As its trade deficits mounts, India is seeking record-breaking, multibillion dollar IMF loan
Its economy knoced awry by rising trade deficits, India is negotiating for a potentially record-breaking loan from the International Monetary Fund (IMF). Although credit arrangements are not likely to be nailed down for several weeks yet, there is already speculation within Indian financial circles on the nature and sweep of austerity measures the IMF may require as a condition for granting a loan.
The loan negotiations, which have been conducted behind closed doors in London and Washington, are reported to involve a sum of $4 billion to $6 billion spread over three years.
The decision to ask for this loan comes hard on the heels of India's decision to import food for the first time after several year of self-sufficiency, and is another blow to the country's prestige.
Loans from the IMF's extended fund facility commonly carry requirements that borrower governments change their domestic economic policies.
Intended to correct structural problems that lead to borrowing in the first place, IMF conditions are frequently criticized as too severe by third-world governments. Occasionally they have been blamed for the downfall of governments that attempted more IMF-mandated belt-tightening than their constituents would tolerate.
Apparently moving to head off political controversy, Indian government officials have specified, through the local press, that no devaluation of the Indian rupee is in sight.
Prime Minister Indira Gandhi's government has also taken numerous belt-tightening measures on its own in recent months. It has offered fresh incentives to lure investments and boost exports, cut back fertilizer subsidies, raised compulsory bank deposits for the well-to-do, and hiked prices for gasoline, cooking gas, and other petroleum products.
In addition, it has taken on broad powers to ban strikes in "essential services" -- a definition liberal enough to cover most government-owned and private industry.
Taken together, the government steps appear to anticipate and meet likely IMF demands for inflation-fighting, deficit-whittling, and production-boosting measures. By enacting them in advance, observers note,the Gandhi government has avoided the political onus of giving in to IMF strictures.