No unanimity among economists on the IMF option

Siddharth Tak/Rohit Joshi/ZRG India should knock the doors of the International Monetary Fund (IMF) in order to arrest rupee’s plunge. This view was raised by Rajiv Kumar, senior economist and former FICCI secretary general on Bharat Bhagya Vidhata show ‘Mudda Aapka’ which airs tonight at 10 pm. But, the key question is: whether India should approach IMF for a bailout? Unanimity eludes the analyst community in regard to the possibility of approaching IMF for a bailout. While a section of economists argued that the government should send a positive signal to the markets and investors by approaching IMF, others averred that the current economic situation doesn’t warrant to follow that kind of approach. In an exclusive conversation with Amish Devgan of Zee Media, Kumar told BBV, “The government should start talking to the IMF in order to arrest the fall in rupee. This will send a positive signal to the markets that we are ready to bite the bullet. The delay in approaching the IMF will only worsen the situation. 1991 balance of payments (BoP) crisis could have been managed in a much better way if India had approached the IMF in 1989.” In sync with Kumar’s view, Brinda Jagirdar, consulting economist (former chief economist at SBI) opined, “Perhaps, it may be a good idea to approach IMF on two counts. One, it will push the government to take some reform measures. Second, it will give a reassurance to the markets and investors that we have something to fall back on.” Taking a glance at the macro-economic situation in 1991, India faced severe balance of payments (BoP) crisis and at that time India’s foreign exchange reserves could merely finance import bill for a fortnight. However, this time India’s forex reserves (nearly 278 billion dollars) are sufficient to finance nearly seven months of imports. Furthermore, in 1991, there didn’t exist any capital account like FDI, FII, ECB (external commercial borrowings). Today, government has access to other options also like sovereign bond, swaps lines with foreign central banks. Agreeing with the facts which reveal that current economic conditions are not as precarious as it was in 1991. DK Pant, chief economist at India Ratings asserted, “As of now, the situation is not so bad that India has to approach IMF for a bailout package. India has sufficient forex reserves to finance the import bill for almost seven months. Going to IMF means that you become subservient to the institution in terms of conditions imposed by it. In 1991, IMF imposed conditions which was followed but in case of current scenario whatever conditions they would like to impose won’t be acceptable by the coalition politics.” Likewise, Madan Sabnavis, chief economist at CARE Ratings averred, “Normally, we approach IMF for a loan in case we are not left with any option and there is a fundamental imbalance in the Balance of Payments (BoP). We have not reached that stage where we have no solutions. Although things are adverse yet there is nothing fundamentally wrong with the BoP.” Economy is in mess today owing to the mistakes committed by the politicians. Talking about high inflation, Kumar said, “It’s unfortunate that our politicians don’t want to admit that inflation problem has risen because of their own mistakes. Politicians always blame that inflation is because of external factors.” “To take corrective measures is the need of the hour,” he added.