1. Shri Arun Jaitley, Finance Minister participated in the Restricted Session of the International Monetary and Finance Committee (IMFC) and the Plenary Session of World Economic Leaders (IMFC Plenary) in Washington on April 16, 2016. IMFC is a key body providing strategic direction to the work and policies of the IMF. The event was attended by select Finance Ministers and Central Bank Governors. The closed door discussions centered on prolonged period of subdued global growth, financial market volatility, impact of lower commodity prices and other geopolitical risks and their spillover on global economy.
2. In the IMFC Plenary (Annex A), the Finance Minister spoke about the Global Economy, Indian Economy and the role of IMF. He stressed that the policy adjustments should be managed in a manner that minimizes the negative spillovers on other countries. He highlighted the various steps taken by Government of India with respect to structural reforms, Investment promotion and tax reforms. He brought out the need to further strengthen the role of IMF by increased access to resources to enable it to play an effective role in fostering global economic and financial stability.
3. The Finance Minister also participated in the Plenary Meeting (Annex B) of the Development Committee (DC), which is the ministerial-level forum of the World Bank Group and the IMF for intergovernmental consensus building on development issues. The meeting focused on the 'Forward Look' exercise carried out by the World Bank, issues of migration, forced displacement, Interim progress report on Dynamic Formula of Shareholding review and Disaster Risk Management.
4. Finance Minister emphasized, that the unfinished task of eliminating extreme poverty, achieving development ambitions enshrined in the Sustainable Development Goals (SDGs) and meeting the enormous challenge of reconstruction posed by conflicts and fragility calls for the Bank Group to expand its annual lending to 100 billion dollars. The World Bank Group must undertake the General Capital Increase (GCI) and Selective Capital Increase (SCI) in timely manner to maintain leadership position in the development landscape. The Finance Minister further said that the Environmental and Social Framework (ESF) discussions are extremely important for the borrowing countries and desired that the Bank team should take into consideration the feedback received during the consultation process and would now propose the right kind of standards for consideration of the member countries.
5. Mr Shaktikanta Das, Secretary Economic Affairs, also held bilateral meetings with United Kingdom's Permanent Secretary Mr Mark Lowcock and Mr K V Kamat, President of New Development Bank (NDB).
6. The Finance Minister is currently on official tour to Washington to attend the Spring Meetings of the International Monetary Fund and the World Bank and other associated meetings. He is accompanied by Dr. Raghuram Rajan, Governor RBI, Mr Shaktikanta Das, Secretary Economic Affairs, Dr. Arvind Subramanian, Chief Economic Adviser and other officials.
Annex A
Finance Minister's speech at the IMFC Plenary
April 16, 2016 at 1000 hours
1. I welcome the Managing Director's Global Policy Agenda (GPA). While we support the broader thrust of GPA, I would like to mention a few points about broader global developments and those pertaining to the Indian economy.
Global Economy
2. As outlined in the GPA, global growth remains disappointing. Advanced economies and EMEs are also expected to grow at a lower rate than previously projected. We support the policy options advocated by the GPA, particularly the emphasis on structural reforms for improving productivity and potential growth. Collective policy actions would also be helpful in mutually reinforcing economic activity and stability.
3. There are ongoing concerns about the implications of spill-overs from Unconventional Monetary Policies (UMPs) in advanced economies. As I have stressed on earlier occasions, policy adjustments should be managed in a manner that minimizes the negative spill overs on other countries. We propose that a mechanism for an independent monitoring and assessment of external effects of such policies must be put in place.
The Indian Economy
4. India continues to maintain high growth. I am happy to note that India is considered as a 'beacon of hope' with rising real incomes and domestic demand in the otherwise gloomy global economic situation.
5. India is projected to grow at 7.6 % in FY2015-16 as compared to 7.2 % in the previous year, despite decline in exports and two consecutive years of unfavourable monsoon. The growth may accelerate further if the monsoon turns normal and external demand picks up.
6. We are taking a number of significant steps to stimulate growth.
i. Investment Promotion
Several initiatives have been taken to boost business climate and improve the ease of doing business by simplifying and rationalising procedures and implementing progressive tax rules to overcome impediments to investment. FDI policy has been substantially eased in several sectors and entry through the automatic route is permitted in most cases. Further, a Bankruptcy Code would be enacted shortly. The Government has set up National Infrastructure Investment Fund (NIIF) for financing infrastructure which will further stimulate investment in infrastructure. The budgetary allocation for 2016-17 has been enhanced to support public investment in infrastructure such as roads, railways and ports. Investments in manufacturing and 'start up' entrepreneurships are encouraged through leading programs such as 'Make in India' and 'Start Up India'.
ii. Macroeconomic Policy
We are committed to the medium term fiscal consolidation plan where we plan to bring down the Fiscal Deficit from 3.9% in 2015-16 to 3.5% in 2016-17. Likewise, the current account remains sustainable in the range of 1.0-1.5% in 2015-16, and may further consolidate during the current fiscal year. Inflation for 2015-16 fiscal is expected to be around 5.5 % and will further decline to less than 5%.
iii. Tax Reforms
We have reduced the burden of corporate taxation for smaller companies. Such tax rationalisation will make Indian manufacturers globally competitive. Once implemented, the Goods and Services tax (GST) legislation that integrates taxation nationwide and reduces transaction costs would provide a significant impetus to growth.
iv. Structural Reforms and New Initiatives
The Government has launched a massive financial inclusion programme. More than 200 million bank accounts have been opened for the unbanked persons. Together with Unique Identification framework and mobile telephones, it has helped in improving the delivery of services and social benefit to eligible persons. Statutory backing for Aadhaar based services/benefits delivery has been established to leverage digital technology for efficient delivery of direct benefits. The 'Digital India' program aims at enhancing digital infrastructure, literacy and delivery of services. The 'Skill India' program is being promoted to offer skills based training to youth. A credit delivery program for micro and small businesses - has been introduced through a specially created vehicle, MUDRA bank. To save farmers from losses due to crop failures, a new crop insurance program has been announced with attractive premium rates.
The IMFs Role
7. I will now discuss about the role of IMF in the global economy. The Fund is not only a near-universal safety net but also a knowledge resource. However, it needs to be further strengthened by increased access to resources to enable it to play an effective role in fostering global economic and financial stability. We believe that all the three potential components - self-insurance, bilateral/plurilateral agreements and the multilateral agreement represented by the IMF - are legitimate and complementary components of a robust and fair Global Financial Safety Net (GFSN). We also consider that IMF is in the best position to discharge this responsibility. The Fund could add to the strength of the GFSN by providing predictable and reliable financial support for crisis prevention and resolution.
8. I welcome that the long pending IMF reforms agreed in 2010 have finally come into effect, but Fund quotas still do not reflect global economic realities. It is necessary to complete the Quota Formula Review (QFR) quickly, so as to better reflect the increasing weight of emerging market and developing countries in the world economy. We also need work towards speedy completion of the 15th General Review of Quota (GRQ) and adhere to the timeline of October 2017. Needless to mention, quota revisions are imperative to reflect fairness and equity in the governance of the Fund in order to reinforce legitimacy of such multilateral institutions, as the role IMF as a safety net becomes increasingly important in a more complex world.
Thank you.
Annex B
Finance Minister's speech at the Development Committee World Bank
April 16th, 2016
Mr. Chairman,
1. I compliment the Bank for presenting a very well researched and comprehensive paper on the issue and the challenges of forced displacement the World is facing today. The conflicts in Middle East and North Africa (MENA) region and Sub-Saharan Region (SSR) and the fragility in many other countries have the potential to increase the concentration of poverty in these regions. The World Bank Group, therefore, needs to extend financial resources, provide analytical and advisory services and play a very meaningful convening role in such situations. Further, it may be more effective and efficient to create a financial intermediary fund along the lines of Crisis Response Window (CRW) in IDA to provide concessional finance to both low-income countries and middle income countries.
2. Moving to the Dynamic Formula update, it is heartening to note that the Shareholding reforms agenda has moved forward. We discussed Forward Look during Lunch today. The unfinished task of eliminating extreme poverty, achieving development ambitions enshrined in the Sustainable Development Goals (SDGs) and meeting the enormous challenge of reconstruction posed by conflicts and fragility calls for the Bank Group to expand its annual lending to 100 billion dollars. For doing so, both IBRD and the IFC, would need General Capital Increase (GCI). These two institutions would also need large Selective Capital Increase (SCI) to reflect the increasing weight of Developing & Transition Countries (DTCs). These steps have to be taken in timely manner to maintain leadership position of World Bank Group in the development landscape.
3. I wish to reiterate that we must adhere to the Istanbul principles. We must accept that the time has come for raising partnership of DTCs in the IBRD and IFC to 50%. This would require that economic weight captured by GDP must remain the primary factor in the formula, with larger share of PPP based GDP of not less than 60%. IDA has enormously useful role in financing development in low income countries, but recognizing IDA contributions in IBRD/IFC share capital has adverse impact on voting share of developing countries . Therefore, it would only be fair if a weight of not more than 10% is given to IDA contributions in the dynamic formula. Such a weight should also recognize only recent contributions to act as rightful incentive for the emerging countries to contribute in IDA and should also recognize multiplier based on burden share and generosity.
4. The Environmental and Social Standards (ESF) discussions are also extremely important for the borrowing countries. The future of investment lending hinges upon adoption of pragmatic, developmental and utilitarian standards rather than divisive and political standards. I have noted that the consultation process with the borrowing countries has been completed. These borrowing countries, including India, have provided the Bank team with a good reality check on the potential implications of the proposed ESF- II draft standards. I am sure the Bank team would be able to take this valuable feedback into consideration and would now propose the right kind of standards for consideration of the member countries.
Thank you.
