Will IMF call the shots again?

Over four years ago, IMF chief Christine Lagarde had praised India’s economy as a bright spot on the “cloudy global horizon”. This compliment by the head of the International Monetary Fund, which treated India with contempt decades ago, seemed recognition of India’s arrival as a global economic power. The Narendra Modi government used Ms Lagarde’s praise to the hilt as an endorsement of its policies.

A couple of days back, however, the IMF made a prescriptive statement asking India to cut subsidies, among other fiscal and monetary measures to escape from what it called a significant economic slowdown. The statement is a reminder of the pre-1990s era when the IMF virtually dictated the government’s agenda, almost usurping the sovereign power of Parliament.

Since it was established, the IMF faced allegations of being anti-poor and pro-capitalist. Looking back at its history, one finds its recommendations haven’t changed much. It wants to eliminate subsidies in the Third World, but turns a blind eye to billions of dollars spent by the West to support their citizens.

According to data compiled by the Organisation for Economic Cooperation and Development (OECD), Western countries, especially in Europe, occupy the top 25 ranks in social welfare spending — as a percentage of GDP, net spending as well as per capita spending. Nevertheless the IMF’s focus has always been on denying basic support to those who can’t get two meals a day. However, the Narendra Modi government’s myopic policies too must partly share the blame for the IMF’s newfound voice on India.

Instead of focusing on petty domestic issues, the government should devote its complete attention to reviving the economy by bailing out the financial sector and restoring consumer confidence. As power respects power, the government must not lose focus on the economy and geo-economics, which rules the world now.