A child wears a face mask depicting Disney characters amid concerns over the spread of the Covid-19 coronavirus, in Kolkata on July 21, 2020. Photo: AFP / Dibyangshu Sarkar

Economic pundits agree that Covid-19 will cause South Asia to witness its worst economic performance in over four decades.

Evidence of this is particularly stark in India, which until recently was one of the fastest-growing economies in the world. Between 2006 and 2016, the country made impressive progress, lifting 271 million people out of multidimensional poverty. 

The pandemic threatens to reverse these gains as it rips through the informal sector which accounts for more than 85% of the workforce, including tens of millions of migrant workers. Gains on food security, nutrition and education are under severe threat.

The human toll, the social and economic cost, and the progress towards or regression away from the Sustainable Development Goals (SDGs), will be determined by policies and investment choices in India, and in countries across the world.  

Like other governments in the region committing vast sums toward socio-economic relief, India has committed US$265 billion, about 10% of its gross domestic product. There is no substitute for traditional grants, cash transfers, development aid and enhanced public spending. But it is not enough.

Mobilizing and incentivizing private capital to foster sustainable development is more imperative than ever. Channeling private financing toward the dual purpose of development impact with financial return is a world of blended financing that has opened up, yet not scaled in countries like India.  

But the foundation exists. 

According to Convergence, a global network that gathers data and intelligence on private capital, more than $140 billion in aggregate financing was mobilized in blended finance by 2019. The proportion of new deals targeting Asia comprises a third of that amount.

A relatively recent example is the Women’s Livelihood Bond, launched in India last year by the World Bank. It aims to raise $75 million to support rural women working in the agriculture, food processing, and services and manufacturing sectors, to help set up or expand their business.

Development finance used in this way helps to mitigate risks, and catalyze additional financing from the private sector to scale and speed up recovery.

India is also emerging as a key arena for another form of blended financing called Pay for Success (PFS). These are mechanisms by which the upfront costs of social or development programs are borne by impact investors rather than governments or foundations. Only if the agreed outcomes are achieved does the funder repay the investment. If not, the investor bears the loss. 

A form of Pay for Success includes loans linked to impact, to encourage enterprises to take meaningful steps toward climate action or gender equality. This could also be beneficial for small and medium-sized enterprises (SMEs), as access to affordable credit is a lifeline. It could particularly support those that do not have financial cushions and are struggling to cope with a sharp decline in business caused by Covid-19. 

The UN Development Program’s flagship initiative SDG Impact aims to align private capital with the SDGs. It creates frameworks and standards for such a mix-and-match of financing and investment instruments aligned to the SDGs. SDG Investor Maps are used to identify opportunities for investment that align with development needs and contribute to achieving sustainable outcomes. 

The India Map is being  developed with Invest India, the government’s investment promotion agency, in consultation with leading institutional investors. With the support of the Swiss Agency for Development Cooperation, the UNDP has also set up dedicated platforms, such as the SDG Finance Facility, which brings together government and the private sector to work jointly on exploring the development of SDG-aligned financing instruments. 

It is becoming clear that the communities, states and countries that are recovering faster are those that have overturned the old economic order of “growth first, people and environment after.” Of course economic growth is important to grow the pie for all, but the data, science and evidence tell us that there are greener pathways that provide scale and strong financial returns, without leaving millions behind or destroying the environment. 

The pandemic has necessitated a radical rethink on how financing is structured to incentivize responsible investment, and the need to leverage private capital for development impact. This is not just for short-term “feel good” recovery efforts, but rather a “reset” that paves the way for each country to value its wealth of human and natural resources, for generations to come. 

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Kanni Wignaraja

Kanni Wignaraja is a UN assistant secretary general and director of the United Nations Development Program’s Regional Bureau for Asia and the Pacific.

Shoko Noda

Shoko Noda is the UN Development Program India resident representative.