Managerial Economics and Indian

Economic Policy
UNIT - 5
Foreign Trade and Balance of Payments- Agriculture and Land Reform Policy - Policies
towards Agriculture: Green Revolution and its impact on economy and environment-
Agriculture pricing policy (Procurement Pricing and Minimum Support Pricing) –
Subsidies and Food Security- Industrial Policy –World Bank –IMF.
Foreign Trade - Meaning
• Foreign trade is the exchange of capital, goods, and services across
international borders or territories.
• trade between the different countries of the world. It is also called as
International trade, External trade or Inter-Regional trade. It consists
of imports, exports and entrepot(Re export)
• In most countries, it represents a significant share of gross domestic
product (GDP). Industrialization, advanced
transportation, globalization, multinational corporations, and
outsourcing are all having a major impact on the international trade
system.
Types of Foreign Trade
• Import
Importing is the purchasing of goods or services made in another country. For example, importing
edible oil from Chinese producers to sell in Africa.
• Export
Exporting is selling domestic-made goods in another country. For example, Hameem Garments
exports Readymade Garments (RMG) products to Western Countries.
• Re-export
When goods are imported from a foreign country and are re-exported to buyers in some other
foreign countries, it is called re-export.
For example, Firm/ Readymade Garments located at EPZs imports raw materials (cotton) from Korea
and produces Readymade Garments products by Thai cotton and then those products to Canada.
 Reasons / Need / Importance / Advantages of Foreign Trade
• Division of Labour and Specialization
• Optimum Allocation and Utilization of Resources
• Equality of Prices
• Availability of Multiple Choices
• Ensures Quality and Standard Goods
• Raises Standard of Living of the People
• Generate Employment Opportunities
• Facilitate Economic Development
• Assistance During Natural Calamities
• Maintains Balance of Payment Position
• Brings Reputation and Helps Earning Goodwill
• Promotes World Peace
 Reasons / Need / Importance / Advantages of Foreign Trade

• Division of Labour and Specialization

• Foreign trade leads to the division of labour and specialization at the world
level. Some countries have abundant natural resources.
• They should export raw materials and import finished goods from countries
which are advanced in skilled manpower. This gives benefits to all the
countries and thereby leading to the division of labor and specialization.
• Optimum Allocation and Utilization of Resources
• Due to specialization, unproductive lines can be eliminated, and wastage of
resources avoided. In other words, resources are canalized for the production
of only those goods, which would give the highest returns.
• Thus there is rational allocation and utilization of resources at the
international level due to foreign trade.
Cont…
• Equality of Prices
• Prices can be stabilized by foreign trade. It helps to keep the demand and
supply position stable, which in turn stabilizes the prices, making
allowances for transport and other marketing expenses.
• Availability of Multiple Choices
• Foreign trade helps in providing a better choice to the consumers. It
helps in making available new varieties to consumers all over the world.
• Ensures Quality and Standard Goods
• Foreign trade is highly competitive. To maintain and increase the demand
for goods, the exporting countries have to keep up the quality of goods.
• Thus quality and standardized goods are produced.
Cont….
• Raises Standard of Living of the People
• Imports can facilitate the standard of living of the people. This is because
people can have a choice of new and better varieties of goods and
services.
• By consuming new and better varieties of goods, people can improve their
standard of living.
• Generate Employment Opportunities
• Foreign trade helps in generating employment opportunities by increasing
the mobility of labor and resources. It generates direct employment in the
import sector and indirect employment in other sectors of the economy.
• Such as Industry, Service Sector (insurance, banking, transport,
communication), etc
Cont…
• Facilitate Economic Development
• Imports facilitate the economic development of a nation. This is
because, with the import of capital goods and technology, a country can
generate growth in all sectors of the economy, agriculture, industry, and
service sector.
• Assistance During Natural Calamities
• During natural calamities such as earthquakes, floods, famines, etc., the
affected countries face the problem of shortage of essential goods.
• Foreign trade enables a country to import food grains and medicines
from other countries to help the affected people.
Cont….
• Maintains Balance of Payment Position
• Every country has to maintain its balance of payment position.
• Since every country has to import, which results in an outflow of foreign
exchange, it also deals in export for the inflow of foreign exchange.
• Brings Reputation and Helps Earning Goodwill
• A country which is involved in exports earns goodwill in the
international market.
• For example, Japan has earned a lot of goodwill in foreign markets due
to its exports of quality electronic goods.
Cont…
• Promotes World Peace
• Foreign trade brings countries closer. It facilitates the transfer of
technology and other assistance from developed countries to
developing countries. It brings different countries closer due to
economic relations arising out of trade agreements.
• Thus, foreign trade creates a friendly atmosphere for avoiding wars
and conflicts. It promotes world peace as such countries try to
maintain friendly relations among themselves.
 Balance of Payment(BOP)
• According to Kindle Berger, "The balance of payments of a country is a
systematic record of all economic transactions between the residents of the
reporting country and residents of foreign countries during a given period of
time".
• It is a double entry system of record of all economic transactions between the
residents of the country and the rest of the world carried out in a specific period
of time.
• when we say “a country’s balance of payments” we are referring to the
transactions of its citizens and government.
 BOP - Definition
• The balance of payments of a country is a systematic record of all economic
transactions between the residents of a country and the rest of the world. It
presents a classified record of all receipts on account of goods exported, services
rendered and capital received by residents and payments made by them on
account of goods imported and services received from the capital transferred to
non-residents or foreigners. - Reserve Bank of India
 Features

• It is a systematic record of all economic transactions between one

country and the rest of the world
• It includes all transactions, visible as well as invisible
• It relates to a period of time. Generally, it is an annual statement.
• It adopts a double-entry book-keeping system.
• It has two sides: credit side and debit side. Receipts are recorded
on the credit side and payments on the debit side.
 Importance of Balance of Payment:
• A balance of payment is an essential document in the finance department or transaction as it gives the status
of a country and it’s economy. The importance of the balance of payment can be calculated from the below
points:
• It examines the transaction of all the export and import of goods and services for a given period
• It helps the government to analyse the potential of a particular industry export growth and formulate policy
to support that growth
• It gives the government a broad perspective on a different range of import and export tariff. The government
then takes measure to increase and decrease the tax to discourage import and encourage export respectively
and be self-sufficient
• If the economy urges support in the mode of import, the government plan according to the BOP and divert
the cash flow and technology to the unfavourable sector of the economy, and seek future growth
• The Balance of Payment also indicates the government to detect the state of the economy, and plan
expansion, monetary, and fiscal policy establish on that
 Balance of Trade(BOT)
• The difference between a country's imports and its exports. Balance of
trade is the largest component of a country's balance of payments.
• Debit items include imports, foreign aid, domestic spending abroad
and domestic investments abroad. Credit items include exports, foreign
spending in the domestic economy and foreign investments in the
domestic economy.
• When exports are greater than imports than the BOT is favourable and
if imports are greater than exports then it is unfavourable
Components of Balance of Payment:

• Current Account
• Capital Account
• Finance Accounts
 Current Account
Components of Balance of Payment

• This account scans all the incoming and outgoing of goods and services
between countries.
• All the payment made for raw materials and constructed goods is covered
under this account.
• Few other deliveries that include in this category are from tourism,
engineering, stocks, business services, transportation, and royalties from
license and copyrights; all these combined together make a BOP of a country.
• BOP on current account is a statement of actual receipts and payments in
short period.
• It includes the value of export and imports of both visible and invisible goods.
There can be either surplus or deficit in current account.
Capital Account

• Capital transaction like purchase and sale of assets (non-financial) like

land and properties are monitored under this account. This account
also records the flow of taxes, acquisition and sale of fixed assets by
immigrants moving into the different country. The shortage or excess
in the current account is governed by the finance from the capital
account and vice versa.
Finance Account

• The funds that flow to and from other countries through investments
like real estate, foreign direct investments, business enterprises, etc. is
recorded in this account. The account calculates the foreign proprietor
of domestic asset and domestic proprietor of foreign assets and
analyses if it’s acquiring or selling more assets like stocks, gold, equity
etc.
 Agriculture Policy in India
• Agricultural policy of a country is mostly designed by the Government for
raising agricultural production and productivity and also for raising the
level of income and standard of living of farmers within a definite time
frame. This policy is formulated for all round and comprehensive
development of the agricultural sector.
Agriculture Policy in India
• In India, the main objectives of agricultural policy are to remove the major
problems of agricultural sector related to improper and inefficient uses of
natural resources, predominance of low-value agriculture, poor cost-benefit
ratio of the sectoral activities and insignificant progress of co­operative
farming and other self-help institutions.
Objectives of agriculture Policy
• (i) Raising the Productivity of Inputs
• One of the important objectives of India’s agricultural policy is to improve
the productivity of inputs so purchased viz., HYV seeds, fertilizers,
pesticides, irrigation projects etc.
• (ii) Raising Value-Added per Hectare:
• Another important objective of country’s agricultural policy is to increase
per hectare value-added rather than raising physical output by raising the
productivity of agriculture in general and productivity of small and marginal
holdings in particular.
• (iii) Protecting the Interest of Poor Farmers:
• One of the important objectives of agricultural policy is to protect the
interest of poor and marginal farmers by abolishing intermediaries through
land reforms expanding institutional credit support to poor farmers etc.
 Objectives of agriculture Policy
• (iv) Modernizing Agricultural Sector:
• Modernizing agricultural sector is another important objective of agricultural policy of the
country. Here the policy support includes introduction of modern technology in agricultural
operations and application of improved agricultural inputs like HYV seeds, fertilizers etc.
• (v) Checking Environmental Degradation:
• Agricultural policy of India has set another objective to check environmental degradation of
natural base of Indian agriculture.
• (vi) Agricultural Research and Training:
• Another important objective of Indian agricultural policy is to promote agricultural research and
training facilities and to percolate the fruits of such research among the farmers by establishing a
close linkage between research institutions and farmers.
• (vii) Removing Bureaucratic Obstacles:
• The policy has set another objective to remove bureaucratic obstacles on the farmers Co-
operative societies and self help institutions so that they can work independently.
 Land Reforms Policy
• Land reform involves the changing of laws, regulations or customs
regarding land ownership.
• It refers to an institutional measure directed towards altering the
existing pattern of ownership, tenancy and management of land.
• It entails “a redistribution of the rights of ownership and/or use of land
away from large landowners and in favour of cultivators with very
limited or no landholdings.”
 Land Reforms
• Land reforms in India usually refer to redistribution of land from the rich to the
poor. Land reforms are often connected with re-distribution of agricultural land
and hence it is related to agrarian reforms too.
• Land reforms include regulation of ownership, operation, leasing, sales, and
inheritance of land (indeed, the redistribution of the land itself requires legal
changes).
 Historical background of land reforms in
India
• Land is precious for any country and used by people for productivity and as a source of food, for
place to live, for wood, for place to work. In India, before colonial rule the land used to be in the
hands of the community as a whole. However during the British Raj, this was changed.
• Lord Carnwallies had introduced Permanent Land Settlement for Bengal, Bihar and
Orissa in 1793. According to this the tax farmers appointed by the British rulers was
converted as various Land Lords. Under this rule they had to pay fixed commission to
East India Company. Thus these intermediaries were formed and called as Jagirdar /
Jamindar.
Historical background of land reforms in India
• Emergence of Tenants: Following the Land Settlement Act, 1793, the
farmers purchase lands from the Land Lords and hire it for their
agricultural use. These people who hired the land were called
tenants.
• Land reforms & Land Distribution:In India, there was a practice of
land holdings from historic times and it was distributed in a highly
unequal manner and have always been used as a source of social
power. To get secure access to land for the poor and landless, policies
of land reform were implemented to benefit poorer section of society
since independence.
Historical background of land reforms in
India
• The task of collecting land revenue was assigned to a class of agents
called zamindars (Bhaumik, 1993).
• e and later, under the Permanent Settlement introduced in 1793,
declared the Zamindars to be proprietors of land in exchange for the
payment of land revenue fixed in perpetuity. Zamindars, or those to
whom they sold their proprietary rights, typically delegated revenue
collection to a series of middlemen.
• The Bengal Rent Act of 1859 placed restrictions on the power of
landlords' to increase rent or evict tenants. However, the Act only
protected fixed-rent tenants and did not protect bargadars or
agricultural labourers.
 Impact of Land Reform in India:

• Abolition of Jamindars and Jagirdars:

The powerful Jamindars and Jagirdars have become inexistent.
The abolition of intermediaries has stopped exploitation.
Transfer of land to peasants from intermediaries has reduced disparities.
The new proprietorship has given scope for innovation in Land Reforms.
The ex-jagirdars and ex-Jamindars have engaged themselves actively in other work thus contributing for
National Growth.
The abolishment of these systems has increased to the new land owners thus adding revenue to the state
governments.
• Land Ceiling:
Impact of Land Reform in India:

Land is a source of Income in rural India land and it provides employment opportunities.
Therefore it is important for the marginal farmers, agricultural labourers, and small
farmers. The concept 'ceiling on land holdings' denotes to the legally stipulated maximum
size beyond which no individual farmer or farm household can hold any land. The objective
of such ceiling is to promote economic growth with social justice.

Land Ceiling should be imposed on all kinds of lands such as Fallow, Uncultivable, irrigated
and Cultivable land. All the mentioned are inclusive of ceiling Act. The ceiling act varies
from state to state on ceiling on two crops a year land. However in most of the places the
ceiling is 18 Acres.
Impact of Land Reform in India:

• Land possession and social power:

It is observed that the land is not only the source of production but
also for generating power in the community. In the Indian system,
the land is often transferred from one generation to another
generation. However all this lack the documentation of possession
of land. In this framework, the government had made it
mandatory to register all tenancy arrangements.
 Policies towards Agriculture: Green Revolution and its impact on economy and
environment-
• The term green revolution was first used by William Gaud and Norman Borlaug is the
Father of the Green Revolution.  M S Swaminathan, (August 7, 1925) the father of
the Green Revolution in India
• In the year 1965, the government of India launched the Green Revolution with the help
of a geneticist, now known as the father of the Green revolution (India) M.S.
Swaminathan. The movement of the green revolution was a great success and changed the
country’s status from a food-deficient economy to one of the world’s leading agricultural
nations. It started in 1967 and lasted till 1978.
Methods used in Green Revolution
1. Multiple Cropping System
2. Seeds with superior genetics
3. Proper irrigation system
4. HYV seeds (HighYieldVerities)
5. Pesticides and fertilizers
6. Modern machines
7. Expansion of farming areas
 Effects of Green
Revolution
 Increase in production
Capitalistic farming
Rural employment
Import of food grains
Development of industries
Economic growth
Thinking of farmers
Impact of Green Revolution in India on economy and Environment

• Green Revolution has remarkably increased Agricultural Production. Food

grains in India saw a great rise in output. The biggest beneficiary of the
revolution was the Wheat Grain. The production increased to 55 million
tonnes in the early stage of the plan itself. 
• Not just limited to agricultural output the revolution also increased per
Acre yield. Green Revolution increased the per hectare yield in the case
of wheat from 850 kg per hectare to an incredible 2281 kg/hectare in its
early stage.
• With the introduction of the Green revolution, India reached its way to
self-sufficiency and was less dependent on imports. The production in
the country was sufficient to meet the demand of the rising population
and to stock it for emergencies. Rather than depending on the import of
food grains from other countries India started exporting its agricultural
produce. 
Impact of Green Revolution in India on economy and Environment
• The introduction of the revolution inhibited a fear among the
masses that commercial farming would lead to unemployment
and leave a lot of the labour force jobless. But the result seen
was totally different there was a rise in rural employment. The
tertiary industries such as transportation, irrigation, food
processing, marketing, etc created employment opportunities for
the workforce.
• The Green Revolution in India majorly benefited the farmers of
the country. Farmers not only survived but also prospered during
the revolution their income saw a significant rise which enabled
them to shift from sustenance farming to commercial farming.
 Agriculture pricing policy

• The government has formulated a price policy for agricultural produce

that aims at securing remunerative prices to farmers to encourage
them to invest more in agricultural production.
Agriculture pricing policy
• Procurement Pricing
• It is the price at which govt purchases the crop after harvesting, the main difference between
Procurement Price and MSP is that MSP is declared before sowing while PP is declared after
harvesting.
• Since 1968-69 there is no practice of declaring separate Procurement Price and MSP is
usually considered as the Procurement Price.
• The procurement agencies step in to procure the crop and support the prices when the
market price falls below the MSP and the procured farm products are kept in government
warehouses and distributed through the PDS and various food security programmes; FCI
(Food Corporation of India), the nodal central agency of Government of India, along with
other State Agencies undertakes procurement of wheat and paddy.
 Minimum Support Pricing

• The government formulated price policy for agricultural produce to secure

remunerative prices for farmers to encourage them to invest more in
agricultural production. Keeping in mind, the government announces
Minimum Support Prices (MSP) for major agricultural products every year.
Government provides food grains to the BPL families through the public
distribution system. These prices are fixed after consulting the Commission
for Agricultural Costs and Prices (CACP).
 The Commission of Agricultural Costs and Prices (CACP) while
recommending prices takes into account important factors, such as:

I. Cost of production
II. Changes in input prices
III. Input/output Price Parity
IV. Trends in market prices
V. Inter-crop Price Parity
VI. Demand and supply situation
VII. Effect on Industrial Cost Structure
VIII. Effect on general price level
IX. Effect on cost of living
X. International market price situation
XI. Parity between prices paid and prices received by farmers (Terms of
Trade)
 The main objectives of the MSP are:

• To prevent fall in the price in the situation of over production.

• o protect the interests of the farmers by ensuring them a minimum price for their crops in
the situation of a price fall in the market.
• To meet the domestic consumption requirement
• To provide price stability in the agricultural product
• To ensure reasonable relationship between prices of agricultural commodities and
manufactured goods
• To remove price difference between two regions or the whole country.
• To increase the production and exports of agricultural produce.
• To provide raw material to the different industries at reasonable prices in the whole country.
 Agriculture Subsidies
• Agricultural schemes and subsidies are necessary because the Indian
economy is mainly dependent on the farming sector. These agricultural
schemes are beneficial for the farmers and that they should realize it so
on take its benefit. The central government is provided with the fertilizer
subsidy whereas water subsidy is provided by the state governments.
 Agriculture Schemes and Subsidies in India

• Agriculture Subsidies and Schemes for Power

• Power subsidy is beneficial for farmers because the government charges low rates
for the electricity supplied to the farmers. Power is particularly employed by the
farmers for irrigation objectives. It is the difference between the value of generating
and distributing electricity to agricultural farmers and the price received from
farmers.
 Agriculture Subsidies and Schemes for
Seed
• High yielding plant seeds are often provided by the government at low prices and
the longer-term payment options. The research and development activities
needed to provide such productive seeds are undertaken by the govt. The
expenditure on these could also be a sort of subsidy granted to the farmers.
Under this program, hybrids, high yielding varieties, and good quality certified
seeds of major crops are distributed to farmers at subsidized rates 50% for
general farmers and 75% for SC/ST farmers.
 Agriculture Subsidies and Schemes for Infrastructure
• Private efforts in many areas don’t convince to be sufficient to reinforce
agricultural production. Storage facilities, power, information about the market,
and transportation to the ports, etc. are vital for agricultural production and sale
operations.
• These facilities are within the domain of public goods, the costs of which are huge,
and whose benefits accrue to all or any of any the cultivators during a neighbour
hood. Therefore the government takes the responsibility of providing these and
given the condition of Indian farmers a lower cost is often charged from the
poorer farmers.
 Food Security in India
• The Food and Agricultural Organization (FAO) states that food security emerges when
all people at all times have physical and economic access to sufficient, safe and nutritious
food to meet their dietary needs and food preferences for an active and healthy life. Food
security has three important and closely related components, which are listed below
• Availability of food - availability of food means food production within the
country, food imports and the previous years stock stored in government
granaries.
• Access to food - food is within reach of every person
• Absorption of food - affordability implies that an individual has enough money
to buy sufficient, safe and nutritious food to meet one’s dietary needs.
 Laws on Food Security – India

• In order to provide the Right to food to every citizen of the country, the Parliment of
India, enacted legislation in 2013 known as the National Food Security Act, 2013.
Also called the Right to Food Act, this Act seeks to provide subsidized food grains
to approximately two-thirds of India’s 1.33 billion population.  Food Subsidy is the
foundation on which the National Food Security Act 2013 is implemented in India.
• National Food Security Bill, 2013
• This Bill was introduced in Lok Sabha on 7th August 2013
• It was passed in Lok Sabha on 26th August 2013.
• The National Food Security Bill was passed in Rajya Sabha on September 02, 2013.
Food Security Programmes of India

• Public Distribution System. – A major chunk of Government

Expenditure on Food Security is spent on Food Subsidies which are
implemented through the Targeted Public Distribution System.
• Mid Day Meal Scheme
• Integrated Child Development Services Scheme.
 Components of Food Security
• Buffer stock
• Buffer Stock is the stock of food grains, namely wheat and rice, procured by the government through the Food
Corporation of India (FCI). The stock of wheat and rice are purchased by the FCI from the farmers where there is
surplus production. The farmers are paid a pre announced price for their crops, called Minimum Support Price
(MSP). Every year, the MSP is declared by the government before the sowing season to provide incentives to farmers
for raising the production of these crops. Buffer Stock is created to distribute foodgrains in the deficit areas and
among the poorer section of the society at a price lower than the market price also known as Issue Price.
• Public Distribution System
• FCI distributes the food procured from the farmer through government-regulated ration shops. It is called the Public
Distribution System (PDS). Ration shops also, known as Fair Price Shops, keep stock of foodgrains, sugar, and
kerosene for cooking. Rationing in India was introduced during the 1940s against the backdrop of the Bengal
famine. In the mid-1970s, three important food intervention programmes were introduced:
• Public Distribution System (PDS) for food grains
• Integrated Child Development Services (ICDS) a
• Food-for-Work (FFW).
 Industrial Policy
• Industrial policy is a document that sets the tone in implementing, promoting
the regulatory roles of the government. It was an effort to expand
the industrialization and uplift the economy to its deserved heights. It signified
the involvement of the Indian government in the development of the industrial
sector.
 Industrial Policy
• Industrial policy means rules, regulations , principles , policies , and procedures
laid down by government for regulating , developing and controlling industrial
undertakings in the country.
• It prescribes the respective roles of the public, private joint and cooperative
sectors for the development of industries.
• It also indicates the role of the large , medium , and small sector . It
incorporates fiscal and monetary policies, tariff policy , labour policy and the
government attitude towards foreign capital, and role to be played by
multinational corporations in the development of the industrial sector.
 I. Industrial Policy of 1948

• Continuous increase in production

• Ensuring the equitable distribution of revenue
• Improvement of role of small and cottage industries
• Outlined the approach to industrial growth and development
• Emphasized the importance of securing a continuous increase
in production and ensuring its equitable distribution.
• De reservation of industries for the public sector
• De licensing Abolition of phased manufacturing program
• Removal of mandatory convertibility clause
• Amendment of monopolies restrictive trade practices
• Encouragement to foreign investment
• Change of policy in small scale industry
World Bank
• World Bank, in full World Bank Group, international
organization affiliated with the United Nations (UN) and designed to
finance projects that enhance the economic development of member
states. Headquartered in Washington, D.C.,
• The bank is the largest source of financial assistance to developing
countries. It also provides technical assistance and policy advice and
supervises—on behalf of international creditors—the implementation
of free-market reforms.
• Together with the International Monetary Fund (IMF) and the World
Trade Organization(WTO), it plays a central role in
overseeing economic policy and reforming public institutions in
developing countries and defining the global macroeconomic agenda.
World Bank
• An international organization dedicated to providing financing, advice
and research to developing nations to aid their economic
advancement.
What is Bretton Wood Conference
• The Bretton Woods Conference was held from the 1st to 22nd of July,
1944 .
• Contained 730 delegates from all 44 Allied nations in Bretton Woods
• To regulate the international monetary and financial order after the
conclusion of World War II.
• Created two major institutions:
– World bank : (long term loan for distressed economy and member
countries )
– IMF : (grants the short term loans to develop the cyclical
disturbance in economy.)
 Objectives of World Bank
• To provide long-run capital to member countries for economic reconstruction and development.
• To induce long-run capital investment for assuring Balance of Payments (BoP) equilibrium and
balanced development of international trade.
• To provide guarantee for loans granted to small and large units and other projects of member
countries.
• To ensure the implementation of development projects so as to bring about a smooth transference
from a war-time to peace economy.
• To promote capital investment in member countries by the following ways; (a) To provide
guarantee on private loans or capital investment.
(b) If private capital is not available even after providing guarantee, then IBRD provides loans
for productive activities on considerate conditions.
 Functions
• Granting reconstruction loans to war devastated countries.
• Granting developmental loans to underdeveloped countries.
• Providing loans to governments for agriculture, irrigation, power, transport, water supply,
educations, health, etc
• Providing loans to private concerns for specified projects.
• Promoting foreign investment by guaranteeing loans provided by other organisations.
• Providing technical, economic and monetary advice to member countries for specific
project.
• Encouraging industrial development of underdeveloped countries by promoting
economic reforms
 India and World bank
• India was one of the 17 countries which met in Atlantic City, USA in
June 1944 to prepare the agenda for the Bretton Woods
conference.
• In fact, the name "International Bank for Reconstruction and
Development" [IBRD] was first suggested by India to the drafting
committee.
• The Bank lending to India started in 1949, when the first loan of
$34 million was approved for the Indian Railways.
• The aggregate of the Bank's lending in India in the last 45 years
was approximately $42 billion.  India is the single largest
borrower of WB and IDA.
International Monetary Fund(IMF)
• The International Monetary Fund (IMF) is an international organization that promotes
global economic growth and financial stability, encourages international trade, and
reduces poverty. Quotas of member countries are a key determinant of the voting power
in IMF decisions. Votes comprise one vote per 100,000 special drawing right (SDR) of
quota plus basic votes. SDRS are an international type of monetary reserve currency
created by the IMF as a supplement to the existing money reserves of member countries.
 The Bretton Woods Agreement
• United Nations conference convened in Bretton Woods, U.S.A in July
1944.
• Result of discussion was
– IMF (International Monetary Fund)
– IBRD (International Bank for Reconstruction and Development)
– ITO (International trade organization)
The IMF and IBRD are called as the “Bretton Woods Twins”. However, the
proposal for the ITO did not materialize: instead the General Agreement
on Tariff and trade (GATT) was formed
 Objectives of IMF
• The IMF's mission is to promote global economic growth and financial stability
• Encourage international trade
• Reduce poverty around the world.
• which attempted to encourage international financial cooperation by introducing a system of convertible
currencies at fixed exchange rates.
• To promote International monetary cooperation that provides machinery for consultation and collaboration
on international monetary problems.
• To facilitate the expansion of balanced growth of international trade, and therefore employment and income
• To stabilize exchange rates and to avoid competitive devaluations.
• Elimination of foreign exchange restrictions, which hamper the economic growth.
• To provide loans to help cover shortfalls in Balance of Payments (BOP) to help correct BOP problems without
hurting national or international interests.
• To reduce restrictions on payments for trade.
Functions of IMF
• World Bank provides various technical services to the member countries. For
this purpose, the Bank has established “The Economic Development
Institute” and a Staff College in Washington.
• Bank can grant loans to a member country up to 20% of its share in the
paid-up capital.
• The quantities of loans, interest rate and terms and conditions are
determined by the Bank itself.
• Generally, Bank grants loans for a particular project duly submitted to the
Bank by the member country.
• The debtor nation has to repay either in reserve currencies or in the
currency in which the loan was sanctioned
Functions of IMF
• Bank also provides loan to private investors belonging to member countries
on its own guarantee, but for this loan private investors have to seek prior
permission from those counties where this amount will be collected
• International Monetary Cooperation.
• Promote exchange Rate stability.
• To help deal with Balance of Payments adjustment.
• Help Deal With Economic Crisis by providing international coordination.
Thank you