Much ado...

India's participation in the build-up to the recent World Bank-International Monetary Fund (IMF) annual meetings in Singapore was dominated by the issue of the revision of IMF quotas. These quotas, representing voting rights, magnitude of contribution to the resources of the organisation, and access to those resources, have remained constant for decades. Countries whose economies were relatively large at the time received large quotas, while the giants and emerging giants of today, which were relatively insignificant then, received proportionately (or even less) small quotas. Six decades down the road, the Chinese and Indian economies have grown far larger than countries such as Belgium and the Netherlands, which, nonetheless, have quotas higher than India's and quite close to China's. In purchasing power parity terms, a standard typically used to compare different economies, India is now over ten times Belgium's size and about nine times the Netherlands'. This inequity must end, argues our indignant finance minister, instead of merely throwing a few crumbs in the direction of emerging economies, which it did on Monday by increasing the quotas of China, South Korea, Mexico and Turkey. But India's insistence that these reforms be held in abeyance pending a wider restructuring of the entire quota system went unheeded.

At one level, it is easy to understand the Indian government's sensibilities on this issue. Until 15 years ago, India was a regular user of the IMF's bail-out packages and the accompanying, dreaded "conditionality", which forced the government to do nasty things like reduce subsidies, lower trade barriers and let the exchange rate find a more realistic level. Today, having done many of those things and more of our own volition, the balance of payments crises of those days are a distant and fading memory. India therefore has a legitimate claim to the high table of international finance and must stake that claim.

However, like on several other issues, India's claim to a larger quota in the IMF comes at a time when the institution is declining in significance. The expanding role of private capital flows in emerging markets and the very large buffer of foreign exchange reserves that these economies have built up to avoid any recurrence of the 1997 East Asian crisis make most of them not only relatively independent of funds from multilateral institutions but also put them at low risk as far as a balance of payments crisis is concerned. Larger voting rights in an increasingly irrelevant institution are, at best, a symbolic achievement and certainly not worth more than a token effort. India should be far more concerned about increasing its attractiveness to private investors from abroad. This provides both resources for sustaining growth and, importantly, increasing clout with the governments of the countries from which the funds originate. It is widely believed that China's clout with the US is significantly dependent on the large investments that American corporations have made in that country. It is also no coincidence that Indo-US relations have been improving as the amount of investment flowing into India from the US increases.

In the changing global environment, India is an increasingly important player regardless of its quotas in the IMF. This is something the government must recognise and capitalise on, even as it engages in the argument about the manifest unfairness of the quota system. India's traditional penchant for complaining about injustice must give way to a new focus on capitalising on the opportunities available. The rest will automatically fall into place.