The Relationship Between India and the International Monetary Fund

2712 Words Jul 24th, 2012 11 Pages
India & IMF Relations:
A Brief History

India joined International Monetary Fund (IMF) on 27 December, 1945. The relationship between India and the IMF dates back to the time when India needed economic reform packages to strengthen its international reputation and fiscal policy. It is among one of the developing economies that effectively employed the various Fund programmes to fortify its fiscal structure. Through productive engagement with the IMF, India formulated a consistent approach to expand domestic and global assistance for economic reforms. Whenever India underwent balance of payments crises, it sought the help of IMF and in turn the internationally recognized reserve willingly helped India to overcome the difficulties.

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The currency devaluation failed to turn the economy around, and the attempt to exert leverage tarnished relations between India and the US, as well as India’s relations with the World Bank and IMF for more than a decade and India only drew small loans from the IMF that were either unconditional or required minimal policy pre-commitments.

In 1979, India’s terms of trade deteriorated once again in the wake of the second oil shock and its agricultural output plunged due to a severe drought. The return of Mrs. Indira Gandhi to power in early 1980 allowed India to chart a new course for its unavoidable future interaction with the IMF and World Bank. A highly talented economic policy team formulated a strategy whereby the various aspects of economic reforms would be initiated by domestic policymakers prior to the onset of a crisis and then presented to international financial institutions. The authorities needed to formulate and pace the reforms in such a way that democratic institutions would not be compromised and the loan arrangement would not be so diluted that the international financial institutions would reject it.

The conditions and performance criteria under which India would take a loan from the IMF were derived from India’s Sixth Five-Year Plan. In essence, the GOI considered the IMF loan to be a component of its Sixth Five-Year plan. The overwhelming majority of member countries were favorable toward the request submitted by the Indian

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