India today announced a 10 billion USD contribution to the IMF's additional 430 billion USD financial firewall to help the debt-wracked 17-nation eurozone so that the faltering world economy is protected against the spread of any financial contagion.
The announcement of the contribution was made by Prime Minister Manmohan Singh in his address at the Plenary Session of the seventh summit of the Group of developed and developing countries(G-20) in this Mexican resort town against the backdrop of growing calls to nations to increase contributions to the International Monetary Fund(IMF) for the bailout fund.
India's contribution along with pledges by other member countries of the five-nation BRICS bloc has helped increase IMF's resources and give a boost to the 430 billion USD fund being used as a firewall to support struggling eurozone economies.
"The International Monetary Fund has a critical supportive role to play in stabilising the Eurozone. All members must help the Fund to play this role, I am happy to announce that India has decided to contribute 10 billion USD to the IMF's additional firewall of 430 billion USD," he told the world leaders at the seventh summit of the grouping which accounts for 80 per cent the world's GDP.
India has previously pledged to make contributions to the bailout fund but did not disclose the exact amount of its contribution to the fund. According to Chinese Vice Finance Minister Zhu Guangyo, the BRICS is committed to pledge 60 billion USD to boost the firewall. Besides India and China, the other countries in the bloc are Brazil, Russia and South Africa.
The IMF fund will serve to help governments that are struggling to cope with debt repayments but eurozone leaders still faced pressure from their G-20 peers to make reforms to head off future financial crisis.
Calls were being made to the eurozone to put in place a bigger financial firewall to combat the crisis before other countries will pour more cash into the IMF. Noting that developed countries have expanded the resources of the IMF enormously, largely to support programmes in rich countries, Singh said that steps are now needed to be taken to substantially expand the resource base of Multilateral Development banks so that they have the firepower to help developing countries pursue their development goals.
"Our growth rate in 2011-12 declined to 6.9% from the level of 8.4% in the previous year. This may look like a reasonable figure, given growth rates being experienced in the rest of the world, but our public is impatient for a return to high growth and faster jobs creation.
The fundamentals of the Indian economy remain strong and we are confident of bringing back the rhythm of high growth of 8-9% per annum," Singh said. The prime minister also spoke about the investments to India being affected by the adverse global climate which impacts both foreign and domestic investors.
"We are taking steps to revive investor sentiment. We are determined to create an environment that would boost investor sentiment and promote an atmosphere conducive to enterprise and creativity," he added.
In this context, Singh said the policies will be transparent, stable and designed to provide a level playing field to both domestic and foreign investors. Singh told the world leaders that India is focussing heavily on infrastructure investment and has set ambitious targets to keep this on track and also put in place a problem resolution mechanism to overcome implementation bottlenecks.
The prime minister stressed that there should be a focus on investment in infrastructure as a means of stimulating global growth has found resonance at the G-20 deliberations with both developing and developed countries responding positively.
In the context of controlling subsidies, Singh referred to a landmark effort underway in India to provide unique identity numbers for all residents with capture of biometric data. The G20 summiteers were told that this massive database covering over a billion people will facilitate delivery of a whole range of financial and other services, through effective targeting and reduced linkages in subsidy schemes.
However, the prime minister said the risks of contagion in Europe remained because they reflected weaknesses in the banking sector arising from excessive sovereign debt and low growth prospects.
"A crisis in the European banking system can choke trade finance quite quickly, and end up choking economic growth not just in the Eurozone but in the world in general," he said.
Singh said that the Las Cobas Summit needed to send a strong signal to the markets that the Eurozone countries will make every effort to protect the banking systems and the global community will back a credible Eurozone effort and response.
He also spoke about the contentious issue of the relationship between austerity and growth. "It can be argued that austerity now will lay the basis for sustained growth later. But there is also an alternative view that with growth impulses as seriously weakened as they are today, synchronised austerity across many countries may not be the right medicine," he said.
Financial markets normally favour austerity, but even they are beginning to recognise that austerity with no growth will not produce a return to a sustainable debt position, the prime minister added.
Stating he is not suggesting that fiscal prudence is not important, Singh said that he is only saying that given the large adjustment needs, not all of it can be front-loaded everywhere.
"This is especially relevant within a currency area. Austerity in the debt-ridden members of the Eurozone can work only if surplus members are willing to expand to offset contraction elsewhere in the currency area," he said.
While many rich countries face difficulties, the less developed and developing countries are also facing serious problems because of the negative impact of the global crisis, Singh said.
Infrastructure investment in developing countries assumes special importance in this context, he said, adding that it laid the foundation for rapid growth in the longer term, while providing an immediate stimulus for their economies and also for the global economy, by providing a robust source of demand.
An expansion of investment in infrastructure in developing countries is only possible if they can get access to long term capital to finance such investment, he said. "This is difficult at a time when capital flows are disrupted. The Multilateral Development Banks can play a major role in this context," Singh said.
The prime minister also said that the G-20 Framework Working Group and the Financial Stability Board could examine how to enhance investment in infrastructure through country commitments and incentives in the regulatory framework.
He also pointed out that the G-20 agenda is getting over burdened. "We need to refocus on a few goals rather than dissipating energies on too many fronts unquote," he added.
