Being once bitten in her dealings with the IMF, Mrs Gandhi was bound to be twice shy

In a complex world, economic decision-making at the highest level can only be based on expert advice. But a wise chief executive tests such advice on the anvil of his own political instincts and experience.The proposal that India draw upon the IMF's new medium-term loan facility - which, along with other developing countries, it had itself done much to forge-originated in the Finance Ministry. At various-stages, however, the prime minister impressed the stamp of her approach on the negotiations.Being once bitten in her dealings with the IMF - when, on its direction in 1966, she devalued the rupee with unhappy consequences - Mrs Gandhi was on this occasion bound to be twice shy. Quite early in the proceedings, she laid down the notional fences beyond which our negotiators would not stray.Through her emissaries, the prime minister made it clear to other member-nations represented on the IMF Board that three criteria would inform India's application. On none of these would the country accept any compromising conditions. And if this did not suit the Board, India would opt for commercial borrowings or fend for itself..preferred-source-banner{ margin-top: 10px; margin-bottom:10px;}First, India would accept no retraction of the policy of self-reliance in the heavy industry infrastructure that has been a part of the country's economic ideology since the Second Five-Year Plan. Second, it would not dilute its schemes of subsidisation for the poor-such schemes as the supply of cheap food through fair-price shops or of bank loans to needy artisans on uneconomic rates of interest or of incentives to industries located in backward and depressed areas. Third, the country would not admit of a shift from the public sector in certain spheres of industry towards privatisation.On all these points the European members of the Board were appreciative of our susceptibilities. The US, however, had a number of reservations. Through various ploys, it sought to get India to beat a retreat from its rigid positions. And it might well have succeeded had it received some encouragement from its Western allies or Japan. But as a result of the early spadework done by its officials, India had paved the way for the Board to view the issue in purely economic rather than political terms.At one stage, the Americans complained that, by referring to its already approved Sixth Plan policies as adequately meeting the IMF's insistence on "structural adjustments", India was able to fob off the stricter "conditionality" requirement with promises that were vague and ill-defined. They suggested that a substantially smaller sum be approved in the first instance, and discussions on the balance of India's quota be postponed until next year when concrete evidence of its adjustment programme would be available. But Mrs Gandhi was unbending. She did not want the impression to get around that India would be willing to act on foreign direction. Our delegates therefore discreetly spread the word that we would rather withdraw our application than accept a conditional and piecemeal dispensation.At another stage, the US balked at the fact that the conditions of the loan were not specific enough. India-again digging its heels in - demanded a Board vote on the issue. At the end of the day, the US chose to abstain, leaving open the political option of stimying further instalments of the loan when it comes up for review in June 1982.The prime minister's approach is best -reflected in Finance Minister Venkataraman's letter to the IMF's Managing Director on September 28. The operative part of this reads: "The Government of India believes that the policies to be followed in 198182 which are described in the attached memorandum"-which substantially paraphrases the Plan document-"are adequate to achieve the objectives of its programme but will take any further measures that may become appropriate for this purpose. The Government will consult with the Fund on the adoption of any appropriate measures, consistent with the national policies accepted by our Parliament, in accordance with policies of the Fund on such consultation."Published By: AtMigration Published On: Oct 13, 2014--- ENDS ---

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Being once bitten in her dealings with the IMF, Mrs Gandhi was bound to be twice shy

In a complex world, economic decision-making at the highest level can only be based on expert advice. But a wise chief executive tests such advice on the anvil of his own political instincts and experience.

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