Description
The centrality of infrastructure finance for development and green transitions in emerging economies is widely acknowledged. International Financial Institutions have led an approach premised on the privatization of infrastructure finance premised on shadow banking, public-private partnerships, and capital market creation. I examine one of the earliest instances of this phenomenon in the early 90s when the World Bank created a shadow banking infrastructure finance corporation in India. Existing literature conceptualizes this phenomenon through what scholars have called the ‘derisking state’ and the ‘Wall Street Consensus’. This paper demonstrates the limitations of these concepts in illuminating the privatization of infrastructure finance in India. It challenges the periodization of the ‘Wall Street Consensus’ by highlighting the use of the same financial institutions and instruments in the early 90s. I show how shadow banking undermines infrastructure development and causes what is perhaps India’s biggest financial fraud that poses systemic financial stability risks. I find that the concept of the derisking state is less useful for capturing the mechanisms of this case and instead advance the concept of the ‘guarantor state’ to describe the historically specific relationship between state and capital that underpins infrastructure finance in India. The guarantor state is characterized by a de-regulated banking sector in which term-lending for infrastructure is replaced by opaque shadow-banking mechanisms. The upshot of this is the large inflows of financial capital into India create opportunities for financial fraud. This paper draws on over thirty interviews and an analysis of primary documents.
