INDIAN ECONOMY AND INDIAN FINANCIAL SYSTEM
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MODULE A: INDIAN ECONOMIC ARCHITECTURE
Unit - 9: International Economic Organizations (World Bank, IMF, etc.)
Functions of International Monetary Fund (IMF):
● Surveillance over members' economic policies
● Combating poverty in low-income countries
● Financing temporary balance of payments needs.
● Increasing the global supply of international reserves through Special Drawing Rights
(SDRs)
● Building capacity through technical assistance and training
● Dissemination of information and research on economic analyses, statistics, and
estimates
India's Economic Relationships with (IMF)
● India is a founding member of the IMF.
● The Finance Minister is the ex-officio Governor on the Board of Governors of the IMF.
● IMF has offered financial assistance to India in the past
● During the 2008 global financial crisis, India received around US$4.5 billion from the
IMF's SDR to combat economic slowdown.
● India's current IMF quota is SDR 13,114 million, giving it a 2.76% stake and making it
the IMF's sixth largest quota holding member.
● SDR is a supplementary international reserve asset created in the context of the
Bretton Woods fixed exchange rate system.
● The collapse of the Bretton Woods system in 1973 and the shift to floating exchange
rate regimes lessened reliance on the SDR as a global reserve asset.
● SDR allocations can play a role in providing liquidity and supplementing member
countries' official reserves.
● The SDR serves as the unit of account of the IMF and other international
organisations.
● The SDR is not a currency or claim on the IMF, but a potential claim on the freely
usable currencies of IMF members
● The SDR basket is a basket of currencies that must meet export and freely usable
criteria.
● The SDR basket is reviewed every five years to ensure that it reflects the relative
importance of currencies in the world's trading and financial systems.
● The value of the SDR is determined daily based on market exchange rates.
World Bank (WB)
● The World Bank was established in 1944 to aid in the reconstruction of Western
Europe after World War II.
● Its mission has since shifted to alleviating poverty in developing countries.
● The World Bank provides financial solutions and policy assistance to nations to
promote sustainable growth and eliminate poverty.
● Only sovereign governments and projects supported by sovereign governments are
funded directly by the Bank.
● The World Bank's activities include human development, agriculture and rural
development, poverty alleviation, environmental protection, infrastructure, and
governance.
● The World Bank Group is made up of five international institutions: IBRD, IDA, IFC,
MIGA, and ICSID.
● Membership in the World Bank Group confers voting rights based on financial
contributions.
● ICSID was founded in 1966 to mediate and resolve legal disputes between
international investors and states.
● MIGA encourages foreign direct investment into developing countries by protecting
investors against non-commercial and political risk.
● IFC encourages private sector investment in developing nations to alleviate poverty
and improve people's lives.
● IDA provides long-term, interest-free loans and grants to around 80 of the world's
poorest countries.
● IDA is primarily supported by contributions from the governments of its wealthier
member countries.
● The World Trade Organization (WTO) was established on January 1, 1995, as a
forum where member countries' governments try to resolve trade disputes with one
another.
● India was a founding member of the General Agreement on Tariffs and Trade
(GATT), which preceded the WTO.
● The WTO has 164 members as of June 16, 2022, and is headquartered in Geneva.
● The WTO's top decision-making body, the ministerial conference of trade/commerce
ministers, meets roughly every two years.
● The WTO has five main responsibilities: facilitating the implementation,
administration, and operation of agreements including Multilateral Trade Agreements;
serving as a forum for negotiating: overseeing the mechanism to resolve disputes
among members; monitoring trade policies; and engaging with the IMF and World
Bank to promote global economic policy coherence.
● The WTO has six broad functions, including administering WTO trade agreements,
providing a forum for trade negotiations, handling trade disputes, monitoring national
trade policies, providing technical assistance and training for developing countries,
and cooperating with other international organisations.
REGIONAL ECONOMIC CO-OPERATIONS:
● Regional economic cooperation promotes economic growth and security in specific
geographical regions.
● It should be based on equity, equality, mutual gain, socioeconomic disparities, and
consensus.
● It should adhere to multilateral trade system principles and complement existing
bilateral arrangements.
● Examples of regional economic integration include EU, Eurozone, SAARC, ASEAN,
OPEC, G7,G20, OECD, NAFTA, APEC, and Mercosur.
● The European Union (EU) was established in 1993, following the signing of the
Maastricht Treaty. It is a collection of 28 nations that work together as an economic
and political bloc.
● Eurozone: Founded in 1999, the Eurozone is an economic union composed of 19 of
the 28 EU member states, who have chosen the euro as their single currency and
only legal tender. The European Central Bank is the Eurozone's central bank, in
charge of monetary policy, and is headquartered in Frankfurt, Germany.
● SAARC: The South Asian Association for Regional Cooperation (SAARC) is a
regional trade group based in Kathmandu that was founded in 1985. SAARC's eight
members are India, the Maldives, Pakistan, Bangladesh, Sri Lanka, Bhutan, Nepal,
and Afghanistan.
● South Asian Free Trade Area (SAFTA) was established on January 1, 2006, to
encourage free trade among member countries.
● ASEAN: The Association of Southeast Asian Nations (ASEAN) is a regional trade
bloc based in Jakarta, Indonesia. ASEAN now includes ten members: Indonesia,
Philippines, Malaysia, Thailand, Singapore, Brunei, Vietnam, Laos, Cambodia, and
Myanmar.
● OPEC: The Organizations of Petroleum Exporting Countries (OPEC) is a permanent
inter- governmental organisation, comprising 13 oil-exporting developing countries
that coordinates and unifies their petroleum policy. It was founded in Baghdad, Iraq,
with the signing of an agreement in September 1960 by five countries namely Islamic
Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
● G-7: The Group of Seven (G-7) was established in 1975. Canada, France, Germany,
Italy, Japan, the United Kingdom, and the United States comprise the G7. The G-7's
main goal is to debate, and occasionally acts in concert to help resolve global
challenges, with a particular emphasis on economic difficulties.
● G-20: The Group of Twenty (G-20) was formed in 1999 to bring governments from
developed and developing countries together to address major issues concerning the
global economy and financial stability.
● OECD: The Organization for Economic Co-operation and Development (OECD) is an
intergovernmental economic organisation, with roughly 36 member nations that was
founded in 1961, to promote economic advancement and global commerce. Its
headquarters are in Paris.
● NAFTA: The North American Free Trade Agreement (NAFTA) is a regional trade
bloc, comprised of Canada, the United States, and Mexico that was established in
1994. In terms of GDP, NAFTA is one of the world's largest trading blocs. APEC: The
Asia-Pacific Economic Cooperation (APEC) is a regional economic forum, founded in
1989, to capitalise on the Asia-Pacific region's growing interconnectedness.
● BIMSTEC: It is a multilateral regional organisation established with the aim of
accelerating shared growth and cooperation between littoral and adjacent countries
in the Bay of Bengal region.
WTO's 12th ministerial meeting in Geneva concluded on June 17, 2022.
● The members reached agreements in response to fishing subsidies, food insecurity,
and COVID-19 vaccinations.
● The agreements are among the first major accords inked in nine years. WTO
members struck an agreement on fisheries subsidies after a nine-year hiatus.
● India has the right to provide subsidies to its fishermen in exchange for a
one-and-a-half-year extension of the customs tariff moratorium on electronic goods.
● The next WTO ministerial meeting, or no later than March 2024, would find a final
solution to the issue of the continuation of the moratorium on imposing customs
duties on electronic transmission of products.
● The Accord addressed overfishing, deep-sea fishing, and illegal, unreported, and
unregulated (IUU) fishing for the first time.
● India assumed a significant leadership role and served as the voice of the developing
world and Least Developed Countries.
● Fishermen, farmers, food security, multilateralism, and trade and commerce, notably
digital economy and MSMEs, are among the primary beneficiaries of the WTO's 12th
ministerial conference outcomes.
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Jaiib Exam Notes By Ahsan Malik
