The International Monetary Fund (IMF) maintained its June growth rate projection for India at 7% for FY25 in its latest released World Economic Outlook (WEO).

Key Highlights of the World Economic Outlook

• Global Growth Projections: Global growth is projected to be 3.2% for both 2024 and 2025.
  • The global economy has shown resilience despite inflation and external challenges.
• Inflation Trends: The battle against inflation is nearly won. Inflation peaked at 9.4% in Q3 of 2022.
  • It is expected to fall to 3.5% by the end of 2025, nearing central bank targets in most countries.
• Geopolitical and Economic Risks:
  • Geopolitical conflicts (e.g., in the Middle East), which could disrupt commodity markets.
  • Rising trade tensions and shifts toward protectionist policies.
  • A potential reduction in migration to advanced economies, which could unwind some of the supply gains helping to ease inflation.
  • These factors could reduce global output by 1.6% by 2026.
• Fiscal Challenges and Debt Management: Urgent need to stabilize debt dynamics and rebuild fiscal buffers, especially in the United States and China.
  • Current fiscal plans are not sufficient to stabilize debt in several countries.
  • Delayed action on debt reduction could lead to disorderly adjustments.
  • Excessively abrupt fiscal tightening could harm economic activity.
• Warning on Market Pressures: High debt levels combined with high interest rates pose a risk.
  • If fiscal policies are not credible, market pressures may force abrupt and uncontrolled adjustments.
  • Countries must act proactively to avoid being at the mercy of market forces.
• Triple Policy Pivot: The IMF suggests a three-part policy approach to respond to the global economic challenges:
  • Neutral monetary policy stance: A shift towards balanced monetary policies, which many countries are currently adopting.
  • Fiscal consolidation: Building fiscal buffers after years of loose fiscal policy.
  • Structural reforms: To boost growth and productivity, address the ageing population, and tackle the climate transition

Enroll now for UPSC Online Classes

Key Highlights On Indian Economy

• This outlook highlights India’s position as one of the fastest-growing major economies, though there are challenges to sustaining high growth rates amid global uncertainties.
• India’s growth rate at 7%  remains higher than global growth projections, with the world economy projected to grow at 3.2% for 2024 and 2025.
• For the following year, FY 2025-26, the growth rate is expected to be 6.5%.
• The decline from 8.2% in 2023 is attributed to the exhaustion of pent-up demand from the pandemic period, as the economy reconnects with its potential.
• In contrast, the U.S. economy is expected to grow at 2.8% this year and 2.2% next year.

About IMF

• Established in the aftermath of the Great Depression of the 1930s at Bretton Woods Conference in 1944.
• It is one of the United Nations (UN) specialised agencies.
• Main objectives:  Include supporting global monetary cooperation, securing financial stability, facilitating international trade, promoting high employment and sustainable economic growth, and reducing poverty.
• Economic surveillance : IMF keeps track of the economic health of its member countries, alerting them to risks on the horizon and providing policy advice.
• Lender of last resort:  Lends to countries with balance-of-payments difficulties.
• It also provides technical assistance and training to help countries improve economic management. 
• Headquarter : Washington, DC.
• Reports by IMF: Following reports are  usually prepared twice a year April and October.
  • Global Financial Stability Report.
  • World Economic Outlook.

IMF Quota Subscription 

• Quota Subscription: Each IMF member contributes a financial amount based on its economic size and wealth.
• Quota Review: Quotas are reviewed every five years and are linked to each country’s wealth and economic performance.
• Quota Formula:
  • GDP (50%)
  • Openness (30%)
  • Economic Variability (15%)
  • International Reserves (5%)
• Richer Countries: Countries with larger economies, like the U.S., contribute more to the IMF. The U.S. has the largest quota, reflecting its economic dominance.
• Special Drawing Rights (SDR): Quotas are denominated in Special Drawing Rights (SDRs), an international reserve asset created by the IMF.
• SDR Value: Determined from a weighted basket of major global currencies, including:
  • U.S. Dollar
  • Euro
  • Japanese Yen
  • Chinese Yuan
  • British Pound
• Quota’s Role:
  • Loanable Funds Pool: Quotas contribute to a pool of funds that IMF members can borrow from.
  • Borrowing and Voting Power: The size of a country’s quota influences how much it can borrow and its voting power in IMF decisions.
• Reserve Tranche Position: Reserve Tranche (also called “Gold Tranche”) is a portion of a member’s quota that can be accessed without stringent conditions or service fees.
• Calculation: The Reserve Tranche Position is the difference between the IMF’s holdings of a country’s currency and the country’s IMF quota.
• Voting Powers and IMF Governance:
• Quota-Determined Voting: A country’s quota dictates its voting power. Votes are comprised of:
• One vote per 100,000 SDRs of quota
• Basic votes: Each member receives a fixed number of basic votes.

Check Out UPSC NCERT Textbooks From PW Store

Governance Setup of IMF

• Board of Governors: Each IMF member country appoints one governor and one alternate governor.
• Key Responsibilities of Board of Governors:
• • Electing or appointing executive directors to the Executive Board. 
  • Approving quota increase and SDR allocations.
  • Admitting new members or enforcing the compulsory withdrawal of members.
• Executive Board: It is composed of 24 members, elected by the Board of Governors.
• Oversees the daily operations of the IMF.
• IMF Membership: Membership is open to any state, including non-UN members, under the conditions set by the IMF’s Articles of Agreement and the Board of Governors.

DOWNLOAD PDF