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Asian Development Bank to provide $20 billion loan to India over five years

Note4Students

 Mains Paper2 | Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests

The following things are important from UPSC perspective:

Prelims: ADB and its Country Partnership Strategy 2018-22

Mains level: ADB will raise annual funding for India to up to $4 billion from next year under its Country Partnership Strategy 2018-22.


News

Context

  1. Asian Development Bank (ADB) said it will raise annual funding to India to up to $4 billion from existing $2.7 billion, from next year.

ADB’s Country Partnership Strategy 2018-22

  1. ADB Country Director in India said the multilateral funding agency has decided to provide loans up to $4 billion on annual basis including non-sovereign or private debt during 2018-22.
  2. As part of ADB’s Country Partnership Strategy 2018-22, annual sovereign funding will increase from $2 billion to $3 billion while private sector funding would be doubled to $1 billion.
  3. The other priority pillars include increasing annual funding to low income states and climate change.

The India Programme

  1. It will focus on boosting economic competitiveness to create more and well paid jobs, improved access to infrastructure and services, and addressing climate change and improving climate resilience over these five years.
  2. ADB said infrastructure continues to be a major bottleneck.
  3. Also, it has identified an investment shortfall of $230 billion a year in infrastructure sector.
  4. ADB highlighted that on Gross Domestic Product (GDP) growth, India is expected to grow at 7 per cent in the current fiscal and will accelerate to 7.4 per cent next fiscal.
  5. Indian economy expanded by 5.7 per cent in the first quarter of the current fiscal, the lowest in the three years.
  6. Job creation is a challenge for India.
  7. India’s poverty reduction record has been quite substantial.
  8. And rural wages has grown faster than economic growth rate which has led to reduction of agriculture labour.
  9. Skill development is an area that would help in employability.

India’s Other Investment partners

  1. Apart from, the Japan International Cooperation Agency, KfW, and the World Bank are India’s other development partners.
  2. The Asian Infrastructure Investment Bank and the New Development Bank have also joined as new multilateral funding agencies.

 

 

 

What is an Extended Fund Facility (EFF)?

  1. The IMF can assist a country with the adjustment process under an Extended Fund Facility (EFF)
  2. When? A country faces serious medium-term balance of payments problems because of structural weaknesses that require time to address
  3. Assistance under EFF features longer program engagement—to help countries implement medium-term structural reforms—and a longer repayment period

IMF to disburse $102 million to Pakistan- II

  1. India: Did not oppose the decision since the amount involved is not large
  2. This is despite the rising hostilities between the two neighbours which has led India to strive to isolate Pakistan globally through diplomatic efforts
  3. A Factoid: India’s IMF Executive Director in Washington Subir Gokarn also represents Bangladesh, Bhutan and Nepal but not Pakistan, which is in the group that has Iran and other countries

Indian demands at Bretton Woods meeting

  1. Context: The ‘Spring Meetings’ interaction with various officials of the International Monetary Fund and the World Bank
  2. Financing: Jaitley has called on the World Bank to continue its concessional financing until 2030
  3. He also called for increase the development financing and non- concessional loans to $100 billion over the next five years
  4. Why? Delivering the SDGs on development and reconstruction agenda would require large amounts of concessional and non-concessional finance
  5. The ongoing revision of environmental and social standards required under the financing conditions must not compromise the primacy of the development objective

Stick to fiscal consolidation: WEO

  1. Context: Latest edition of the World Economic Outlook (WEO) by International Monetary Fund (IMF)
  2. India must continue on its fiscal consolidation path and focus on reforms, especially in the labour and infrastructure sectors
  3. Consumer inflation would be at 5.3% for the next two years and would ease by 2021
  4. Lower commodity prices, supply side measures, and a relatively tight monetary stance have resulted in a faster-than-expected fall in inflation
  5. But upside risks to inflation could necessitate a tightening of monetary policy

Lagarde lauds India’s Fiscal policy

  1. Context: At a 3-day Advancing Asia conference hosted by India and the IMF, IMF MD Christine Lagarde lauded India
  2. What? India’s fiscal stance of consolidation and higher capital spending is “appropriate and sensible”
  3. Investments in major infrastructure projects are the right way to stimulate economy
  4. Also the effort by Govt & RBI to clean bank balance sheets are appropriate

IMF and India to Set up a South Asia Regional Training and Technical Assistance Center(SARTTC)

  1. Context: Union Finance Ministry and International Monetary Fund (IMF) have signed a Memorandum of Understanding (MoU) on SARTTC
  2. Objective: SARTTC will set up for enhancing capacity development and training officials in dealing with macro-economic and financial issues in South Asia region
  3. Relevance: Will become the focal point for planning, coordinating, and implementing the IMF’s capacity development activities in the region on a wide range of areas
  4. Focus Areas: Macroeconomic and fiscal management, financial sector regulation, monetary operations and supervision, and macroeconomic statistics
  5. Help to address existing training needs and respond to the demand for IMF training in India, Bhutan, Bangladesh, Nepal, Maldives and Sri Lanka
PIB

Yet to receive a request from Cuba for IMF membership: IMF chief

  1. News: Cuba has not yet made a request for membership of the IMF, the fund’s chief said
  2. Context: IMF chief’s comments came just days after European Union(EU) and Cuba signed an agreement in Havana to establish normal relations
  3. Why? For bringing Communist-run island further into the international fold and paving the way for full economic cooperation with the 28-member bloc
  4. Relevance: Cuba was one of the founding members of the IMF until it quit in 1964

IMF prods India on GDP numbers

  1. Context: IMF came to the rescue of CSO amid consistent criticism of new GDP numbers
  2. It held that the country’s economic growth figures look credible
  3. It also prodded CSO to come out with the producer’s price index (PPI) in place of retail and wholesale price indices
  4. Critics: New GDP series portrays an overly robust picture of the Indian economy
  5. But other macro indicators such as bank credit growth, rural demand and factory output do not support it

IMF knowledge sharing centre to come up in India

  1. Context: IMF will set up a knowledge-sharing centre in India
  2. Objective: To counsel Delhi and other South Asian capitals, bringing more expertise in an economic crisis
  3. It is a first such office for Asia
  4. Countries: Will provide assistance to India, Nepal, Bangladesh, Sri Lanka, Pakistan and Bhutan
  5. Benefit: Will ensure better understanding of regional concerns- trade, agriculture, climate change, facilitating a reform process and support to regional integration

3 red flags from IMF

  1. Context: A study conducted by IMF on Indian firms
  2. Relevance: Leverage of Indian firms is among the weakest in emerging markets
  3. How? Following the global financial crisis, firms couldn’t raise money from new share issuances and instead relied increasingly on foreign borrowings, that made them vulnerable to external shocks
  4. Returns declined sharply: Because of delay in project approvals, land acquisition problems, fuel scarcity, 2 yrs of droughts, weak domestic and export demand, excess capacity, high interest rates
  5. Vulnerability to shocks is high: Capacity of firms to repay debt has fallen alarmingly

Christine Lagarde appointed for second term as IMF chief

  1. Context: She was sole candidate nominated for the post and was re-nominated by IMF’s Executive Board decision taken by consensus
  2. Background: She was for the first time appointed MD in 2011 after IMF Board had initiated selection process on merit-based and transparent process
  3. Prior to her appointment at the IMF in 2011, she had served as Minister of Finance and Minister for Foreign Trade of France
  4. Significance: First woman named to the top post of IMF since the institution’s inception in 1944

Let’s know more about IMF Quota

  1. It determines a country’s subscription to the IMF, access to fund and voting rights.
  2. The current quota formula is a weighted average of GDP (weight of 50 percent), openness (30 percent), economic variability (15 percent), and international reserves (5 percent).
  3. GDP is measured through a blend of GDP—based on market exchange rates (weight of 60 percent)—and on PPP exchange rates (40 percent)
  4. Emerging economies want changes to the formula as part of overall reform, giving more weight to GDP at PPP and dynamic factors such as GDP growth.
  5. Any changes in quotas must be approved by an 85 percent majority of the total voting power.
  6. This gives country holding >15% quota de facto veto over quota reforms and USA holds such a veto with more than 16% quota share.

Keep Pushing for IMF reform

Launch of BRICS Bank and Asian Infrastructure Investment Bank, finally pushed US and developed nations to modernize their quota structure.

  1. International Monetary Fund has finally made country quota reforms agreed by the G20 in 2010 a reality.
  2. The U.S. Congress which had blocked the reforms finally dropped its veto to allow quota reform to go through.
  3. With this structural shift, more than 6 % of the quota, including both the Fund’s capital and voting rights, have been transferred from developed to emerging economies.
  4. India and China have respectively increased their voting shares by 0.292 and 2.265 percentage points.
  5. All the directors on IMF board will now be elected and developed countries will not be able to nominate.

Let’s know about IMF?

  1. Created in 1945, the IMF is governed by and accountable to 188 countries that make up its near-global membership.
  2. The IMF, also known as the Fund, was conceived at a UN conference in Bretton Woods, New Hampshire, United States, in July 1944.
  3. To foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and reduce poverty around the world.
  4. The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.

India gets more voting rights in IMF reforms

More than 6 per cent of the quota shares will shift to emerging and developing countries from the U.S. and European countries.

  1. India’s voting rights increase to 2.6 per cent from the current 2.3 per cent, and China’s, to 6 per cent from 3.8, as per the new division.
  2. Russia and Brazil are the other two countries that gain from the reforms.
  3. The significant resource enhancement will fortify the IMF’s ability to respond to crises more effectively.
  4. IMF reforms were agreed upon by its 188 members in 2010, in the aftermath of the global financial meltdown.
  5. The reforms bring India and Brazil into the list of the top 10 members of IMF, along with the U.S, Japan, France, Germany, Italy, the United Kingdom, China and Russia.


:( We are working on most probable questions. Do check back this section.







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