The idea that India is the world’s next global superpower is so prevalent among economists that it even has its own Wikipedia article. Yet there’s resistance to the country’s ascension to international godhood even within India itself. Popular historian Ramachandra Guha, for instance, believes that unsustainable resource consumption, a fractious multi-party government and one of the worst examples of income equality in the world mean that India will not only be unable to attain superpower status in the near future, but the country shouldn’t even try to join the likes of Germany and the United States on top of the world.
India’s Income Equality
A good example of India’s economic identity issues from recent months involves the country’s Gross Domestic Product (GDP), which declined to 5.8% for FY20 in October 2019 from prior Moody’s estimates of 6.1% and 6.8%. Charity Oxfam also notes that 1% of the country earned 73% of India’s total wealth in 2017, with an estimated 70 new millionaires created every day to 2022. It’s perhaps inevitable then that an institution like the International Monetary Fund (IMF), a Washington DC-based organisation that tries to ease poverty and unemployment and foster financial stability, would maintain a strong presence in India. But what exactly is the IMF’s role in the country? And could it all be about to change?
In the latter case, the likelihood is no – or, at least, not in any seismic way. India is a significant customer of the IMF, with borrowing as of December 2018 standing at US$5.5bn according to the Indian government website (.pdf), down from a first-quarter sum of US$5.8bn. The country has maintained a relationship with the IMF from its 1945 inception to the present day, receiving US$115m before 1971. Borrowing accelerated in the years to 1981, when the Economics Discussion website claims India negotiated a giant loan of US$703.6m. It’s worth noting here though that the IMF isn’t just a vast piggy bank for its 189 members to deposit some of their surplus wealth. In India’s case, the Fund has also allowed the country to expand international trade, inclusive of imports and exports, by providing standards for monetary regulation and the creation of the Special Drawing Rights, a kind of global cash reserve.
IMF wants more Transparency
Some change to India’s relationship with the IMF is inevitable though. The Fund is asking for more fiscal transparency from the country amid a US$24bn hole in the budget sheet. The Business Standard website claims the IMF referred to India as a “laggard” in its request, noting that the country had repeatedly failed to meet budgeting targets. India’s lack of financial responsibility was also cited as the cause of the country’s flagging economic growth, as public debt outweighs income from new sources of wealth.
It’s no coincidence that the IMF’s scrutiny of India coincides with the recent appointment of a new Managing Director, economist Kristalina Georgieva, who will replace the outgoing Christine Lagarde, now of the European Central Bank. The IMF head role receives an unusual amount of public attention for a financial institution, with Betway ranking its futures betting markets alongside those for the UK General Election, the next London Mayor, and the next Republican nominee in the United States. So, for Georgieva, who signed on for five years in October 2019, balancing the books could prove crucial to her ongoing popularity. The Bulgarian has the background to pull it off too. Georgieva’s profile on the IMF webpage includes the EU’s Vice President for Budget and Human Resources, a position that oversaw a US$175bn budget and helped ease the financial burden caused by the EU Debt Crisis and the Refugee Crisis in 2015. The IMF commands a significantly larger budget than the EU, however, with US$1tn allocated for its global concerns.
So, to summarise, India has a long-lasting and important relationship with the IMF largely due to the impact of poverty and income equality in the country. The pairing may not be quite as symbiotic as it may appear though, as IMF funds and public borrowing inevitably keep India in debt, erasing or reducing the economic boost that comes from local, organic business growth.