GS PAPER: III

Don’t misconstrue IMF’s debt outlook, says Centre

Context

After IMF says India’s debt could hit 100% of GDP by 2028, Finance Ministry says ‘worst-case scenario’ not based on factual position.

Union Finance Ministry responds to concerns from an IMF scenario-based assessment.

IMF Warning on Government Debt

• IMF cautions that India’s government debt could reach 100% of GDP by 2027-28 under adverse circumstances.

Ministry’s Clarification

• Ministry disputes certain presumptions made by the IMF.
• Emphasis on the discrepancy between IMF assumptions and the factual position.
• Clarification that the report’s interpretation suggesting debt exceeding 100% is misconstrued.

Purpose of the Statement

• Emphasis that the statement is not a critique but a clarification.
• Intent to prevent misinterpretation of the IMF document.

Trends in General Government Debt

• General government debt, encompassing both Centre and States, decreases from about 88% in 2020-21 to about 81% in 2022-23.

Comparative Analysis

• Assertion that India’s current debt level is still below that of 2002.
• Cross-country comparison provided to substantiate the claim.

IMF’s Recommendations

• IMF’s Executive Board recommends ambitious medium-term consolidation efforts.
• Highlight of concerns about elevated public debt levels and contingent liability risks.

Extreme Scenario Clarification

• Ministry underscores that the extreme scenario of a 100% debt-to-GDP ratio for India is a worst-case possibility, not a certainty.

Global Comparisons

• Comparison with U.S., U.K., and China, demonstrating worse figures of 160%, 140%, and 200%, respectively, under similar extreme scenarios.

Optimistic Scenario

• Reference to the same report indicating the possibility of the General Government Debt-to-GDP ratio declining to below 70% under favorable circumstances.

Impact of Global Shocks

• Acknowledgment that global shocks like the global financial crisis, Taper Tantrum, and COVID-19 have uniformly affected economies worldwide.
• Stating that India is not unique in facing such challenges.

IMF’s Annual Consultations

• Explanation of the IMF’s annual consultations with its members under Article IV.
• Mention of collecting economic information and discussing policies with officials to prepare a report for discussion by the Executive Board.

Formation and Membership of IMF :

• Initiated in 1944 at the Bretton Woods Conference.
• Operational since December 27, 1945, with 29 founding member countries.
• Currently, comprises 189 member countries.

Headquarters and Focus:

• Headquartered in Washington, D.C.
• Core objectives include fostering global monetary cooperation, securing financial stability, and promoting international trade, employment, and economic growth.

Specialized Agency of UN:

• The IMF is a specialized agency of the United Nations.

Historical Background:

• Formed during the Bretton Woods Conference in 1944.
• 45 government representatives discussed a framework for postwar international economic cooperation.

Operational Details:

• Began financial operations on March 1, 1947.
• Currently recognized as a key organization in the international economic system.

Functions of IMF:

Regulatory Functions:

• Acts as a regulatory body, administering a code of conduct for exchange rate policies and restrictions on payments for current account transactions.

Financial Functions:

• Provides financial support and resources to member countries to address short-term and medium-term Balance of Payments (BOP) disequilibrium.

Consultative Functions:

• Serves as a center for international cooperation.
• Acts as a source of counsel and technical assistance.

Objectives of IMF:

• To improve and promote global monetary cooperation.
• To secure financial stability by eliminating or minimizing exchange rate instability.
• To facilitate balanced international trade.
• To promote high employment through economic assistance and sustainable economic growth.
• To reduce poverty worldwide.

GS PAPER – III

Economic scenario becoming gentle and RBI report

Why in news?

• RBI released a report about monetary policy committee meeting.
• Containing inflation and reviving growth remained the key concerns among monetary policy committee.

Current economic scenario:

• As report suggest, after many difficult quarter, the economic environment is turning gentler in terms of both inflation and growth.
• The challenge for the monetary policy is to facilitate this positive growth where inflation trends down and growth remains robust.
• This will be done by a restrictive monetary policy must be maintained long enough to glide inflation to its target of 4 %.
• Second, as inflation drops well below the upper tolerance band, it is necessary to prevent the real interest rate from becoming excessive.
• At present, the projected inflation averaged below 4.75% and prevailing money market interest rate of 6.75%. , It represents a real interest rate of more than 2%.

What is monetary policy committee?

• The monetary policy committee constituted by the central government under section 45ZB determines the policy interest rate required to achieve the inflation target.
• Under RBI act 1934, the central government empowered to constitute a six member monetary policy committee to determine the policy interest rate required to achieve the inflation target.
• The first MPC was constituted on September 29,2016.

GS PAPER – II

Emmanuel macron will be chief guest at Republic day.

Why in news?

• French president Emmanuel macron will be chief guest at the Republic day celebrations next January as it is announced by ministry of external affairs.
• Earlier Indian Prime minister was also guest of Honour at the Bastille Day parade in Paris on July 14.

What is Bastille Day parade?

This day is marked as the national day of France. It happens on 14 July which is anniversary of the storming of infamous Bastille prison in 1789 a turning point for the success of the French revolution.

How chief guest are chosen?

• The process starts six month before after considering the nature of relationship between India and the country concerned.
• One thing historically played the role is the association with the Non aligned Movement.
• MEA seeks the approval of PM and president on matter.
• Indian ambassadors in the concerned country try to ascertain the availability of the potential guest.

India – France relation:

• As strategic partners India and France share a high degree of convergence on a range of regional and global issues.
• This year we are celebrating 25^th anniversary of the India – France strategic partnership.
• France is one of the key defence partners of India in recent years and two sides have maintained consistent high level contacts.

GS PAPER – II

UN approved aids to Gaza

Why in news?

• The united Nations security council on Friday adopted a resolution to boost humanitarian aid to Gaza strip that stopped short of a call for a ceasefire after week of vote delays and intense negotiations to avoid a united states veto.

What followed about resolution?

• The U.S. abstained to allow the 15 member council to adopt a resolution drafted by the United Arab Emirates.
• The remaining council members voted for the resolution except for Russia which also abstained.
• The U.S. and Israel oppose a ceasefire, believing it would only benefit Hamas.
• Washington instead supports pauses in fighting to protect civilians and free hostages taken by Hamas.
• The vote was 10 members in favour, the US against and four abstentions.

Others view about resolution:

• The resolution was mentioned as strong and it is fully supported by the Arab group that provides them what they feel is needed to get humanitarian assistance on the ground.
• The resolution calls for urgent steps to immediately allow safe, unhindered and expanded humanitarian access and to create the conditions for a sustainable cessation of hostilities.