Publicly questioning the methodology adopted by the International Monetary Fund (IMF) for its growth projections for India, Finance Minister P. Chidambaram on Sunday said it was high time the long-pending governance and quota reforms in the Fund was given a concrete shape, as the delay was impacting the credibility and legitimacy of such organisations.
Touching upon the subject of growth projections at the IMF Plenary meeting at Washington D.C., Mr. Chidambaram spoke briefly about some aspects of growth estimation by the organisation, which, in some cases have been revised downwards significantly within a few months.
“For example, India’s growth rate, which was projected at 5.6 per cent (at market prices) in the WEO July Update, has now been revised significantly downwards to 3.8 per cent. I would like to ask, respectfully, what is the information that IMF has gathered between July and September, that we do not have, that has impelled the Fund to drastically change the estimate? We do not share this pessimistic outlook. We also believe there is a need for review of the methodology for growth projections as in the past, IMF projections have often been at divergence with final growth numbers,” he remarked.
Referring to the recent developments in the financial markets, the Minister said an important question is why ongoing 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 stated.
Mr. Chidambaram expressed disappointment over delay in governance and quota reforms in the 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 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.