the people who understand this really well and so. And you have a lot of data and you’ve managed that data really well over the past 20 years. So I think India is in a different place on big AI compared to the rest of the developing countries.
Private Sector Involvement and Funding Challenges
SHEREEN BHAN: I want to talk a little bit about the private sector because outside of the pivot on jobs that you’ve made at the bank, the private sector involvement is crucial to your mandate as well. Because as you pointed out, you know, public money isn’t enough and multilateral funding isn’t enough to address some of the complex challenges that we’re dealing with. But where does the money come from?
AJAY BANGA: From?
SHEREEN BHAN: And do you worry that given the context that we see today, we are going to find it even harder to find the money, what is it, 4 trillion annually that the UN projects as far as spends and additional spends.
AJAY BANGA: So my reaction to those numbers is like my reaction to the beginning numbers you started with. People just make lines and draw through them and add a lot of zeros at the end and then their mind boggles at it and then they can’t figure it out. So don’t worry about that number. Think of it differently. The operators and investors in the private sector have enormous amount of pools of capital and they have technology and innovation built into their system. You need that money and innovation and people to come to the party.
The question is, we created this private sector lab to try and understand why is it these trillions sitting around aren’t coming to work in the emerging markets the way people presented it to be, you know, just throw the door open and these floodgates will come in and just these dollars will wash over onto your shore. And none of that happened.
And the reason is, it turns out there are five things the private sector wants. All commonsensical stuff. If common sense were common, life would be very easy. So the first one is give me regulatory predictability. And you know that a lot of the developing world and even the developed world these days doesn’t quite promise regulatory predictability the way a CEO thinks about it or an investor thinks about it. So that’s the first one. A lot of the work we’re doing with the 300 million people we’re trying to reach in Africa is to do energy compacts with these 27 countries and have these countries commit to the regulatory policy changes that the private sector thinks they need in order to bring money to work in their countries. And you’ve already heard me talk about regulatory policy in different contexts.
The second one is, even if I get that, I’d love political risk insurance because governments change, their policies change. And so I can get caught out on a limb and there the bank can help because we have a part of the bank. We love our acronyms in the bank. So we have a four letter acronym like CNBC. Ours is called MIGA. I’m sorry, I’m an old friend of hers, I love pulling a leg. So ours is called MIGA and MIGA is the Multilateral Insurance Guarantee Agency. We have put all our different insurances we were doing across the bank into one place. We’re trying to simplify it and make it easier to access one due diligence, that kind of thing. We’re up 30% on insurance in the last year. I think I’d like to double it in the coming couple of years and I think that would be a good outcome.
The third is, would you as a development bank be willing to take first loss junior equity? So if I’m an investor and I’m being asked to invest in Indonesia in something in solar energy or in food processing, and I kind of get relatively comfortable between sort of still not getting over the edge.
SHEREEN BHAN: Yeah.
AJAY BANGA: Would I come in? Would IFC come in as a junior equity partner, bring in 100 million of equity, $200 million of lending and say I’ll take the first loss on my equity and would that make this investor feel that now the numbers make more sense? It would for sure, that’s clear. But the trouble is that I have to book a loss. If I were to ever encounter these. And if I book enough of these, then to keep my triple A rating, I’d have to go back to my shareholders and we’re back to the same issue of capital.
So what I’m trying to do is to create a shock absorber and we’ve done that. Through using our retained earnings, we’ve launched what’s called the Frontier Opportunities Fund. I didn’t want to call it a first loss fund. Doesn’t feel right.
SHEREEN BHAN: No, it doesn’t.
Addressing Investment Challenges in Emerging Markets
AJAY BANGA: As a private sector guy. So I called it the Frontier Opportunities Fund, which is marketing for first loss. And to see if we can use that to help encourage investors to go in, I’m going to have to inject money into it every year, which I think we’re willing to do. I’m going to philanthropies. So if you have some money to spare, please give it to my Frontier Opportunities Fund. I will use it to good purpose.
The fourth item was foreign exchange. This is the most serious one and this is that if I am investing in India and I know that the Indian rupee depreciates against the US dollar historically on the average by 5%, just say over 30 years it goes through ups and downs, but over 30 years it does, then I can factor 5% depreciation into my spreadsheet when I’m doing my project. The problem is what if for five years it now happens to depreciate at 8% a year. Now I’ve got a 300 basis point tail risk that I don’t know how to factor in. And you cannot get a 30 year hedge on the Indian rupee, by the way. You can’t get a 30 year hedge on the euro or the dollar these days.
So how do you as an investor, how do you cover yourself against that exposure? What we are trying to do at the IFC is to do swaps with local commercial banks who have enormous surplus currency. They park to the central bank for a few basis points every night. We could offer more and then use that to provide local currency financing. Today, 44% of our financing in IFC is local currency. Now I don’t know that I can get to 80, but this forex is the holy grail. And even 44 is better than the 20 we were at four, five years ago.
And the last item to me is the biggest one, which is where the trillions are. The real money is sitting in pension funds and asset managers of that size and scale. If you went to the Canadian pension plan or to the Nordic pension plan, or to Scottish widows. And you said to them, hey, don’t you want exposure to water projects in Africa? They would say, yes. But then you show up to them with 20 projects, one of 20 million, one of 25 million, one of 40 million, one of 30 million, in 12 different countries in Africa with different covenants of different laws, different legal agreements. You’re asking them to do due diligence on 20 projects to get one bundle of half a billion. Half a billion doesn’t move the needle in their balance sheet.
The way their CIOs think is give me 1, 2, 3, $4 billion packages. Give it to me with a rating agency’s wrapper on them with standardized loans inside, so I know it’s a plus paper, a minus paper, 92 cents on the dollar. I’ll put 2 billion to work. So what we’ve done is we’ve got Doug Peterson, who used to run Standard and Poor’s, who, you know, who has just retired and is an old colleague of mine from my days at Citi as well, and he’s helping the World Bank Group put together a group of people from asset managers and pension funds and operators and BlackRock and banks and the like to help us think through how to do this and operationalize it over the coming three to four years.
So the money, Shereen, will not come by waving a wand or just by saying, I’m open for business. It will come through the hard work that goes into regulatory policy changes, into these political risk guarantees, into some kind of first loss thinking, catalytic capital, into some form of thinking around foreign exchange and reducing that risk, and most importantly, into standardizing loans and creating a benefit for countries to agree to those loans. Liquidity, pricing. They have to have a benefit. That’s the kind of work we’re doing.
The World Bank’s Progress and Future
SHEREEN BHAN: You know, unfortunately, we’re pretty much getting to the close of our time with you, though. We would have liked to have continued this conversation. But, you know, you said you are. You are currently the ultimate plumber. You would want to be the ultimate plumber at the World bank trying to fix the many leaks. How many have you fixed? How much. How much is left to be done?
AJAY BANGA: The reason I said I want to be, somebody asked me, what do you want your legacy at the bank to be? When I was one year into the bank list, and I kind of said, I’d like to be known as a plumber because I believe that you can’t build houses on defective plumbing. It’s the foundational ability to do this the right way. And that’s what I’m trying to do.
I think the bank for 80 years has existed and done an outstanding job in many ways. Even today they’re putting 120 to 130 billion dollars to work in the world every year. Every year, Every year. And so don’t get me wrong, that’s real money. It makes a difference in many places. We’ve connected 100 million people to power in the last decade. I want to make it 300 in the coming years. We have given people jobs, we’ve connected people to schools. 200 million people have gone to school. 200 million girls have benefited from schooling. There are numbers like that that you can roll off your lips to prove that the institution is doing a good job across the private and public sector.
The problem is I think it takes too long. You can’t spend 19 months, which is what we used to, on getting a project from discussion to approval. We’re now down to 12 to 13 months. I’d like to bring it down further. Some projects are getting approved in 30 days, some are taking much longer. We have silos in our, you know, the private sector part of the bank doesn’t always work as neatly with the public side. But most countries like India want a common thinking across them. We need to be what our client wants us to be, not who we are.
Getting to focus on jobs as compared to a school or a bridge, meaning not an input but an output, is a cultural change. Embracing all this in people who are proud of their history and recognizing the need to change this needs hard work. That’s the work I’m up for and that’s the work I’m trying to do in addition to the idea of jobs and development and all that. So that’s what I’m up for.
Rewiring Thinking for Long-Term Impact
SHEREEN BHAN: You know, Ajay, career in the private sector where the focus was on what’s going to happen in the next quarter, giving guidance for the next year to now, signing off on 50 year loans. How have you rewired your thinking, rethinking your approach to decision making?
AJAY BANGA: I would remind you that at MasterCard I never gave quarterly guidance and I didn’t even give annual guidance. I used to give three year rolling guidance. So I am stubborn and I kind of stuck with it for years. When I went into MasterCard, I changed it in my first quarter. I stopped giving quarterly and annual guidance because I believe that a company that’s in a growth phase, which is what MasterCard was and still is, deserves the chance to think out longer than just a quarter.
And I think development and job creation in people’s lives deserve longer term thinking than a year or two years or five years. You know, I’m having the ride of a lifetime. And when you look back at your life, I’m 65 years old and I think about what do I want to be in another five years when I’m done with this? If I finish my term, it’s another three years. And when I’m done, I’ll be 68. And I don’t want to think what I’ll do next. But I know this. I want to look back and say that my children should say, my dad was not an armchair critic. He tried to make a difference. That’s all I’m saying.
SHEREEN BHAN: What did they say to you today?
AJAY BANGA: My girls are my best critic.
Closing Remarks
SHEREEN BHAN: Well, Ajay Banga, it’s been an absolute pleasure. Thank you so much for joining us here on the Global Dialogue. Thank you for what an insightful conversation, all things global and of course, your take here on what’s happening in India. It’s been an absolute pleasure. I know it’s been very hard for you to take out the time to be with us here today, but we truly appreciate it. And many, many thanks to all of you, ladies and gentlemen, for joining us here for this very special conversation with the president of the World Bank Group. From all of us here on the Global Dialogues team for now, thanks very much for watching.
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