1. WTO may ease curbs on Indian grain exports
Where there is hunger, there are grains to go, says Minister
Ngozi Okonjo-Iweala, Director-General, World Trade Organization (WTO), is looking into resolving WTO rules that are making it difficult for India to export foodgrains to meet shortages in other countries, caused by the Russia-Ukraine war, according to Finance Minister Nirmala Sitharaman. The difficulties, the Minister said, included WTO rules around the export of food by a country that had also procured food on a Minimum Support Price basis.
“Countries like India, which can probably supply [foodgrains] are facing difficulties with WTO,” Ms. Sitharaman told presspersons on Friday, the final full day of her visit to Washington DC for the World Bank/ International Monetary Fund (IMF) Spring Meetings.
At the IMF Plenary meeting on Thursday, Ms. Okonjo-Iweala said the WTO was “looking at it [food export issues] positively,” as per the Finance Minister, who expressed optimism that the issue could be resolved.
“So these are kind of opportunities that we are carving out of a challenging situation,” she said, pointing to the war having not just brought challenges to India, like having to deal with the global hike in commodity prices, but also opportunities.
The opportunities she listed included the export of foodgrain — such as wheat – and the possibility of manufactured goods being exported to destinations for which supplies had become unreliable.
India has reached out to more than 20 countries regarding exporting wheat, and is targeting a record 15 million tonnes of wheat for export this year, as per a Bloomberg report. India is expected to have a surplus this year, producing more than 111 million tonnes of the crop.
India’s export of foodgrains to meet global market shortages was also discussed during External Affairs Minister S. Jaishankar’s meetings in Washington last week. He was in the city for the India-U.S. ‘2+2’ foreign and defence ministers’ dialogue as well as bilateral meetings with U.S. officials.
“India is trying to one, of course, find markets for its product. Two, [it is trying to] be of meaningful assistance, so that, where there is hunger, there are grains to go, and nothing should stop them from going there,” Ms. Sitharaman said on Friday.
What is the WTO?
- The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations.
- Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.
- WTO is not a United Nations specialized agency and it is not part of the United Nations system, but has cooperative arrangements and practices with the United Nations.
- The WTO has over 160 members representing 98 per cent of world trade.
History of WTO
- From 1948 to 1994, the GATT (General Agreement on Tariffs and Trade) provided the rules for world trade.
- It seemed well-established but throughout those 47 years, it was a provisional agreement and organization.
- The WTO’s creation in 1995 marked the biggest reform of international trade since the end of the Second World War.
- Whereas the GATT mainly dealt with trade in goods, the WTO and its agreements also cover trade in services and intellectual property.
- The birth of the WTO also created new procedures for the settlement of disputes.
- WTO operates a global system of trade rules.
- WTO acts as a forum for negotiating trade agreements.
- WTO settles trade disputes between its members and
- WTO supports the needs of developing countries.
- The WTO’s top decision-making body is the Ministerial Conference. Below this is the General Council and various other councils and committees.
- Ministerial conferences usually take place every two years.
- The General Council is the top day-to-day decision-making body. It meets a number of times a year in Geneva.
Director-General of the WTO
- Ngozi Okonjo-Iweala is the seventh Director-General of the WTO. She took office on 1 March 2021.
- She is the first woman and the first African to serve as Director-General. Her term of office will expire on 31 August 2025.
Below two principles are the foundation of the multilateral trading system.
- It means treating other people equally.
- Under the WTO agreements, countries cannot normally discriminate between their trading partners.
- If a country grants some country a special favour (such as a lower customs duty rate for one of their products), it has to do the same for all other WTO members.
- if a country has Free Trade Agreement with some country;
- if a country is giving developing countries special access to their markets;
- if a country has raised barriers against products that are considered to be traded unfairly from specific countries.
- It means treating foreigners and locals equally.
- Imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market.
- The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents.
- National treatment only applies once a product, service or item of intellectual property has entered the market. Therefore, charging customs duty on an import is not a violation of national treatment even if locally-produced products are not charged an equivalent tax.
WTO dispute settlement
- WTO also deals in Dispute Settlements.
- One contravention of WTO agreements, a member country approaches the WTO’s dispute settlement body.
- All the members are encouraged to settle the disputes through consultation or through a panel, if the consultation fails.
- The WTO panel circulates the verdict of the dispute settlement amongst WTO members who can decide to either accept or reject the ruling.
- If the ruling is approved, the member country that violated the rules must change rules in line with the WTO Agreement.
- In the case of failure to do so, the complaining country and the violating country may determine a mutually-acceptable compensation, failing which, the complaining country may retaliate suitably.
2. Doval to lead first international intelligence heads’ Delhi meet
20 nations to participate in conference just ahead of the Raisina Dialogue
Two days before the Ministry of External Affairs (MEA) begins its annual Raisina Dialogue in Delhi, National Security Adviser Ajit Doval will lead discussions at India’s first such conference of intelligence agency chiefs, also being held in the capital on Sunday.
The conference, modelled on the lines of the annual Munich Security Conference and Singapore’s Shangri-La dialogue, is expected to bring together heads and deputy heads of the top intelligence and security organisations from more than 20 — mostly Western — countries and their allies. Intelligence chiefs and deputies from Australia, Germany, Israel, Singapore, Japan and New Zealand are among those expected to attend the conference.
Officials said the conference is being organised by country’s external intelligence agency, the Research and Analysis Wing (RAW) and the National Security Council Secretariat (NSCS) that reports to National Security Adviser (NSA) Ajit Doval.
Sources said U.S. Central Intelligence Agency (CIA) Director William Burns and Canadian Security Intelligence Services (CSIS) director David Vigneault were expected originally, but had to cancel their attendance in the last few days due to different reasons. As a result, meetings on the sidelines of the “Five eyes alliance” of the U.S., U.K., Canada, New Zealand and Australia, who coordinate on terrorism and security issues, as well as a first meeting of Quad countries’ intelligence chiefs have been shelved.
The NSCS conference comes just before the MEA’s “flagship conference on geopolitics and geoeconomics”, the Raisina dialogue, held annually since 2016, kicks off on Tuesday.
Officials said that the intention of the conference was not a “meet and greet”, but a more “sustained” plan to make connections between the agencies. Each session will be followed by intensive interactions between participants and specialists in each area of intelligence operations. The intelligence chief meeting on Sunday will be overshadowed by the war in Ukraine, and the impact of Russia’s strikes on Ukrainian cities as well as measures and sanctions by western countries against Russia.
Along with the humanitarian situation arising from the strikes and deaths of thousands of civilians, American and European officials have been warning about the threat of nuclear, and chemical-biological warfare during the conflict. India has also been keen to ensure the focus on events in Europe do not take away from international cooperation on security threats in the region, including Afghanistan, Pakistan and from China at the Line of Actual Control. The Modi government’s refusal to criticise Russia directly, and continue to discuss trade and payment mechanisms with Moscow, circumventing the EU and the U.S. sanctions, would see more behind-the-scenes conversations, the sources expected.
3. ‘Army not against removal of AFSPA’
Rajnath speaks at a veterans’ event
Defence Minister Rajnath Singh on Saturday sought to dispel the misconception that the Army was against the removal of the controversial Armed Forces (Special Powers) Act of 1958.
Speaking at a function in Guwahati to felicitate the Assam-based veterans of the 1971 India-Pakistan war, he said India would eliminate terrorism from across the border, if needed.
Mr. Singh said the partial removal of the AFSPA from Assam, Manipur and Nagaland was the result of durable peace and stability in the northeast. “Some people believe the Indian Army does not want AFSPA to be removed. The Army wants the situation in Jammu & Kashmir to be completely normal so that AFSPA can be removed from there as well,” he said.
Mr. Singh said the Centre has taken a firm stand to end terrorism in all its forms in the country. “We have shown that, if needed, we will eliminate terrorism emanating from across the border,” he said in a veiled threat to Pakistan.
The government does not and will not hesitate to take bold decisions to protect and unity and integrity of the country, he said.
Mr. Singh lauded the Border Roads Organisation (BRO) for strengthening the infrastructure along the international border from Arunachal Pradesh to Ladakh. He lauded BRO projects including the Atal Tunnel (Himachal Pradesh) and the under-construction Sela Tunnel (Arunachal Pradesh) for providing all-weather connectivity to the far-flung areas and enhancing the defence preparedness.
More than 300 war veterans and members of their families attended the ceremony organised by the Assam government.
The Armed Forces Special Powers Act, 1958 is an act of Parliament that gives the armed forces the power to maintain public order in “disturbed areas”. It gives the armed forces the authority to use force or even open fire after warning a person who is found to be in contravention of the law.
A disturbed area is one where the “use of armed forces in aid of civil power is necessary”. Under section 3 of the AFSPA, any area can be declared disturbed due to differences or disputes between members of different religious, racial, language, or regional groups or castes or communities. The power to declare any territory “disturbed” initially lay with the states, but passed to the Centre in 1972.
The Act also allows the forces to arrest a person and enter and search premises without a warrant.
The AFSPA also protects security forces from legal proceedings unless cleared by the centre. The Act applies not only to the three armed forces but also to paramilitary forces such as the Central Reserve Police Force (CRPF) and the Border Security Force.
This controversial law is in place in Nagaland, Assam, Manipur (excluding seven assembly constituencies of Imphal), and parts of Arunachal Pradesh, besides Jammu and Kashmir. Tripura and parts of Meghalaya were removed from the list.
The Armed Forces Special Powers Ordinance of 1942 was promulgated by Viceroy Linlithgow for the British colonial government on 15 August 1942 to suppress the Quit India Movement.
Later during the Partition of India in 1947, four ordinances- the Bengal Disturbed Areas (Special Powers of Armed Forces) Ordinance; the Assam Disturbed Areas (Special Powers of Armed Forces) Ordinance; the East Bengal Disturbed Areas (Special Powers of Armed Forces) Ordinance; the United provinces Disturbed Areas (Special Powers of Armed Forces) Ordinance was invoked by the Indian government to deal with the internal security situation in the country.
Article 355 of the Constitution of India confers power to the Central Government to protect every state from internal disturbance.
The Armed Forces (Assam and Manipur) Special Powers Act, 1958:
1951: There was a boycott of the first general election of 1952 by the Naga National Council, which later extended to a boycott of government schools and officials.
To deal with the situation, the Assam government imposed the Assam Maintenance of Public Order (Autonomous District) Act in the Naga Hills in 1953 and intensified police action against the rebels.
As the situation worsened, Assam deployed the Assam Rifles in the Naga Hills and enacted the Assam Disturbed Areas Act of 1955, providing a legal framework for the paramilitary forces and the armed state police to combat insurgency in the region. But the Assam Rifles and the state armed police could not contain the Naga rebellion and the rebel Naga Nationalist Council (NNC) formed a parallel government “The Federal Government of Nagaland” on 23 March 1956.
The Armed Forces (Assam and Manipur) Special Powers Ordinance 1958 was promulgated by President Dr. Rajendra Prasad on 22 May 1958. It was replaced by the Armed Forces (Assam and Manipur) Special Powers Act, 1958 on 11 September 1958.
Later the territorial scope of the act also expanded to the seven states of the North-East – and the words “The Armed Forces (Assam and Manipur) Special Powers Act, 1958” were substituted by “Armed Forces (Special Powers) Act, 1958”, getting the acronym of AFSPA, 1958.
The Armed Forces (Punjab and Chandigarh) Special Powers Act, 1983:
The central government enacted the Armed Forces (Punjab and Chandigarh) Special Powers Act on 6 October 1983, to enable the central armed forces to operate in the state of Punjab and the union territory of Chandigarh during the militancy days.
The act was withdrawn in 1997, roughly 14 years after it came to force. Punjab was the first from where the act was repealed.
The Armed Forces (Jammu and Kashmir) Special Powers Act, 1990:
The act was enacted in Jammu and Kashmir due to extreme security instability in the area where it remains in force.
Supreme Court verdict, 1998:
In the case of Naga People’s Movement of Human Rights vs. Union of India, the validity of AFSPA was challenged before the Supreme Court and the five-judge bench concluded that the act cannot be considered as a violation of the Constitution and the powers conferred under the section 4 and 5 of the act are not arbitrary and unreasonable and therefore not in violation of the provisions of the Constitution.
The Jeevan Reddy Committee:
On November 19, 2004, the Central government appointed a five-member committee headed by Justice BP Jeevan Reddy to review the provisions of the act in the northeastern states.
The Committee had recommended a complete repeal of the law. “The Act is a symbol of hate, oppression, and an instrument of high-handedness,” it said.
The committee submitted its report in 2005, which included the following recommendations:
- AFSPA should be repealed and appropriate provisions should be inserted in the Unlawful Activities (Prevention) Act, 1967
- The Unlawful Activities Act should be modified to specify the powers of the armed forces and paramilitary forces
- Grievance cells should be set up in each district where the armed forces are deployed.
The 5th report of the Second Administrative Reforms Commission on public order has also recommended the repeal of the AFSPA.
In 2016, the Supreme Court concerning internal security had ruled that the armed forces cannot escape investigation for excesses committed in the discharge of their duties even in ‘disturbed areas’. In other words, legal protection offered by the AFSPA cannot be absolute.
The AFSPA was repealed in Tripura in 2015, and the Centre also removed Meghalaya from the list, while also restricting its use in Arunachal Pradesh in 2018.
What are the ground rules of the act?
- While the Act gives powers to security forces to open fire, this cannot be done without prior warning given to the suspect.
- The Act further says that any suspects apprehended by security forces should be handed over to the local police station within 24 hours.
- It says armed forces must act in cooperation with the district administration and not as an independent body.
- Governor of a State and the Central Government are empowered to declare any part or full of any state as a disturbed area if according to their opinion that it has become necessary to disrupt the terrorist activity or any such activity that might impinge on the sovereignty of India or cause insult to the national flag, anthem or India’s Constitution.
- Section (3)of AFSPA provides that, if the governor of a state issues an official notification in The Gazette of India then the Central government has the authority to deploy armed forces for assisting the civilian authorities. Once a region is declared ‘disturbed’ then it has to maintain the status quo for a minimum of three months, as per The Disturbed Areas Act of 1976.
Why is the AFSPA being opposed?
The Act has been called draconian as it gives sweeping powers to the armed forces. It allows them to open fire’, even causing death, against any person in contravention to the law or carrying arms and ammunition.
It gives them powers to arrest individuals without warrants, based on “reasonable suspicion”, and also search premises without warrants.
The Act further provides blanket immunity to security personnel involved in such operations: There can be no prosecution or legal proceedings against them without the prior approval of the Centre.
4. After talks with IMF, Pakistan agrees to reduce fuel subsidies
Some targeted subsidies should remain for the poorest: FM
Pakistan’s new Finance Minister on April 22 agreed with IMF recommendations to reduce fuel subsidies and end a business tax amnesty scheme, pledging to pursue structural reforms to boost a crisis-wracked economy.
The International Monetary Fund (IMF) in 2019 approved a $6 billion loan over three years for Pakistan but disbursement has been slowed by concerns about the pace of reforms. Finance Minister Miftah Ismail, who took office this month after a previous government lost a no-confidence vote, said he had “good discussions” with the IMF on a visit during the Washington-based lender’s annual spring meetings.
“They’ve talked about removing the subsidy on fuel. I agree with them,” Mr. Ismail, himself a former IMF economist, said at the Atlantic Council. “We can’t afford to do the subsidies that we’re doing. So we’re going to have to curtail this,” he said.
He said former Prime Minister Imran Khan, seeking to avoid ouster, set a “trap” for his successors through heavy subsidies on fuel and electricity, as well as a tax amnesty scheme for businesses — measures that derailed a disbursement from the IMF loan.
“He gave an amnesty to businesses for setting up factories so that they don’t have to pay taxes, or even if they evaded taxes that’s ok,” Mr. Ismail told reporters at an event.
But Mr. Ismail added that some targeted subsidies should remain for Pakistan’s poorest amid sky-high global prices. The country’s new Prime Minister Shehbaz Sharif has vowed to jumpstart a moribund economy, certain to be a major issue in elections due next year.
The formation of the IMF was initiated in 1944 at the Bretton Woods Conference. IMF came into operation on 27th December 1945 and is today an international organization that consists of 189 member countries.
Headquartered in Washington, D.C., IMF focuses on
- Fostering global monetary cooperation,
- Securing financial stability,
- Facilitating and promoting international trade, employment, and economic growth around the world.
The IMF is a specialized agency of UN.
The International Monetary Fund (IMF) was initially formed at the Bretton Woods Conference in 1944. 45 government representatives were present at the Conference to discuss a framework for postwar international economic cooperation.
The IMF became operational on 27th December 1945 with 29 member countries that agreed to bound to this treaty. It began its financial operations on 1st March 1947. Currently, the IMF consists of 189 member countries.
The IMF is regarded as a key organisation in the international economic system which focuses on rebuilding the international capital along with maximizing the national economic sovereignty and human welfare
The functions of the International Monetary Fund can be categorized into three types:
- Regulatory functions:
IMF functions as a regulatory body and as per the rules of the Articles of Agreement, it also focuses on administering a code of conduct for exchange rate policies and restrictions on payments for current account transactions.
- Financial functions:
IMF provides financial support and resources to the member countries to meet short term and medium term Balance of Payments (BOP) disequilibrium.
- Consultative functions:
IMF is a centre for international cooperation for the member countries. It also acts as a source of counsel and technical assistance.
Objective of IMF
- To improve and promote global monetary cooperation of the world.
- To secure financial stability by eliminating or minimizing the exchange rate stability.
- To facilitate a balanced international trade.
- To promote high employment through economic assistance and sustainable economic growth.
- To reduce poverty around the world. Governance
Board of Governors:
It consists of one governor and one alternate governor for each member country. Each member country appoints its two governors.
It is responsible for
- electing or appointing executive directors to the Executive Board.
- Approving quota increases, Special Drawing Right allocations,
- Admittance of new members, compulsory withdrawal of member,
- Amendments to the Articles of Agreement and By-Laws.
Board of Governors is advised by two ministerial committees, the International Monetary and Financial Committee (IMFC) and the Development Committee.
Boards of Governors of the IMF and the World Bank Group normally meet once a year, during the IMF–World Bank Annual Meetings, to discuss the work of their respective institutions.
Ministerial Committees: The Board of Governors is advised by two ministerial committees,
- International Monetary and Financial Committee (IMFC): IMFC has 24 members, drawn from the pool of 189 governors, and represents all member countries.
- It discusses the management of the international monetary and financial system.
- It also discusses proposals by the Executive Board to amend the Articles of Agreement.
- And any other matters of common concern affecting the global economy.
- Development Committee: is a joint committee (25 members from Board of Governors of IMF & World Bank), tasked with advising the Boards of Governors of the IMF and the World Bank on issues related to economic development in emerging market and developing countries.
- It serves as a forum for building intergovernmental consensus on critical development issues.
Executive Board: It is 24-member Executive Board elected by the Board of Governors.
- It conducts the daily business of the IMF and exercises the powers delegated to it by the Board of Governors & powers conferred on it by the Articles of Agreement.
- It discusses all aspects of the Fund’s work, from the IMF staff’s annual health checks of member countries’ economies to policy issues relevant to the global economy.
- The Board normally makes decisions based on consensus, but sometimes formal votes are taken.
- Votes of each member equal the sum of its basic votes (equally distributed among all members) and quota-based votes. A member’s quota determines its voting power.
IMF’s Managing Director is both chairman of the IMF’s Executive Board and head of IMF staff. The Managing Director is appointed by the Executive Board by voting or consensus.
IMF Members: Any other state, whether or not a member of the UN, may become a member of the IMF in accordance with IMF Articles of Agreement and terms prescribed by the Board of Governors.
Membership in the IMF is a prerequisite to membership in the IBRD.
Pay a quota subscription: On joining the IMF, each member country contributes a certain sum of money, called a quota subscription, which is based on the country’s wealth and economic performance (Quota Formula).
It is a weighted average of
- GDP (weight of 50 percent)
- Openness (30 percent),
- Economic variability (15 percent),
- International reserves (5 percent).
GDP of member country is measured through a blend of GDP—based on market exchange rates (weight of 60 percent) and on PPP exchange rates (40 percent).
Special Drawing Rights (SDRs) is 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 a SDR basket of currencies
SDR basket of currencies includes the
- S. dollar,
- Japanese yen,
- pound sterling and
- 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.
Members’ voting power is related directly to their quotas (the amount of money they contribute to the institution).
IMF allows each member country to choose its own method of determining the exchange value of its money. The only requirements are that the member no longer base the value of its currency on gold (which has proved to be too inflexible) and inform other members about precisely how it is determining the currency’s value.
IMF and India
International regulation by IMF in the field of money has certainly contributed towards expansion of international trade. India has, to that extent, benefitted from these fruitful results.
Post-partition period, India had serious balance of payments deficits, particularly with the dollar and other hard currency countries. It was the IMF that came to her rescue.
The Fund granted India loans to meet the financial difficulties arising out of the Indo–Pak conflict of 1965 and 1971.
From the inception of IMF up to March 31, 1971, India purchased foreign currencies of the value of Rs. 817.5 crores from the IMF, and the same have been fully repaid.
Since 1970, the assistance that India, as other member countries of the IMF, can obtain from it has been increased through the setting up of the Special Drawing Rights (SDRs created in 1969).
India had to borrow from the Fund in the wake of the steep rise in the prices of its imports, food, fuel and fertilizers.
In 1981, India was given a massive loan of about Rs. 5,000 crores to overcome foreign exchange crisis resulting from persistent deficit in balance of payments on current account.
India wanted large foreign capital for her various river projects, land reclamation schemes and for the development of communications. Since private foreign capital was not forthcoming, the only practicable method of obtaining the necessary capital was to borrow from the International Bank for Reconstruction and Development (i.e. World Bank).
India has availed of the services of specialists of the IMF for the purpose of assessing the state of the Indian economy. In this way India has had the benefit of independent scrutiny and advice.
The balance of payments position of India having gone utterly out of gear on account of the oil price escalation since October 1973, the IMF has started making available oil facility by setting up a special fund for the purpose.
Early 1990s when foreign exchange reserves – for two weeks’ imports as against the generally accepted ‘safe minimum reserves’ of three month equivalent — position were terribly unsatisfactory. Government of India’s immediate response was to secure an emergency loan of $2.2 billion from the International Monetary Fund by pledging 67 tons of India’s gold reserves as collateral security.
India promised IMF to launch several structural reforms (like devaluation of Indian currency, reduction in budgetary and fiscal deficit, cut in government expenditure and subsidy, import liberalization, industrial policy reforms, trade policy reforms, banking reforms, financial sector reforms, privatization of public sector enterprises, etc.) in the coming years.
The foreign reserves started picking up with the onset of the liberalization policies.
India has occupied a special place in the Board of Directors of the Fund. Thus, India had played a creditable role in determining the policies of the Fund. This has increased the India’s prestige in the international circles.
Criticisms of the IMF include
- Conditions of loans
On giving loans to countries, the IMF make the loan conditional on the implementation of certain economic policies. These policies tend to involve:
- Reducing government borrowing – Higher taxes and lower spending
- Higher interest rates to stabilise the currency.
- Allow failing firms to go bankrupt.
- Structural adjustment. Privatisation, deregulation, reducing corruption and bureaucracy.
The problem is that these policies of structural adjustment and macroeconomic intervention can make difficult economic situations worse.
- For example, in the Asian crisis of 1997, many countries such as Indonesia, Malaysia and Thailand were required by IMF to pursue tight monetary policy (higher interest rates) and tight fiscal policy to reduce the budget deficit and strengthen exchange rates. However, these policies caused a minor slowdown to turn into a serious recession with very high levels of unemployment.
- In 2001, Argentina was forced into a similar policy of fiscal restraint. This led to a decline in investment in public services which arguably damaged the economy.
- Exchange rate reforms.
When the IMF intervened in Kenya in the 1990s, they made the Central bank remove controls overflows of capital. The consensus was that this decision made it easier for corrupt politicians to transfer money out of the economy (known as the Goldenberg scandal, BBC link). Critics argue this is another example of how the IMF failed to understand the dynamics of the country that they were dealing with – insisting on blanket reforms.
The economist Joseph Stiglitz has criticised the more monetarist approach of the IMF in recent years. He argues it is failing to take the best policy to improve the welfare of developing countries saying the IMF “was not participating in a conspiracy, but it was reflecting the interests and ideology of the Western financial community.”
In earlier days, the IMF have been criticised for allowing inflationary devaluations.
- Neo-Liberal Criticisms
There is also criticism of neo-liberal policies such as privatisation. Arguably these free-market policies were not always suitable for the situation of the country. For example, privatisation can create lead to the creation of private monopolies who exploit consumers.
- Free market criticisms of IMF
As well as being criticised for implementing ‘free-market reforms’ Others criticise the IMF for being too interventionist. Believers in free markets argue that it is better to let capital markets operate without attempts at intervention. They argue attempts to influence exchange rates only make things worse – it is better to allow currencies to reach their market level.
There is also a criticism that bailing out countries with large debt creates moral hazard. Because of the possibility of getting bailed out, it encourages countries to borrow more.
- Lack of transparency and involvement
The IMF has been criticised for imposing policy with little or no consultation with the affected countries.
Jeffrey Sachs, the head of the Harvard Institute for International Development said:
“In Korea the IMF insisted that all presidential candidates immediately “endorse” an agreement which they had no part in drafting or negotiating, and no time to understand. The situation is out of hand…It defies logic to believe the small group of 1,000 economists on 19th Street in Washington should dictate the economic conditions of life to 75 developing countries with around 1.4 billion people.”
- Supporting military dictatorships
The IMF has been criticised for supporting military dictatorships in Brazil and Argentina, such as Castello Branco in 1960s received IMF funds denied to other countries.
Positives outcomes of IMF working
- IMF has had some successes
The failures of the IMF tend to be widely publicised. But, its successes less so. Also, criticism tends to focus on short-term problems and ignores the longer-term view. IMF loans have helped many countries avoid liquidity crisis, such as Mexico in 1982 and more recently, Greece and Cyprus have received IMF loans.
The fact there is a lender of last resort provides an important confidence boost for investors. This is important during the current financial turmoil.
- Countries are not obliged to take an IMF loan
It is countries who approach the IMF for a loan. The fact so many take loans suggest there must be at least some benefits of the IMF.
- IMF better than previous alternatives.
J.M. Keynes who helped found principles of IMF stated “IMF is the exact opposite of the Gold Standard. It is an attempt at an improved system of international currency.”
Reform of the International Monetary Fund (IMF) has long been recognised as overdue, given the changes in the global economy. The most important among these is the spectacular rise of emerging markets; besides, capital movements have become the fundamental determinant of the stability of the global financial system. Between 1980 and 2007, for example, global capital flows increased more than 25-fold as compared to an eight-fold expansion in global trade.
These changes have implications for the IMF’s role in the global economy. They have created the need for new structures to govern the IMF and other international financial institutions, more effective financial and multilateral surveillance, and a global lender of last resort.
The recent reforms of the IMF were conceived in 2010 at the G20 Summit in Seoul. However, the approval and implementation of the reforms was held up, mainly because of repeated delays in the U.S. Congress—its ratification is required to meet the 85% voting power approval for constitutional changes by the IMF. The reforms were finally ratified five years later, on January 27, 2016.
But to what extent do these reforms actually change the IMF’s governance structure? And what are their implications for the IMF’s role as a lender of last resort?
Changes in the IMF’s governance structure
Since 2010, the global economy has further transformed—therefore, reforms of governance structures conceived can go only some distance, but not far enough. Of the changes in structure, the most important is the change in the quota subscription of each country, which determines its voting power and financial commitment to, and benefits from, the IMF.
The IMF recognised in 2010 the need for a new and more responsive formula for determining the quota of its members. This would make the institution more representative of the relative position of countries in the changing global economy. The formula used until then was outdated—in particular, the periodic quota reviews were based on complex and questionable methods for adjusting country quotas. This slowed down the process of changing the representation on the executive board (and in voting rights) to reflect new economic realities.
After the review, BRIC countries are among the IMF’s 10 largest shareholders, reflecting the overall shift towards emerging market countries.
China’s voting share, for example, has now doubled, making it the third largest member. But it is still only 6% despite its economy weighing well in excess of 10% of global GDP.
And India’s voting share is still under 3%. Overall, the total share of emerging markets in the IMF remains well below their global share of GDP.
In summary, the new reforms shift the governance structure of the IMF in the right direction, but the loss of time in moving to the 15th quota review, and in increasing the legitimacy and effectiveness of the Fund, has made further reform overdue.
5. How quickly can India move away from coal?
With the demand for power going up, what is the outlook on the renewable energy sector?
The story so far: On Friday, Tamil Nadu Chief Minister M.K. Stalin wrote to Prime Minister Narendra Modi, requesting him to ensure adequate supply of coal to the power-generating units in the State. In Maharashtra, Deputy Chief Minister Ajit Pawar said the State government planned to import coal to cope with the power crisis. The other top power-consuming State in the country, Gujarat, is also planning to import coal, according to reports. Decline in coal stocks and the resulting power outages in several States have spurred queries of renewable energy’s potential to fill in for the conventional resource. Earlier this week, coal stocks in more than 100 thermal power plants in India fell below the critical mark (less than 25% of the required stock) while it was less than 10% in over 50 plants across India. On Saturday, the Minister for Coal and Mines, Pralhad Joshi, said at present 72.5 million tonnes (MT) of coal is available at different sources of Coal India, Singareni Collieries and coal washeries, and 22.01 MT with thermal power plants. “There is sufficient coal availability in the country, to last over a month, which is being replenished daily with record production,” he tweeted.
Is there a coal crisis?
Coal accounts for 55% of the country’s energy needs, according to Mr. Joshi. The India Energy Outlook 2021 report of the International Energy Agency (IEA) said energy use in India has doubled since 2000, with 80% of demand still being met by coal, oil and solid biomass. Pandemic-related disruptions, however, prevented the stock-up of coal. Mining operations were halted to curb the spread of the virus. Despite the gradual easing into operations, mining activities were hampered during the monsoons, delaying arrival of stocks. With household demand for power picking up and the arrival of summer, combined with the sudden acceleration in economic activity, it has resulted in a demand-supply mismatch. The country had experienced a similar situation last October, but with peak summer approaching, the coal stock situation is more worrisome now because demand for power will be high. The energy demand will go up as urbanisation and the population increase. The IEA estimates that despite the shock from COVID-19, India’s demand is expected to grow by almost 5% a year till 2040.
What is the consumption pattern?
Coal is abundantly available, has shorter gestation periods and coal-based plants have lower capital costs than hydel and nuclear plants, therefore, making it the most viable enabler of energy security in the country. The conventional resource’s capacity addition is further helped by the increased participation of the private sector in power generation. In Washington recently, Finance Minister Nirmala Sitharaman said India’s move away from coal will be hampered by the war in Ukraine. At the recently concluded Budget session, Mr. Joshi said, “Despite push for renewables, [the] country will require base load capacity of coal-based generation for stability and also for energy security.”
Where does India stand on renewable energy sources?
The report of the Central Electricity Authority on optimal generation capacity mix for 2029-30 estimates that the share of renewable energy in the gross electricity generation is expected to be around 40% by that financial year. The Union government has spent ₹3,793 crore until March 14 in 2021-22 for implementing varied renewable energy-related schemes and programmes.
A total of 152.90 GW of renewable energy capacity has been installed in the country as on February 28, as per government figures. This includes 50.78 GW from solar power, 40.13 GW from wind power, 10.63 GW from bio-power, 4.84 GW from small hydel power and 46.52 GW from large hydel power. In accordance with the Prime Minister’s announcement at COP26 (the 2021 United Nations Climate Change Conference), the Ministry of New and Renewable Energy aspires to install 500 GW of electricity capacity from non-fossil fuel sources by 2030.
In 2020-21, as per the CEA, 1,381.83 billion units (bu) was generated in total, of which renewable energy sources’ share was 297.55 bu — representing 21.5% of the overall generation. Up to August 2021, the share stood at 24%. “Over the next 10 years, the strong growth of renewables is not sufficient in the stated policies scenario to keep up with the projected pace of electricity demand growth, and coal-fired power generation makes up the difference…,” the IEA said in its report on India.
What are the challenges?
The capacity of a plant does not necessarily translate into the actual power it generates for the grid, some of it is lost owing to external factors such as heat or transmission losses. This applies for both renewable and conventional sources.
Solar and wind energy are variable resources with ‘variability’ being particularly exposed during periods of peak demand. For example, solar energy is abundantly available during daytime in summers. However, the domestic consumption peaks in the evenings when we turn on the air-conditioner after returning from work. With no sunlight outside then, energy requirement and supply face a mismatch. Another dimension to it is the seasonal variation. In monsoons, solar energy is barely available with wind energy available in abundance.
Another factor is spatial variability. Regions near coastal areas enjoy more wind and therefore, possess greater ability to produce wind energy, like Gujarat, in comparison to States which are drier and experience more sunlight, like Rajasthan. Use of renewable energy, therefore, would essentially require a balancing act.
What about transmission and storage?
Transmission and storage are central to addressing variability issues. They help cope with the ‘duck curve’ power demand among consumers in India. Resembling a duck, the curve is a graphical representation exhibiting the difference between the demand and availability of energy through the day. With both wind and solar being variable sources — it becomes imperative to establish a complementing model. This would require import and export technologies between States as well as optimising the trade between those with differing demand and production profiles. “Thermal plants in the eastern region, by contrast, provide flexibility for demand centres to the south and west, which have high industrial and agricultural loads and may call on imports during periods of low renewables availability,” IEA says.
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