To control economic destiny India must get its story right at home

India has been demanding a greater say in the IMF and other multilateral financial bodies like the World Bank for decades. But the US’ refusal to increase India’s quota in the IMF is financial relief masquerading as a diplomatic defeat.

It says something about how rapidly India’s global aspirations have fallen in tandem with its economic growth rate that when the United States Congress failed to authorise a higher voting quota for developing countries in the International Monetary Fund (IMF), the unofficial response in New Delhi was one of relief.

The Indian government had budgeted Rs140 billion as an additional payment to the IMF in return for the extra voting rights. But with India unsuccessfully struggling to keep its fiscal deficit under control, this was financial relief masquerading as a diplomatic defeat.

India has been demanding a greater say in the IMF and other multilateral financial bodies like the World Bank for decades, normally under the rubric of ‘democratising’ international institutions. But the board of the IMF, like most such institutions, apportions votes on the basis of the amount of capital each government provides the IMF.

The problem was less money than the willingness of the Western nations to surrender votes. The subprime and eurozone financial crises softened Western resistance.

The US was supposed to have passed a clause in its annual budget that would have expanded the IMF’s overall capital, but in a manner that would have reapportioned the fund’s voting rights, three years ago. However, IMF reform ended up being collateral damage to bipartisan US demands for budget austerity.

There will be some who will argue that getting extra votes on the IMF board is little more than hubris for India given its poverty levels — and the fact its financial difficulties in recent times have made it a candidate for IMF lending.

This should not be a barrier: the European Union has a disproportionate number of IMF votes even while a number of its southern members have borrowed heavily from the fund.

The reason India and other emerging countries support such reforms is their belief that their economic and political rise will be helped if they are in a position to help set the rules that run the world. While its influence is now much reduced, this still holds true.

India’s ability to control its own economic destiny, even at the global level, begins with getting the story right at home.