NEW DELHI :
While India joined the US last month to oppose the International Monetary Fund’s (IMF’s) plan to issue $500 billion of fresh special drawing rights (SDRs) to help member countries combat the economic fallout of the coronavirus pandemic, Reserve Bank of India (RBI) governor Shaktikanta Das seems to have supported the move during the same IMF-World Bank virtual spring meeting.
SDR is an international reserve asset created by IMF comprising the dollar, euro, yen, sterling and yuan. It is allocated to its members in proportion of their quota. India’s SDRs rose by $2 million in a week’s time to $1.4 billion as on 15 May.
A fresh SDR issue by IMF would have helped the least developed and developing countries facing foreign exchange crisis at a time the world economy is projected to contract by at least 3% in 2020. However, India represented by finance minister Nirmala Sitharaman held that national forex reserves should be the first line of defence during a crisis like this.
“India sounded a note of caution on the proposed new allocation of SDRs of $500 billion, saying that in the current context of illiquidity and flights to cash, the efficacy of an SDR allocation was not certain. Observing that in the absence of a global safety net, countries rely on national reserves as the first line of defence against market turmoil and confidence crises and, consequently, extraneous demands for these reserves, not related to domestic monetary and financial stability, would be costly. It was stated that India did not support new allocation of SDRs," the finance ministry said in a report on the summary of activities published on 15 May.
“India, however, supported lending by the IMF from existing facilities. India also supported the proposal of the Presidency to task the G20 International Financial Architecture Working Group to look into these issues and come up with a clear set of recommendations for the consideration of the FMCBG (Finance Ministers and Central Bank Governors) within a definite time frame."
The proposal was dropped as the US enjoys a unique veto power at IMF with 16.52% voting rights. A supermajority vote at IMF for major policy decisions requires 85% of votes. India has a voting right of 2.6%.
Even though India’s vote did not make a material difference, its support to the US has drawn criticism from many experts. However, more interestingly, speaking at the same event, Das had supported the idea of a fresh SDR issue by IMF.
“Governor, RBI, also requested the countries to quickly get into collective action through the IMF to buffet the global financial safety net (GFSN) and bring forward the timeline of l6th GRQ (General Review of Quotas). IMF can also think of coming up with SDR allocations and with a non-stigmatized short-term liquidity swap facility which could be rapidly deployed," Das was quoted as saying in the same finance ministry document.
An RBI spokesperson did not respond to a message till the time of going to press.
Finance Ministry clarification:
An extraordinary virtual meeting of G20 Finance Ministers and Central Bank Governors was held on March 23, 2020. The agenda for this meeting was a general one and there was no specific proposal relating to SDRs. Representing India, RBI spoke of some of the measures taken by India in response to the pandemic and also made a general comment regarding individual and collective actions through IMF. On March 27, 2020, at the virtual meeting of the International Monetary and Financial Committee (IMFC) of the IMF, RBI had opposed fresh SDR allocation and had proposed non-stigmatised short-term liquidity swap facility which could be rapidly deployed.
Subsequently, the matter of SDR allocations was brought before the G20 Finance Ministers and Central Bank Governors as a specific proposal on 31 March 2020. This was carefully examined by MOF and RBI, based on which India expressed its reservations on the subject. It is clarified that the views of RBI and the Ministry of Finance are completely in alignment on this matter.