India calls for urgent revision of IMF quota in favour of emerging markets

India has called for the urgent revision of the quota of International Monetary Fund (IMF) in favour of dynamic emerging market so as to reflect the ground realities of the world.

Addressing the annual meetings of the IMF and the World Bank in Washington, Finance Minister Arun Jaitley hoped that this can be accomplished as part of the 15th General Review of Quotas.

"There is an urgent case for revising quota shares in favour of dynamic emerging market countries in line with global economic realities to maintain fairness in the governance structure of the fund," he told the world financial leaders yesterday.

"We should make every effort to complete the 15th Review by the agreed timeline of 2019 Annual Meetings," he asserted.

Jaitley said the risks to global financial and economic stability have significant implications for IMF's operations.

He said the IMF needs to be adequately resourced to meet these demands while functioning as a strong quota-based institution.

Similarly, for the World Bank Group, a delayed but unanimously agreed Lima Roadmap had envisaged to see a conclusion of the 2015 shareholding review by Annual Meetings 2017, he said.

"While we note that we failed to deliver it, given the progress that has been made so far, we strongly urge all to commit to deliver an equitable conclusion of this process for both the IBRD and IFC by the Spring Meetings 2018," he said.

He warned that any further delay in concluding the review will risk not only development in the client countries but the existence and leadership of both Bank and IFC in MDBs.

"We look for an expeditious decision on capital enhancement through both selective capital increase (SCI) and general capital increase (GCI) for both the IBRD and IFC, by Spring Meetings 2018," he added.

Jaitley also assured the world financial leaders that India will continue to perform robustly on the back of credible macroeconomic adjustments and structural reforms.

While the persistence of low productivity and potential growth in advanced economies (AEs) remains worrisome, growth in emerging markets and developing economies (EMDEs) is expected to recover going forward, the minister said.

The prospects in commodity exporting countries continue to remain challenging due to ongoing adjustments to low commodity prices, he added.

Noting that the near-term global financial stability has strengthened due to cyclical recovery in global growth amid supportive monetary conditions, he said on the other hand, although improved capital and liquidity buffers have enhanced the health of the banking sector in general, many of them continue to grapple with legacy problems and low profitability.

Moreover, financial risks stemming from the rapidly raising leverage of the private non-financial sector amid low interest rates have increased medium-term risks to financial stability, he said.

The sudden reversal of monetary accommodation by AEs could increase policy strains in EMDEs, he cautioned.

"The risks of growing populism and consequential loss in trade volumes will affect global recovery adversely - and it is incumbent upon all of us to foster cooperative multilateral efforts to boost fair trade practices," he said.

It is now well understood that monetary policy accommodation alone may not be enough to re-energise growth in AEs, and structural reforms in alignment with growth supportive fiscal policies would enhance productivity and potential growth, he told the gathering.

Observing that the growth in the US and the Euro area is expected to improve in 2017 compared to 2016, he said the recovery in Japan is continuing and is likely to get better in 2017 on the back of stronger domestic and external demand.

Jaitley said improved momentum in the Chinese economy during the first half of this year due to rising domestic demand is reassuring for global growth, although the risks to financial stability owing to large overhang of financial leverage require close monitoring.

Going forward, Brazil is expected to overcome recession and Russia is likely to grow robustly this year on recovery of domestic and external demand, he said, adding that Sub-Saharan economies are also likely to improve their performances.

"As for the Indian economy, the sound fundamentals and number of progressive policy initiatives taken in the last few months will provide the basis for a strong prognosis and convergence with growth potential," Jaitley said.