Rebutting IMF's low growth projection of 3.8 per cent for India for the current fiscal, Finance Minister P Chidambaram has made a strong case for expediting quota reforms of the multilateral lending institutions arguing that delay was impacting the credibility and legitimacy of such entities.
The Minister, who is here to the attend the Fund-Bank meeting, also underlined the need for making IMF surveillance more forward looking to help nations take advance actions to deal with the emerging situation.
"We do not share this pessimistic outlook. We also believe there is a need for reviewing the methodology for growth projections as in the past International Monetary Fund (IMF) projections have often been at divergence with final growth numbers," he said here.
IMF has lowered India's growth projection for the current fiscal to 3.8 per cent from 5.6 per cent estimated by its World Economic Outlook update in July. Chidambaram, however, has been insisting that growth will range between 5 to 5.5 per cent in 2013-14.
Noting that the recent financial market developments have taken all by surprise, Chidambaram said an important question is why on-going IMF surveillance failed to foresee the market impact of exit from unconventional monetary policy.
"The IMF's failure to identify certain risks and give clear warnings has demonstrated yet again the weakness of its Surveillance framework. It also questions the relevance and usefulness of the IMF exercise with regard to policy settings of member countries because repeated downward revisions could significantly influence market expectations besides spreading gloom," he said.
Chidambaram further said that although the Fund has taken various measures to strengthen its surveillance activities, particularly with regard to spillovers, there was need for further reflection on it so that it could better foresee the significant global macroeconomic developments.
"The surveillance should be forward looking and it should forewarn the member countries of the impending threats, if any, to the global economy," he said.
Chidambaram had earlier said the IMF needs to undertake a detailed study as to how the unwinding will unfold, what impact it will have on advanced and emerging market economies, and how they should deal with the evolving situation.
"The Fund must play a role in better informing the spillover effects in a globally integrated world, so that advanced economies can take them into account while formulating their policies," he had said.
During his intervention at the annual plenary meeting of the IMF Committee yesterday, Chidambaram expressed disappointment over delay in quota reforms in IMF and the World Bank to give greater voice to the emerging economies, saying the delay would impact their credibility, legitimacy and effectiveness.
"We are disappointed that the deadline for the 2010 Quota and Governance Reform of the Fund has not been met. There is no clarity, even after the passage of a year, as to when this will be finally achieved," the Minister said.
Chidambaram said, "in the absence of ratification of the 14th Quota review, and given its current commitments and possible needs in the future, it has had to place increasing reliance on the NAB and bilateral resources."
"The delay in ratification of the 14th Quota Review will only mean that the reliance on borrowed resources will increase. This is not desirable," he added.
Noting that governance and quota reforms are imperative to ensure IMF's credibility, legitimacy and effectiveness, Chidambaram said that the international body must immediately conclude the 2010 IMF Quota and Governance Reform, as well as complete the 15th General Review of Quotas and arrive at a new quota formula, by the due date of January 2014.
In a separate speech, the Minister said that reform of IMF and World Bank is long overdue.
"Only a reformed World Bank and IMF will reflect correctly the expectations and aspirations of the world as it is today," he said.
A communique issued at the end of the plenary meeting, said the member countries continue to attach the highest priority to the IMF governance and quota reform to enhance the Fund's credibility, legitimacy and effectiveness.