The government has pledged
$10 billion as its contribution towards a planned International
Monetary Fund's cash chest to tackle the European crisis.
So does that mean that Indians will pay for the rescue of the troubled
European countries? Or does this amount to giving away precious dollars
at a time when foreign inflows are slowing? No, the pledged amount will
remain part of India's reserves. Rishi Shah explains:
IS INDIAN CONTRIBUTION AN AID?
No, it is not a giveaway. India is simply buying bonds from the IMF. These bonds are not free aid to the ailing European economies but financial instruments that guarantee safe and reasonable returns. The notes would provide a return of average interest rate of SDR's over the past three months. SDR, or special drawing right, is a reserve currency created by the IMF to supplement the existing reserves of member countries. After the global financial crisis of 2008, the Group of Twenty industrialized and emerging market economies agreed on April 2, 2009, to triple the International Monetary Fund's lending capacity to $750 billion, enabling it to inject extra liquidity into the world economy during times of crisis. India had then agreed in principle to inject $10 billion to the IMF war chest.
WHY IS INDIA MAKING A CONTRIBUTION? WHEN DID INDIA DECIDE TO BUY IMF BONDS?
This decision was taken on March 10, 2010. The Reserve Bank of India and IMF signed an agreement delineating the conditions under which India would purchase up to $10 billion in IMF notes. The fund said at that time that the agreement offered India a safe investment instrument as well as boost the Fund's capacity to help members to weather the global financial crisis.
HAVE OTHER EMERGING NATIONS ALSO MADE COMMITMENTS?
Yes, Brazil and Russia have agreed to buy $10 billion worth of bonds each while China has committed $43 billion to bolster IMF's resources. South Africa has said it will provide $2 billion. This additional contribution by BRICS and other countries, including Mexico and Turkey, has increased the bailout fund size to $456 billion.
IS INDIAN CONTRIBUTION AN AID?
No, it is not a giveaway. India is simply buying bonds from the IMF. These bonds are not free aid to the ailing European economies but financial instruments that guarantee safe and reasonable returns. The notes would provide a return of average interest rate of SDR's over the past three months. SDR, or special drawing right, is a reserve currency created by the IMF to supplement the existing reserves of member countries. After the global financial crisis of 2008, the Group of Twenty industrialized and emerging market economies agreed on April 2, 2009, to triple the International Monetary Fund's lending capacity to $750 billion, enabling it to inject extra liquidity into the world economy during times of crisis. India had then agreed in principle to inject $10 billion to the IMF war chest.
WHY IS INDIA MAKING A CONTRIBUTION? WHEN DID INDIA DECIDE TO BUY IMF BONDS?
This decision was taken on March 10, 2010. The Reserve Bank of India and IMF signed an agreement delineating the conditions under which India would purchase up to $10 billion in IMF notes. The fund said at that time that the agreement offered India a safe investment instrument as well as boost the Fund's capacity to help members to weather the global financial crisis.
HAVE OTHER EMERGING NATIONS ALSO MADE COMMITMENTS?
Yes, Brazil and Russia have agreed to buy $10 billion worth of bonds each while China has committed $43 billion to bolster IMF's resources. South Africa has said it will provide $2 billion. This additional contribution by BRICS and other countries, including Mexico and Turkey, has increased the bailout fund size to $456 billion.
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