Book review on India's Relations with the International Monetary Fund; By Mr. Kandaswami Subramanian

CAS Article No. 23/2019

July 29, 2019

Courtesy : The Hindu

V. Srinivas, India's Relations with the International Monetary Fund (Vrij Books India, Price Rs. 995)

A veteran traces India’s roller-coaster ties with the International Monetary Fund

Policymakers in developing countries, especially those under threat of an economic crisis, face a painful dilemma: “to reach or not to reach the IMF.” If they reach the IMF, they are politically damned; if they don’t, they are economically ruined.

The trouble with IMF assistance is that it is subject to rigid conditions under the rubric of the Washington Consensus (WC). Developing countries have viewed it as anti-poor, anti-welfare and pro-capitalist. Though the IMF did not soften its stance for years, it had to subsequently bow to changes in global developments. Reacting to the harsh conditions, developing countries began to move away from the IMF and seek assistance from alternative sources like bank credit or China. By 2008, this trend threatened the relevance of the IMF with the drying up of loan disbursements. It created an embarrassing budgetary crisis and the IMF had to sell a part of its gold reserves to finance its budget. By then, the Beijing Consensus sponsored by China challenged the primacy of the WC. The IMF felt the heat and reviewed lending policies.

The book under review is on India’s relations with the IMF from 1991-2016. A long chapter offers views of former senior colleagues such as finance secretaries, RBI governors, etc. on topical issues and about their stint in the IMF. Another chapter describes the author’s years in the IMF; these accounts are interesting but do not add value to the core theme of the book and how the ties evolved.

Srinivas holds a rosy view of our relations with the IMF, especially the impact economists and senior officials had on its thinking. This enthusiasm is misplaced. Some Indian economists working with the IMF may have influenced its policies, but India, as a long time borrower, could not dine at the high table. It was in later years with the growing strength of the South, China’s rise and the emergence of G-20 as a group that our voices were heard and respected. By then, we had also ceased to borrow from the IMF and even began to contribute to its capital resources.

He writes about the devaluation of the rupee in 1966 which led to antipathy towards IMF programmes that were in conflict with our socialistic policies. Srinivas documents the balance of payments crisis of 1981 and the borrowing from the IMF that followed. The author provides details of the discussions in the IMF’s Executive Board and how the U.S. abstained. He notes that the conditions imposed were in line with the strategies adopted by us under the Sixth Five Year Plan. The significance of the 1981 programme was that India, which had agreed to draw $5 billion over a three-year period, foreclosed the loan. The IMF had objected to our extending credit to the Soviet Union which was a non-member. Srinivas does not mention this fact. The 1991 balance of payments crisis was handled better; by then there was a convergence of views between negotiators from our side and the IMF.

On the whole this book will be of value to students to understand the IMF, its working and relations with member countries.

(Kandaswami Subramanian is a former Joint Secretary (Retd.), Ministry of Finance, Government of India; Treasurer, C3S. The views expressed are his own. Email id: subrabhama@gmail.com )