India and the IMF

ECONOMICS

Submitted by:Mannem srinivas gowd

Roll no: 2013066Semester-3

DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITYVisakhapatnam

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ACKNOWLEDGEMENT

This project is done as a semester project, as a part of course titled

“India and the IMF”. I am really thankful to our course instructor

Dr.ramachandrudu, Professor, Department of economics, DAMODARAM

SANJIVAYYA NATIONAL LAW UNIVERSITY, for his valuable

guidance and Assistance, without which the accomplishment of the task

would have never been Possible. I also thank him for giving this opportunity

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introduction 4

The meaning of IMF 4

India’s relation with IMF 4

IMF lauds India for avoiding financial crisis 7

current relation between IMF and India 9

conclusion 9

bibliography 10

TABLE OF CONTENTS

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Introduction:

India and the IMF have had a friendly relationship, which has been beneficial for both.

The IMF has provided India with loans over the years and this has helped the country to

grow. The IMF has also praised India for it has been able to maintain average growth rate

of its economy.

The meaning of International Monetary Fund (IMF):

International Monetary Fund (IMF) is an administrative unit that is international in nature

and whose objective is to regulate and administer the financial system of the world. The

IMF does this by observing the payments balance and exchange rates of the world.

International Monetary Fund also offers technical and financial help to the member

nations. Its head office is in Washington D.C, USA.

India's relations with the International Monetary Fund:

India and the IMF has a positive relationship. The IMF has provided financial assistance

to India, which has helped in boosting the country's economy. The IMF praised the

country for it was able to avoid the Asian Financial Crisis in 1999 and was also able to

maintain the average rate of growth of its economy. The Managing Director of

International Monetary Fund Rodrigo De Rato visited India in May 2005. In 2005, the

IMF said that the budget of India is very positive for it points that the economy of the

country will grow at the rate of 6.7%. International Monetary Fund said that the reasons

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behind the economy growth of India are that the RBI has been able to control inflation

and has also handled its monetary policies very skillfully. The IMF has suggested that

India can become a financial super power by bringing in more reforms in its economic

policies that will increase its growth rate to 8%.

India has attacked changes to the voting structure of the International

Monetary Fund (IMF) after it saw its share of the vote decrease.

Its comments came after the 184 IMF nations agreed a deal on Monday to give some

emerging economies a bigger vote. While China, South Korea, Turkey and Mexico all

saw their voting quotas rise, India's declined. India said the reforms were "hopelessly

flawed". The IMF has now pledged to overhaul its voting system by 2008. Indian Finance

Minister Palaniappan Chidambaram said it would "hold the IMF to its promise" of a

complete reform of the voting system within two years. "We may have lost the vote but

we have not lost the argument," he said. Under the temporary reforms agreed at the IMF's

annual meetings in Singapore on Monday, India saw its voting quota drop slightly to

1.91% from 1.95%. Mr. Chidambaram said the reform formula used to determine

Monday's changes - including a country's GDP and market openness - did not accurately

reflect the economic might of emerging economies such as India.

India wants the next formula to take into account the need of large developing economies

to protect their farmers and young industries from foreign competition.

October 17, 2007

  An IMF training course in Pune for senior civil servants from India and around the

region went into the varied experiences with this “second generation” budget reform.

Making program and performance budgeting (PPB) work in the context of capacity

constraints and politicians familiar only with traditional line item budgeting led to lively

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discussions with the 29 participants from India’s central and state governments, and

invited representatives of other countries' ministries of finance.

The FAD's PFM 2 Division provided the training course in Pune from October 1-5, 2007.

The team of presenters included Messrs. Holger van Eden and Justin Tyson (FAD), Mr.

Jack Diamond (FAD panel of experts), and Mr. Aru Rassapan from the Center for

Development & Research in Evaluation (CeDRE) in Malaysia. Mr. Sang Dae Choi

(World Bank) provided a lecture through video-link on the Korean experience with

introducing performance budgeting1

India and IMF:

This is with reference to "India turns creditor to IMF" The new report arouses

enthusiasm. While many of the developing countries continue to be indebted to the IMF,

it is really delightful to note that India has obtained a place in the "financial transaction

plan" by way of its strong BOP and foreign exchange reserves position.2

This, indeed, sends very positive signals to the global community. The gaining strength

of the Indian rupee in recent times amidst the euro-dollar competition places the Indian

economy in a safe mode. The present dip in the forex reserves on account of transfers to

IMF under the FTA scheme can be disregarded as it can be easily replenished soon

through fresh inflows.

India Reports I.M.F. Loan:

A top Indian official said today that the International Monetary Fund had agreed to lend

India $2.5 billion.

1 Program and Performance Budgeting Enthusiasm in India -- IMF Training Course,pune.

2 (Business Line, June 29).

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The proposed loan is among the largest that the I.M.F. has given to India in recent times

and follows a declaration by Prime Minister Chandra Shekhar that he had authorized

senior officials to negotiate such assistance in Washington.

The Commerce Minister, Subramanian Swamy, was quoted today by the newspaper

Economic Times as saying at a meeting of industrialists that the loan agreement will be

signed on Jan. 23.

Mr. Swamy said that the Government would not cut back industrial imports because this

would hurt overall growth. He advocated increased exports to improve India's foreign

exchange reserves and trade deficit.

It has been reported that of the total loan, about $800 million will be disbursed from the

institution's compensatory contingency financing facility and the rest as a standby credit.

Separately, Iran was reported to have agreed to supply India with one million tons of

crude oil. The oil will be supplied in the next three months and Iran has offered 90 days'

credit and "attractive prices," The Times of India said.

The loans provided by IMF to India:

SDR 3,260,405,000 1992

SDR 3,584,905,000 1993

SDR 2,763,180,833 1994

SDR 1,966,633,125 1995

SDR 1,085,250,003 1996

SDR 589,791,667 1997

SDR 284,916,664 1998

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SDR 38,500 1999

IMF Lauds India for Avoiding the Asian Financial Crisis

International Monetary Fund (IMF) has said that a very positive aspect of India’s recent

economic performance is that it avoided the worst of the Asian financial crisis, and

growth has been maintained at a rate close to the average seen over the past decade. From

a longer term perspective, however, IMF feels it is important that India does not consider

a growth rate of 5% to 6% to be the best that can be achieved.IMF feels that there is

considerable scope for improving the allocation of resources through structural reforms,

and also for increasing the rate of investment in the economy. The main priority for

macroeconomic policy continues to be to rein in the public sector deficit, which has

widened to almost 10% of GDP. “The recent budget implies some modest deficit

reduction at the central government level, but measures will also need to be taken by state

governments and public enterprises to ensure consolidation for the public sector overall.”

There is also a need to contain rapid monetary growth to reduce risks of a renewed upturn

in inflation. IMF has projected that the current slowdown in the Indian economy will

continue in 1999-2000 with output at 5.1% as against the government’s target of 6.5% to

7%. In its forecast for the year 2000, IMF’s publication the World Economic Outlook

(WEO) also projected a continuation of the external sector imbalances with the current

account deficit at 2.2% of gross domestic product (GDP) which is higher than the

government’s figure of 1.7%. IMF has also forecast a rise in consumer prices to 7.9% in

1999-2000. The WEO has stated that India could have maintained a growth rate of 7% to

8% over the past years had it reformed faster.3

3 http://nation.com.pk/business/18-Mar-2009/IMF-lauds-India-for-avoiding-economic-crisis

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India PM appoints ex-IMF chief economist as adviser

Indian Prime Minister Manmohan Singh on Monday appointed former International

Monetary Fund chief economist Raghuram Rajan as an economic adviser.

Indian policymakers are struggling to fend off damage to the domestic economy from the

global financial crisis and on Monday Singh said his government would take all steps

necessary to protect growth in Asia's third-largest economy.

A statement from the Prime Minister's Office said Rajan had been appointed as an

honorary economic adviser to Singh and would hold the rank of a secretary to the

government of India.4

The current relationship between IMF and India:

The relationship between the IMF and India has grown strong over the years. In fact, the

country has turned into a creditor to the IMF and has stopped taking loans from it. India

and IMF must continue to boost their relationship this way, as it will prove to be

advantageous for both.

Conclusion:

the historical relationship between the Government of India (GOI) and the International

Monetary Fund (IMF) as a successful model for the ways in which a developing country

can learn to work with and through multilateral organizations to promote economic and

political development while sustaining democratic institutions and relative international

political autonomy. In the mid-1960s, India's relations with the USA, IMF, and World

Bank were strained after an attempt by these institutions to exert 'leverage' over Indian

economic policies was exposed to parliamentary debate and the scrutiny of a free press.

4 http://in.reuters.com/article/2008/11/03/india-economy-adviser-idINDEL12487220081103

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By the late 1970s, the GOI charted a new course in its interaction with the IMF. In 1981,

India was awarded the largest IMF loan to a developing country up to that time. This

article will evaluate India's economic reform strategy in the early 1980s and explain the

development of the concept of 'homegrown conditionality' within the GOI.

Bibliography:

Books:

Jean Dreze and Amartya Sen, India: Development and Participation, Oxford

University Press, 2nd edition, 2002.

Debraj Ray, Development Economics, Oxford University Press, 2009

Websites:

http://in.reuters.com

http://nation.com

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