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Westerners worried about growing disparities at home shouldn’t overlook the transformative effect of liberalization in India and China.

Imagine that across the length and breadth of America, working-class wages grew much faster than the incomes of millionaires. Rustbelt states started catching up with their more prosperous coastal counterparts. But these developments came with a caveat: greater income inequality in Beverly Hills. The pay cheque gap between Leonardo DiCaprio and his supporting cast increased. Superhero sequels crushed indie movies at the box office.

Taken as a whole, these developments would be cause for joyous celebration. Few would shed a tear for the Golden Globe nominees falling further behind their Oscar-winning colleagues.

Something analogous to this happy fiction has been happening at a worldwide level over roughly the past half century. While the public discourse focuses overwhelmingly on rising domestic inequality in western countries, global inequality has fallen sharply, primarily due to the rise of two Asian giants, China and India. In 1980, the two countries accounted for almost 40 per cent of the world population but only 5 per cent of world income. Today they still make up roughly the same share of global population, but account for a much larger 25 per cent of global income. The global income distribution remains unequal, but not nearly as unequal as it used to be.

Since they started liberalising their economies in the late 20th century, both China and India have been utterly transformed from the plodding and insular economies they used to be. In neither country was liberalisation a once-and-for-all event; reforms gathered speed at times and subsided or even went into reverse at others. Nonetheless, the overall trajectory has been unmistakable.

Both countries registered a step-increase in GDP growth post liberalisation compared with previous decades. More important, the new economic dynamism lifted all boats. Although both countries saw an increase in inequality after liberalising, there was nonetheless rapid income growth even at the bottom of the income distribution. The steep fall in the number of people living in absolute poverty in China and India must count as one of the most dramatic improvements in human welfare in the history of the world. Together, the two countries were responsible for lifting an astonishing 1.1bn people above the international poverty line over the past four decades.

Over the same period, income inequality rose sharply in the west, so much so that it now dominates the political discourse and is one of the chief culprits behind a resurgent populism on both sides of the Atlantic. In most OECD countries the labour share of income has declined substantially in recent decades, with the gains from economic growth accruing disproportionately to the owners of capital and the highly educated. A vivid illustration is provided by the US, where GDP per capita has more than doubled since the mid-1980s, but median household income has risen by only about 30 per cent.

These numbers are disturbing and politically consequential. They have fuelled populist attacks on what might be called the liberal economic order: a system of free(ish) trade and cross-border investment, substantial immigration from poor to rich countries, and a rules-based international order adjudicated by institutions such as the World Trade Organization. But they need to be put in perspective. The US and western Europe collectively comprise about 11 per cent of the global population. Their deteriorating domestic income distributions must be set against the gains made by much vaster numbers of much poorer people. The economist Branko Milanovic has pointed out that the Theil index — a standard measure of global income inequality — has shown considerable improvement since the 1980s, with widening within-country inequality more than outweighed by narrowing between-country inequality.

How should a universalist — somebody who holds that human life has equal worth irrespective of location — regard the overall trajectory of the past half century? The philosopher John Rawls suggested that questions about the just ordering of society should be considered from behind a “veil of ignorance”. If you knew nothing about your own attributes — whether you were rich or poor, male or female, Chinese or American — which society would you choose to inhabit: today’s world, or the world of 50 years ago? Given that your chances of being Chinese or Indian are roughly two-fifths, while your chances of being a westerner are about one-tenth, you would almost certainly choose the present. Trouble in Beverly Hills should not obscure the much wider progress of those who live on less elevated ground.

The writer is a Visiting Scholar at Johns Hopkins SAIS, a Non-Resident Fellow at Bruegel and a Visiting Professor at NCAER. He is currently writing a book entitled ‘A Defense of the Liberal Economic Order’.

Key challenges are efficient utilisation of allocated funds, timely completion of projects, and a balance between urban and rural development.

India’s ambitious vision to achieve developed nation status by 2047 hinges on a transformative journey through infrastructure development. This journey is not merely about constructing highways or erecting skyscrapers; it is about building the backbone that will support sustainable, climate-resilient, and inclusive growth. With an allocation of 3.3% of GDP for infrastructure in 2024, amounting to Rs 11.11 trillion, India is making a significant bet on its future. But is this enough to address the myriad challenges and leverage the opportunities that lie ahead?

The 2024-25 Union Budget outlines a comprehensive plan with a focus on transport and logistics, critical to the Viksit Bharat vision. The goals are lofty: a national highway grid of 2 lakh kilometres by 2025, increasing the number of airports to 220, and operationalising 23 waterways by 2030. This plan is supported by a budgetary increase from Rs 3.7 trillion in 2023 to Rs 5 trillion in 2024, signalling vast opportunities for private-sector investment through public-private partnerships (PPPs).

PPPs are already transforming India’s infrastructure landscape. From the construction of airports and ports to highways and logistics parks, private sector involvement is crucial. The PM Gatishakti National Master Plan, launched in 2021, aims to enhance multimodal connectivity across economic zones. With 15,580 projects valued at $2,388.93 billion, the plan is as ambitious as it is necessary. The National Logistics Policy further aims to develop integrated infrastructure and improve service efficiency, reducing logistics costs from 13% of GDP to the global average of 8% by 2030.

India’s infrastructure initiatives are showing promising results. The Bharatmala Pariyojana, aiming to develop 34,800 km of national highways, is in full swing. The UDAN initiative has enhanced air connectivity, launching 425 routes and revitalising 58 airports since 2016. Indian Railways has electrified 61,508 km of its broad gauge network and introduced 35 Vande Bharat Express trains, with more to come.

In ports, the Sagarmala scheme has reduced turnaround time to 0.9 days, outperforming countries like the US and Singapore. Plans are underway to increase port capacity from 2,600 million tonnes per annum (MTPA) to over 10,000 MTPA by 2047.

As India urbanises, with 40% of its population expected to live in cities by 2030, managing this growth becomes crucial. The Smart Cities Mission is pivotal, with 6,753 projects completed out of 7,991. Concurrently, rural areas are becoming increasingly connected, with 56% of new internet users by 2025 expected from these regions.

India’s infrastructure growth must be sustainable to ensure long-term prosperity. The National Infrastructure Pipeline targets completing projects worth $1.4 trillion by 2025, with 21% investment from the private sector. This includes green infrastructure, renewable energy (RE) projects, and sustainable urban mobility solutions.

Transportation, a significant contributor to greenhouse gas emissions, is a primary focus. India is adopting sustainable practices, such as constructing highways using waste plastic and integrating precast material to reduce emissions. Airports are transitioning to green energy, with the Airports Authority of India aiming for net-zero emissions by 2030.

Railways are also making strides towards sustainability, with plans to achieve net-zero emissions by 2030 through electrification and the introduction of bio-toilets in passenger coaches. Ports are increasing use of RE, with a goal of 90% by 2047, and developing green hydrogen bunkering services.

The Budget’s 11.1% increase in infrastructure spending, along with projections indicating a rise in capital expenditure to Rs 49.58 trillion by 2047, underscores the government’s vision for a prosperous India. This aligns with the goal of a $5-trillion economy by 2025.

However, the road ahead is fraught with challenges. Effective implementation, overcoming bureaucratic hurdles, and ensuring equitable growth across regions will require persistent effort and innovation. India’s success will ultimately depend on its ability to build not just infrastructure but a resilient, inclusive, and sustainable future for all citizens.

Key challenges include ensuring efficient utilisation of allocated funds, timely completion of projects, and a balance between urban and rural development. The government must also address environmental impacts, land acquisition issues, and the need for skilled labour to drive projects.

But one must ask: Are these targets achievable, or are they just another set of lofty goals?

The concept of Viksit Bharat is deeply interwoven with India’s infrastructure ambitions as laid out in the Budget. Such a transformation is not just about economic growth but also social equity, environmental sustainability, and technological advancement.

The integration of sustainable practices, digital connectivity, and private sector participation are pivotal. As India marches towards 2047, its infrastructure development will be a cornerstone of its vision for Viksit Bharat.

Is this vision achievable, or is it just another budget proposal? The numbers are promising, and the intent is clear. However, the real test will be in the execution. The momentum added by the 2024-25 Budget is a step in the right direction, but continuous effort, innovation, and collaboration will be key.

Are we ready to tackle the challenges head-on? Only time will tell, but one thing is certain: the path to Viksit Bharat is as much about vision as it is about action. And now, more than ever, India needs both.

Souryabrata Mohapatra is an associate fellow and Sanjib Pohit is Professor at NCAER. Views are personal. 

The UK’s newly minted National Wealth Fund (NWF) stands not merely as a state-owned financial entity but as a beacon of hope amidst climate challenges. Its mission: To secure a lasting reservoir of funding for climate resilience and sustainable economic growth. Much like a lighthouse, this state-owned investment fund promises to inspire confidence in the UK’s ability to chart a course towards a more sustainable future. The question remains: Will the NWF successfully guide the UK towards resilience and sustainability, or will it echo a foghorn, sounding bold yet lost in the murky maze of the political economy of state-owned funds?

The NWF’s long-term success is not a game of chance but a testament to robust governance and accountability. Effective governance is not just a requirement—it is the lifeblood of the Fund’s success and the UK’s future. Unfortunately, the Green Finance Institute’s Task Force report, which laid the groundwork for the NWF, downplayed these crucial aspects.

A well-governed, accountable national Fund is a priceless legacy for current and future generations. It promises to create enduring long-term value and wealth, free from short-term constraints. This is paramount as climate change and broader economic growth factors will leave their mark on countless future generations. High governance standards will offer reassurance about the NWF’s long-term impact and foster confidence in the future of a more resilient and prosperous UK economy.

Governance: The Cornerstone of Success

The performance and longevity of state-owned funds are inextricably tied to their governance. Studies have demonstrated that sound governance, marked by transparent decision-making, accountability mechanisms, and checks and balances, can enhance the performance of state-owned funds. Conversely, poor governance can result in inefficiencies, subpar performance, and scandals.

While state-owned investment funds in developed economies often operate with high transparency and adhere to stringent governance standards, governance mishaps occur, rapidly eroding public trust. Understandably, governance structures will differ across countries, influenced by their risk tolerance and institutional setup. However, these mishaps underscore the critical role of robust governance in ensuring the effectiveness of these funds.

While the Task Force’s report offers economic and financial assessment, it falls short of a guide on NWF governance. It lacks the depth and rigour necessary for managing a fund of such magnitude and national significance. This oversight is not merely a technical flaw but a fundamental weakness that could threaten the Fund’s long-term success.

Four Critical Governance Gaps

The report lacks a clear framework for the Fund’s mandates and objectives. A well-defined mandate is crucial, serving as the cornerstone for guiding investment decisions and aligning the Fund’s activities with national priorities. The absence of clear objectives can lead to discretionary decision-making and strategic drift, potentially undermining the Fund’s effectiveness.

Effective oversight is another aspect that warrants due importance. The report’s proposed oversight mechanisms should have been more robust to safeguard the Fund’s integrity and performance, as it lacks detailed provisions for independent audits, regular performance evaluations, and stringent accountability measures. Without these, the risk of financial misconduct and corruption escalates.

The NWF’s success is contingent on the trust and support of various stakeholders, including the public, private sector, government entities, academia, public commentators, and the global community. The Task Force report needed to address how the Fund will effectively manage and engage with stakeholders. Transparent and inclusive stakeholder engagement processes ensure broad-based support and mitigate potential conflicts of interest.

The existing governance model, a compromise product, could undermine the Fund’s autonomy and efficacy. This compromise raises significant concerns about the Fund’s vulnerability to political interference, potentially leading to suboptimal investment decisions and jeopardising the Fund’s mission.

Striking the Balance: Speed to Market and Robust Governance

In the NWF context, the ability to swiftly mobilise investable funds and seize opportunities that align with public interests is crucial. However, the bedrock of this philosophy is robust governance. Accountability must be enforced to address delays, inefficiencies, and missed opportunities. Striking a balance between these two aspects is vital for creating enduring financial value and fostering a more resilient and prosperous UK economy.

Given the NWF’s nature and mandate, robust governance is non-negotiable. Unlike a traditional sovereign wealth fund (SWF) that focuses on wealth creation through market-based investments, the NWF, as currently envisioned, will function more as a policy-based financing vehicle. The Fund is designed to serve as a long-term financial reservoir, investing in assets that generate future returns and provide UK citizens with climate resilience. This long-term horizon necessitates a robust governance framework insulated from political fluctuations, sudden policy changes, government turnovers, and short-termism. The focus should be on enduring sustainability, not just immediate gains. The Fund’s mandate to promote sustainable economic growth further underscores the need for governance structures prioritising strategic, forward-looking decision-making.

Global Trend: Autonomy and Higher Governance Standards

Globally, state-owned funds and investment vehicles are moving towards greater autonomy and enhanced governance standards. This trend reflects a growing recognition of the need to build public trust and credibility and insulate these funds from short-term political or bureaucratic opportunism. Many countries are reforming their sovereign wealth funds and state investment arms to adopt best governance practices, emphasising transparency, accountability, and professional management.

Given the UK’s well-established values of openness and partnerships, a constitutionally independent intergenerational fund would be a promising idea and a necessary change. It would augment the traditions of transparency and accountability the UK has espoused globally for centuries. Such an independent fund would be explicitly designed to create enduring value, free from political interference, and aligned with intergenerational equity and sustainability goals. The urgency of this change cannot be overstated.

Macroeconomic and Financial Stability Issues

It must be recognised that strong governance is also necessary as the NWF, as a state-funded and policy-based investment fund, will have several macroeconomic, fiscal, and market implications. The NWF could influence the UK’s macroeconomic stability. If the Fund’s investments generate substantial returns, it could boost economic growth. However, if the investments underperform, it could lead to financial losses and potential fiscal and budgetary instability. The NWF will also have to consider the impact of its funding and investment decisions on financial stability and the City of London and closely coordinate with other agencies, including the Bank of England. Good governance will require safeguards that prevent the NWF from adversely affecting the UK’s budgetary balance and forcing the government to increase its contributions, potentially leading to higher public debt and market destabilisation.

Governance Design of the NWF: A Blueprint

To rectify the governance deficiencies, the architects and legislators of the NWF should consider the following four pillars:

Define Clear Mandates and Objectives: Establish a detailed and explicit NWF mandate that outlines its strategic goals, risk tolerance, and investment horizon. This mandate should be enshrined in legislation to ensure consistency and long-term adherence.

Enhance Oversight and Accountability: Implement rigorous oversight mechanisms, including an independent supervisory board, regular external audits, and transparent reporting practices. An independent body should periodically evaluate the Fund’s performance and compliance to ensure accountability.

Facilitate Inclusive Stakeholder Engagement: Develop a comprehensive stakeholder engagement strategy that includes regular consultations with key stakeholders, public disclosure of investment activities, and mechanisms for incorporating stakeholder feedback into decision-making processes.
Ensure Autonomy from Political Interference: Design the governance structure to safeguard the Fund’s autonomy. This includes a clear separation between the Fund’s management and political entities, statutory protection against political influence, and the appointment of experienced, non-partisan professionals to critical positions.

A Final Observation

The UK’s NWF can transform the nation’s economic and financial landscape. It could bolster stability in the broader economy and restore financial equilibrium. Conversely, the NWF could become a public financial liability. Therefore, the NWF’s governance framework and autonomy quality are crucial. Policymakers must address the governance gaps identified above. By adopting a governance model prioritising transparency, accountability, and independence, the UK can ensure its NWF becomes a pillar of sustainable prosperity and financial stability.

The stakes are high, and the NWF’s governance must rise to this critical challenge. The most promising path forward is a constitutionally independent intergenerational fund focused on enduring value creation. Given the uncertainties and the need for the Fund to outlast electoral cycles, robust and independent governance is essential. Let the NWF become an intergenerational beacon of the UK’s resilience and future growth.

Udaibir Das, Global Macrofinancial Advisor & Strategist, Distinguished Fellow, Senior Advisor, and Visiting Professor

Udaibir Das is a former Assistant Director at the IMF, Senior Advisor to the International Forum of Sovereign Wealth Funds, Bretton Woods Committee Member, and Visiting Professor at the National Council of Applied Economic Research. He advises the Bank of England, is a Distinguished Fellow at ORF America, serves on the Advisory Board of the Kautilya School of Public Policy, and lectures at the University of Navarra and COMESA Monetary Institute. Views are personal.