8% growth projection for India, not ours: IMF
- April 6, 2024
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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8% growth projection for India, not ours: IMF
Subject: IR
Section: Int org
Context:
- The IMF clarified that the 8% growth projection for India, suggested by executive director Krishnamurthy Subramanian, was his personal view and not an official stance of the IMF.
Details:
- Subramanian had stated that India could achieve this growth rate till 2047 by accelerating existing policies and reforms.
- The IMF’s official growth projection for India remains at 6.5% for the medium term, which was a slight increase from previous estimates.
International Monetary Fund (IMF):
- The IMF is a global organization that works to achieve sustainable growth and prosperity for all of its 190 member countries.
- It does so by supporting economic policies that promote financial stability and monetary cooperation, which are essential to increase productivity, job creation, and economic well-being.
- The IMF is governed by and accountable to its member countries.
- Countries were not eligible for membership in the International Bank for Reconstruction and Development (IBRD) unless they were members of the IMF.
- Key facts:
- The IMF was established in 1944 in the aftermath of the Great Depression of the 1930s. Conceived at a UN conference in Bretton Woods, New Hampshire, United States, in July 1944.
- The IMF was founded by 44 member countries that sought to build a framework for economic cooperation.
- The IMF is governed by and accountable to 190 countries that make up its near-global membership.
- The IMF is able to lend about $1 trillion to its member countries.
- How is it organised?
- At the top of its organizational structure is the Board of Governors, consisting of one governor (usually the minister of finance or the governor of the central bank) and one alternate governor from each member country.
- All powers of the IMF are vested in the Board of Governors.
- The day-to-day work of the IMF is overseen by its 24-member Executive Board, which represents the entire membership and is supported by IMF staff.
- The Managing Director is the head of the IMF staff and Chair of the Executive Board and is assisted by four Deputy Managing Directors.
- The IMF has 18 departments that carry out its country, policy, analytical, and technical work.
- Who funds the IMF?
- IMF funds come from three sources:
- Member quotas: The primary source of IMF funding. A member country’s quota reflects its size and position in the world economy. It is based upon:
- It is a weighted average of GDP (weight of 50 %)
- Openness (30 %),
- Economic variability (15 %),
- International reserves (5 %).
- The GDP of a member country is measured through a blend of GDP—based on market exchange rates (weight of 60 %) and on PPP exchange rates (40 %).
- The USA (16.50) has the maximum quote and thus maximum voting power, followed by Japan (6.14%) and China (6.08%). India has a 2.63% Quota share.
- Multilateral borrowing agreements: New Arrangements to Borrow (NAB) between the IMF and a group of members and institutions are the main backstop for quotas. In January 2020, the IMF Executive Board agreed to double the size of the NAB to SDR 365 billion, or $504 billion.
- Bilateral borrowing agreements: Member countries also have committed resources through bilateral borrowing agreements (BBAs). In 2020, the IMF Executive Board approved a new round of BBAs, totalling SDR 138 billion, or $190 billion.
- Special Drawing Rights (SDRs) are the IMF’s unit of account and not a currency.
- The currency value of the SDR is determined by summing the values in U.S. dollars, based on market exchange rates, of an SDR basket of currencies.
- SDR basket of currencies includes the U.S. dollar, Euro, Japanese yen, pound sterling and the Chinese renminbi (included in 2016).
- The SDR currency value is calculated daily (except on IMF holidays or whenever the IMF is closed for business) and the valuation basket is reviewed and adjusted every five years.
- Quotas are denominated (expressed) in SDRs.
- SDRs represent a claim to currency held by IMF member countries for which they may be exchanged.
- Gold tranche (or Reserve tranche):
- A reserve tranche is a portion of the required quota of currency each member country must provide (in the form of gold or foreign currency) to the International Monetary Fund (IMF) that can be utilized for its own purposes—without a service fee or economic reform conditions. It is a credit system granted by the IMF to its members.
Source: IMF