AIR Spotlight: ADB Meeting and Finance Minister’s Visit to South Korea

AIR Spotlight is an insightful program featured daily on the All India Radio News on air. In this program, many eminent panellists discuss issues of importance which can be quite helpful in IAS exam preparation.

This article is about the discussion on: ‘ADB Meeting and Highlights of the Finance Minister’s Visit to South Korea’.

Participants:

• Shankar Aiyar: Economic Analyst
• Rajesh Lekh: AIR Correspondent

Context – The Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman led the Indian delegation to attend the 56th Annual General Meeting of the Board of Governors of the Asian Development Bank (ADB) in the Republic of Korea (May 2-5, 2023).

Introduction –

The Annual Meeting of the Asian Development Bank (ADB) Board of Governors is an opportunity to provide guidance on ADB administrative, financial, and operational directions. The meetings provide opportunities for member governments to interact with ADB staff, non-government organisations (NGOs), media, representatives of observer countries, international organisations, academia and the private sector. ADB’s annual meetings have become a premier forum for the discussion of economic and social development issues in Asia and the Pacific.

• Annual meetings are held in a member country in late April or early May. The 56th Annual General Meeting of the Board of Governors of ADB was held in the Republic of Korea.

FM’s Focus Area in the ADB Meeting

The centre of gravity of the global economy has shifted to Asia. India is the fifth-largest economy and soon will become the fourth-largest economy in the world. The 56th Annual General Meeting of the ADB serves as a platform to present India’s point of view on geopolitical issues, climate change and financing modes. 

• Smt. Nirmala Sitharaman’s visit enables India to showcase its potential as one of the fastest-growing economies in the world. As a developing economy, India represents the developing economies’ concerns to the advanced and developed economies of the world. The Finance Minister said India encourages ADB to adopt an innovative, risk-factored approach for lending to the developing member countries (DMCs). She expressed India’s support for removing the charter lending limit from the ADB charter altogether and relocating the limitation to the Board of Directors approved Capital Adequacy Framework (CAF).
  • CAF is designed to protect the risk-bearing capacity of ADB without relying on callable capital and to maintain ADB’s ability to lend even during crises and after a large non-accrual shock.
• As the world is passing through a stage of ‘resets’ – of food, fuel, debt, energy, fertiliser, supply chain, sustainability, fiscal stability, etc., a robust ADB that adopts a transformational rather than incremental approach for sustainable and resilient regional development is needed.
• In the post-Covid world, people’s aspiration for sustained development finance across developing member countries needs ADB’s alignment to more resources and operational efficiencies.
• The Finance Minister urged ADB to support India with more concessional climate finance, as India’s economic and developmental progress can have a huge positive impact regionally and globally.

Post Pandemic reconfiguration from global to domestic and regional value chains-

The Covid-19 pandemic triggered a reconfiguration from global to domestic and regional value chains.

• The China-U.S. trade war and the COVID-19 pandemic laid bare the need for companies to diversify supply chains outside of China. This has given rise to the “China plus one” strategy, in which multinational firms are moving to other countries, in addition to China. For many years, western companies have invested in China, drawn in by their low production costs, and enormous domestic consumer markets.
• Off-shoring was for decades the cost-effective way to perform manufacturing with low labour costs and high capacity for output throughout Asia. U.S. companies and their supply chains suffered from off-shore production strategies. So, the policy of reshoring was introduced to solve supply chain problems. 
  • Reshoring – It is the process of returning the production and manufacturing of goods back to the company’s original country. Also known as in-shoring, back-shoring and on-shoring.
• Post-pandemic India has become an attractive destination for multinational companies looking to set up Research and Development (R&D) centres and manufacturing plants. India is now part of the solution to the resilient global supply chain giving a boost to its GDP growth, better CAD (Current Account Deficit) and also poverty reduction. India has an opportunity to integrate more deeply into the global supply chains as more foreign investment is being redirected to it.

Digital Public Infrastructure (DPI)

The Finance Minister said that infrastructure, investment, innovation and inclusivity are essential for long-term sustainable growth for both advanced and developing economies. She said this while participating in the ‘Governors’ Seminar: Policies to Support Asia’s Rebound’, which was held as part of the 56th Asian Development Bank annual meeting in Incheon, South Korea. She also highlighted India’s systemic reforms facilitated by digital public infrastructure, enabling timely conditional cash transfers during the pandemic.

• The DPI initiative, also known as the India Stack, is a collection of digital platforms such as Aadhaar, Digital Locker, DigiYatra, UPI, CoWIN and technologies that have been developed through collaboration between different entities, including governments, regulators, private sector, volunteers, startups, and academic institutions. The goal of DPI is to provide a seamless and efficient way for citizens to access government services and promote inclusive development.
• The benefits of DPI will go a long way in strengthening the endeavour to achieve strong, resilient, inclusive, and sustainable economic growth. DPI has some inherent features like interoperability, openness, low-cost access and transparency and these make it inclusive by design.
•  DPI with its building blocks that are public and private can tremendously accelerate development as it makes the inaccessible accessible. India is in an enviable position in terms of Digital Infrastructure.

ADBs Innovative Finance Facility for Climate in Asia and Pacific (IF-CAP)-

In line with climate change financing requirements, ADB announced its newest climate finance program: the Innovative Finance Facility for Climate in Asia and the Pacific (IF-CAP), which will use guarantees from partners for leverage to accelerate billions of dollars in much-needed climate change investment.

• IF-CAP’s initial partners are Denmark, Japan, the Republic of Korea, Sweden, the United Kingdom, and the United States.
• ADB’s intention to provide $20 billion-$25 billion in resources over five years was to advance the country’s aspirations for fast, inclusive, and green growth.
• India has also been seeking an increase in investments in priority sectors of clean energy, infrastructure spending and climate financing from multilateral lending institutions.

Know more about ADB IF-CAP in the linked article.

Conclusion – As a multilateral development finance institution, ADB provides loans, technical assistance and grants to its developing member countries. It also provides direct assistance to private enterprises of developing member countries through equity investment and loans. ADB has the capacity and opportunity to fund innovative financing for climate change and shifting from fossil fuel to renewables.

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