India has made a strong pitch for strengthening the International Monetary Fund’s role and resource kitty in order to “future-proof” the global economy against the possible outbreak of another financial crisis.
In an address to the high-powered International Monetary and Financial Committee here, Finance Minister Arun Jaitley also pointedly raised India’s concerns over adverse spillovers of “Unconventional Monetary Policies” (UMPs) in advanced economies affecting other countries.
Proposing an independent mechanism to monitor and assess the external effects of such policies, he said the advanced economies should manage their policy adjustments in a manner that minimizes negative spillovers on the rest of the world.
“The IMF is in a unique position to take this responsibility, but it needs to be strengthened further through reforms in its governance,” Jaitley said and made the case for augmenting IMF’s resources “for future-proofing the global economy against recurrence of financial crisis”.
The UMPs, he cautioned, can produce disorderly adjustments in exchange and volatile capital flows, thereby increasing the cost of managing external exposures and balance of payments.
In such a milieu, affected countries, particularly the low income nations, will require the support of a credible multilateral safety net to ward off a contagion, he said.
Discussions at the IMFC centred on the prolonged period of subdued global growth, financial market volatility, impact of lower commodity prices and other geopolitical risks and their spillover on global economy.
“We urge the Fund to maintain close oversight upon emerging vulnerabilities and remain committed to safeguarding the stability of the international monetary and financial system,” he said, adding it was necessary to assess the sufficiency of Fund’s resources in accordance with changing global realities, including levels of global growth, size of trade and capital flows.
Reflecting on India’s economic performance, he said the economy was projected to have grown at 7.6 per cent in the just-concluded 2015-16 fiscal, despite a decline in exports and two consecutive years of unfavourable monsoon.
“I am happy to note that India is considered as a ‘beacon of hope’ with rising real incomes and domestic demand in the otherwise gloomy global economic situation,” he said, adding the growth could accelerate further if the monsoon turns out to be normal this year and external demand picks up.
He highlighted the various steps taken by Government of India with respect to structural reforms, investment promotion and tax reforms to stimulate the overall growth, noting: “FDI policy has been substantially eased in several sectors and entry through the automatic route is permitted in most cases. Further, a Bankruptcy Code would be enacted shortly.”
He also touched on the Government’s ambitious National Infrastructure Investment Fund (NIIF) to give a fillip to the expansion and modernization of infrastructure, and programmes such as “Make in India” and “Start Up India”.
While referring to the disappointing projections for global growth, with both advanced economies and emerging economies expected to grow at a lower rate than previously projected, the Finance Minister felt “collective policy actions” will mutually help reinforce economic activity and stability.