GS2/GS3 Paper
Syllabus: International Institutions and their working
Source: IE
Context: The article discusses that in the absence of significant governance reform, global financial safety institutions such as World Bank and IMF are losing effectiveness.
What are Multilateral development banks (MDB)?
They are international financial institutions for the purpose of encouraging economic development in poorer nations. MDBs provide loans and grants to member nations to fund projects that support social and economic development.
Role of Multilateral development banks in global stability and development
| Role | Examples |
| Funding Development Projects | ADB’s support for Delhi-Mumbai Industrial Corridor; World Bank’s assistance in National Waterway 1 on the Ganges River |
| Crisis Management | IMF provides financial assistance during economic crises; World Bank’s support to India during the COVID-19 pandemic |
| Supporting SDG Implementation | World Bank grants for education and healthcare programs; Alignment of national policies with SDGs |
| Policy Advice and Capacity Building | IMF’s macroeconomic policy advice; Technical assistance for governance improvement |
Despite playing a crucial role in promoting development and global stability, multilateral development banks (MDBs) face several challenges that need to be addressed.
What are India’s Options?
India’s options within the evolving global financial safety net involve:
- Relying on bilateral swap lines with Japan and the IMF during macroeconomic and external crises.
- Enhancing its financial safety
- India should consider joining the “Chiang Mai Initiative Multilateralisation.”
- India should persist in building substantial foreign exchange reserves for self-insurance. Caution is advised in opening the capital account, particularly to volatile debt inflows into its bond market.
Conclusion:
The future global financial system is uncertain. The ongoing 16th quota review of IMF might not lead to increased quotas for emerging economies, as major member countries might not agree. With limited IMF governance reform prospects, its significance and effectiveness could decline.
To know about IMF Quota System and SDRs: Click Here
Mains Links:
Critically evaluate the working of Multilateral Development banks such as the World Bank and IMF in their efforts to promote global stability and development. Also, suggest measures to improve their effectiveness. (15M)
Prelims Links:
In the context of India, which of the following factors is/are contributors to reducing the risk of a currency crisis? (UPSC 2019)
- The foreign currency earnings of India’s IT sector
- Increasing the government expenditure
- Remittances from Indians abroad
Select the correct answer using the code given below.
- 1 only
- 1 and 3 only
- 2 only
- 1, 2 and 3
Ans: 2
