The World Bank will provide India an additional $3 billion a year over the next three years as part of a broad plan to make available $100 billion of additional liquidity in that time frame to shore up developing economies, Planning Commission deputy-chairman Montek Singh Ahluwalia said today.
In a similar development, the International Monetary Fund (IMF) recently enhanced its conditional liquidity facility for countries to five times their quota without negotiating a programme for three months, allowing it to be rolled over twice.
Although India was entitled to $30 billion under this enhanced quota, Ahluwalia pointed out that with foreign exchange reserves at $ 250 billion India was unlikely to resort to this facility.
More policy initiatives like this were expected to form the basis for India to push for greater resources to be made available to developing countries to counter the adverse effects of the global financial crisis at the G20 summit in Washington, DC, Ahluwalia said.
“We told them that they need to go further,” he added, saying such extra investments, especially in infrastructure, was a “good contra-cyclical measure to boost demand”.
Ahluwalia was speaking at a press conference in Washington after attending the “sherpas” meeting today to shape a broad consensual agenda among the G20 heads of government ahead of the November 15 summit, which Prime Minister Manmohan Singh will attend.
Explaining India’s position, Ahluwalia said developing countries would be among the worst affected by the crisis and this, therefore, called for a coordinated policy response.
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“The perception when the emergency summit was called three weeks ago was on the need for a new global financial architecture. Now, with the US projected to be in deeper recession, the most important objective is for a coordinated fiscal response to counter recessionary tendencies,” Ahluwalia said.
Without spelling out the precise mechanisms of this response, Ahluwalia said there was a broad agreement on the need to take “unorthodox” steps to inject liquidity into developing economies to counter the impact of the crisis on the real economy.
Ahluwalia also met former US Secretary of State Madeline Albright and former law-maker Jim Leach as part of an unofficial series of contacts by the two aimed at keeping President-elect Barack Obama informed.
Meanwhile, denying that the Indian economy would contract in the second half of this fiscal, Ahluwalia said the country would be among the best performers in the world.
He said although India would grow more slowly, the growth rate would be impressive. “India doesn’t have to worry about recession but a slowdown,” Ahluwalia said.
Six months ago, the country was expecting growth prospects of 7.5 to 8 per cent and later the prime minister pared that estimate to 7 to 7.5 per cent.
“However, we will have better growth in 2008-09 than the average of the four years preceding this government,” he said.