The government intends to give $10 billion as its contribution to the International Monetary Fund (IMF). The announcement has been enabled by the IMF’s recent announcement of a framework for issuance of notes to the official sector. These notes will allow investments in the IMF to be treated as international reserves. Therefore, RBI will be able to invest a portion of its foreign reserves in the IMF.
“India has decided to invest up to $10 billion of its reserves in notes issued by the IMF,” Finance Minister Pranab Mukherjee told reporters in London last night after the BRIC (Brazil, Russia, India and China) ministerial meeting ahead of a G-20 conference.
The communique issued at the end of the BRIC finance ministers; meeting said, “For us, IMF notes or bonds are the best option to provide immediate resources to the IMF without undermining the quota reform process.” However, the move to participate in the IMF’s debt will not worsen the country’s fiscal resources. The government has assured that the move will not have any affect on the fiscal deficit target of 6.8 per cent for the current financial year.
During the G-20 meet in London on April 2, India had committed $10 billion to the IMF to combat the effects of the global economic slowdown.
During the summit in London, governments from all around the world agreed to enhance the IMF’s lendable resources through bilateral financing and the new arrangement to borrow by $500 billion. The amount of $10 billion is broadly in proportion to India’s current quota share at the IMF. “It is significant that India, which had to resort to IMF financing on a few occasions till the early nineties, will now be participating in an international effort to make resources available to the fund for lending to countries in need,” said the government in a press release.