Opinion Golden promise

Much attention — and misinformation — has been focused on India’s share of the BRICS countries’ 75 billion dollar pledge to the IMF,to be used by the eurozone’s debt-ridden countries. India’s pledge was on par with that of Brazil and Russia,but below the 43 billion dollars pledged by China. Yet how could a country that still has the world’s largest concentration of poor and the lowest gross national product among the BRICS promise so much money for use by some of the richest countries? The answer lies in the fact that the 10 billion dollars promised is likely to benefit donor India more than the potential IMF borrowers in Europe.

We are living in an age where the traditional notions of “donor” and “recipient” are blurred. India is not new to the business of being a donor or “development partner,” the term preferred by the Indian policy establishment. Indeed,it has a significant record as a foreign assistance provider starting as early as the 1950s and is currently undergoing a transition from being a net borrower of financial assistance to a net lender. The bulk of Indian foreign assistance has traditionally focused on developing countries in South Asia and on humanitarian aid. What is different about this pledge is that the promised amount is large,this is not a humanitarian crisis and that the potential recipients are developed countries. But in this instance the benefits to India are likely to outweigh the costs.

There are several reasons why India is likely to benefit. First,the 10 billion dollars India promised are pledged funds that will only be called upon when all of the other IMF reserves are depleted. None of the indebted eurozone countries is close to using up the IMF’s resources. Even if the funds are drawn,they will be repaid with interest,as it is unlikely that any European borrower would default on an IMF loan.

Second,the Indian economy has undoubtedly been affected by the economic downturn in Europe. India’s exports to Europe have already decreased and a further downturn will only exacerbate India’s economic woes. Similarly,as Prime Minister Manmohan Singh pointed out,the crisis in the eurozone has disrupted capital flows to developing countries like India,which need long-term financing to make investments in social and physical infrastructure. Getting these capital flows going again will be easier once the euro crisis subsides. Offering to prop up heavily indebted euro countries makes economic sense.

Moreover,in exchange for pledging funds,the BRICS get to highlight the inequality in governance structures of multilateral institutions such as the IMF,the World Bank and even the United Nations,where India is still lobbying for a seat on the UN Security Council. The management structures at these institutions were set up after World War II,when the realities of political and economic power differed significantly from those of today. Yet the United States and Europe still dominate the management of the World Bank and the IMF. A joint statement by BRICS leaders at the G-20 meeting said that they were using this opportunity to spotlight the misallocation of power. According to the statement,pledges to the IMF had been made in “anticipation” of multilaterals fulfilling their promise to reform country voting powers and quota shares in line with the current size of country economies.

Finally,the Indian pledge is a soft power instrument that signals its increasing global prominence,its willingness to bear the responsibilities that come with that power and also its intention to use its emerging power to push for a multi-polar world. What better sign could there be of India’s rising power and the global power realignment than the Indian prime minister lecturing to European leaders that they had not responded correctly to the euro crisis,that surplus countries like Germany needed to offset the eurozone contraction through fiscal expansion? By discussing currency swap and reserve pooling arrangements of national currencies with other BRICS countries,India sent signals that it is seeking to change the dollar and euro-dominated international financial system in its favour. As India’s power as a donor and global actor rises,it will increasingly be able to influence global economic and governance structures. Pledging 10 billion dollars unlikely to be drawn in exchange for tweaking the global financial system in its favour is money well promised.

The writer is associate professor of government at the College of William & Mary,US,and visiting fellow at the Centre for Policy Research,India
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