Financing Sustainable Development Goals: How should India look at private investments for development?

Private sector investments in development is the key for sustainable development and there exists a huge potential for private investment to become a significant part of Sustainable Development Goals (SDGs) in India. Image: Shutterstock

How to finance development is one of the most pressing questions in the reflections of Sustainable Development Goals for the post-2015 development agenda.

According to economists and policy makers, private sector investment is the key for sustainable growth and there is a huge potential for private investment to become a significant part of Sustainable Development Goals (SDGs) in India.

Responsible business conduct is an essential part of today’s open trade and investment climate, given the increasingly global nature of value chains. It is also important in driving sustainable development and ensuring that enterprises create long-term value for the societies in which they operate. Government is expected to play an instrumental role in bridging this gap for promoting quality investment to support national and regional development objectives and CSR is only a contributor to it. There is a greater scope to enhance investments from the private sector for development.

Responsible Investment for Inclusive Growth and Sustainable Development Private investment can be an essential enabler of economic and human development: Under the right conditions it creates jobs and boosts the activity of local firms, suppliers and distributors by creating demand and a market for their products and services. It can improve access to and the quality of infrastructure and services critical for the development of entrepreneurship and small businesses, such as banking and finance. It can encourage innovation and spur productivity growth by bringing in or generating new information and technologies – such as through knowledge-intensive activities like research and development. If adequately framed, investment can improve the human resource base by fuelling the development of skills in the host economy through educational and training programs to meet market needs.

Key Challenges
Businesses are also evolving and increasingly driving the efforts to improve the sustainability of their operations and contribute to sustainable development. Responsible investors that respect international standards of responsible business conduct are increasingly responding to risks of adverse impacts associated with people and planet.

However, where investment does occur, the local economy does not always possess the capacity and policy tools to reap the potential benefits of private investment. Low-income country like India does not have the mechanisms for integrated approaches required to reap such benefits. Productivity gains are often low that would most benefit from investment, and incentives insufficient to encourage innovation.

Moreover, the informal economy is sizeable in the country meaning that a significant part of economic activity is left outside the protection, regulatory frameworks and taxation set by the government. It also makes it difficult for those in the informal economy to benefit from support programmes such as agro and micro-financing schemes.

Bridging the Gap
This emphasises the need for sound policy frameworks to encourage private investment in actions that support SDGs. The Sustainable Development Goals are designed to be universal and integrate the social, environmental and economic pillars of development to transform the functioning of societies and economies for a more sustainable future. They explicitly call for quality investment to support this transformation.

Coherent policy frameworks are needed to address these various gaps and unlock innovative forms to enhance private participation. Responsible business conduct is about the positive contribution the private sector can make to sustainable and inclusive development, while avoiding and addressing the negative impacts of business operations. With increasing expectations by society for responsible business conduct, demand is growing for governments to provide adequate tools to enable responsibility standards to be applied throughout the economy to ensure a level playing field, both nationally and – increasingly – internationally.

Broader uptake of responsible business practices globally would help to level the playing field for business, create a more open investment climate, and improve conditions in global value chains. A part of the challenge of financing for development is strengthening frameworks to channeling private resources into the right places to support sustainable development goals.

Another is increasing the capacity of the local economy and the public sector to benefit fully from private investment. The government should consider existing frameworks and instruments such as the Policy Framework for Investment to support their efforts in maximizing the positive impact of private investment for sustainable development.

The author wrote this blog after being inspired by the OECD report titled 'Investment for Sustainable Development'

The thoughts and opinions shared here are of the author.