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IMF Conditionality

Postings not related to the writing of the Manifesto or policy chapters
are likely to be summarily rejected. Thanks for your understanding. IPI
Please find below my answers to the questions posed by Mr. Thornhill on
the above subject.

Reasons for India's dependence on IMF:
Soon after India became independent in 1947, it followed the model of
Soviet Union for its development. All foreign companies and many big
Indian companies were nationalized. The government took up the entire
responsibility of developing infrastructures required for economic and
social development. Realizing the powers enjoyed by the politicians and
the money commanded by the contractors, many rich and influential people

became politician contractors. The politicians who earlier fought for
independence began to fight for infrastructures to be taken up in their
regions in a big way. In order to get sanction of their pet projects at
any cost; they managed the engineers' in-charge of the investigation to
manipulate the project reports for getting a higher benefit-cost (BC)
ratio. They knew that once a project gets started, no one bothers about
the BC ratio. The erring engineers were favored by making them in-charge

of the construction work of the projects cleared. The politician
contractors managed not only to grab the project works but also to
execute them with poor quality. Because of starting a large number of
projects without adequate resources, each project took an inordinately
long time for completion and delivering the goods. Once a project is
completed, no assessment is made on the benefits accrued by the project.

Any deficiency in the project work is treated as if it is caused by a
later disaster such as flood or cyclone.

There has been a tremendous increase in the number of government
departments as well as the staff within each department. There has been
compartmentalization of each department, with each department trying to
grab as much funds as possible. If a problem has more than one solution,

the costliest method of solving the problem is chosen. Rule of
reservation rather than merit became the basis for jobs and promotions
in the government departments. A good portion of the time of the
government employees is spent on litigation and claiming redress through

courts of law. Most of the staff is idle for want of projects for

Despite so much compartmentalization of departments, it is unfortunate
that the engineers who investigate and assess the performance of a work
and those who execute that work belonged to the same department. It
would have been good had an autonomous wing, which looks after vigilance

and audit, also looks after investigation, design, monitoring, and
assessment of performance.

The Central and State Governments spent almost all their resources on
certain essential things such as defense, staff salaries, and non-plan
expenditure to meet disaster relief works. Therefore, they have no other

alternative except to look for international assistance to take up the
various developmental works.

How does India feel about the current measures of conditionality applied

by the IMF?
India naturally does not want any conditions for grant of loan by IMF,
except insisting on the payment of installments to cover the loan and
interest. The party in power who is in dire need of showing some
progress agrees for all the IMF stipulations for release of loans and
grants.  It knows that an IMF-assisted project is likely to get
completed earlier than that taken up by the government owing to
availability of the requisite funds for its completion. The parties in
the opposition who do not want the ruling party to become popular by
completing a development work, on the other hand, criticize the
government for surrendering the sovereignty and self-respect of the
country to the IMF.

Is the conditionality followed by the IMF really efficient?
The IMF assesses the soundness of any project primarily based on the BC
ratio projected in the investigation report. It has no other option
except to believe what is given in the investigation report. After the
release of the first installment of the loan, the government submits a
revised project proposal, which lowers the BC ratio due to factors such
as inflation, upward revision of standard schedule of rates, etc. It
becomes inevitable for the IMF to accept the revised project proposal
and release the extra amounts asked for.

Sometimes IMF sanctions loan for one component and disagrees to sanction

loan for another component of the same work. For example, the Government

of Andhra Pradesh submitted a proposal for the construction of the
Srisailam Right Branch Canal and the balancing reservoirs of Gorakallu
and Owk to convey water from the Krishna River for irrigation in Kurnool

District. The Geological Survey of India in its investigation report
expressed that the proposed Gorakallu reservoir would be leaky. The IMF
sanctioned the project without the Gorakallu reservoir, thereby cutting
short of the command area under the project by more than one half. The
Government still took the loan with the hope that it can take up the
construction of the Gorakallu reservoir on its own. Is this approach on
the part of IMF helps in the successful execution of the whole project?
The ideal approach for IMF would have been to look for a
groundwater-based solution to provide water for that portion of the
command area, which misses water because of  not taking up the
construction of the leaky reservoir.

In the middle of last decade, the IMF gave a grant to get aerial
photographs of all cities and several towns in India through the
National Remote Sensing Agency at Hyderabad. Countries all over the
world use these photographs for efficient urban planning. But India is
the only country in the world, which believes that aerial photographs in

the hands of the enemy are a threat to the country's security. To see
that the enemy does not get access to these photographs, it prohibited
the use of aerial photographs or any data obtained through the
photographs without the prior clearance of the Department of Defense.
The Town Planning Officers of the respective cities and towns, who are
the custodians of these photographs, found it convenient to follow the
laws of the land strictly by neither using them nor allowing others to
use them. Should IMF interfere and ask India to scrap the law that is
coming in the way of urban planning? If that is not possible, IMF should

at least discontinue giving such grants to India in future?

What should IMF do to solve the economic problems of India?
The IMF should provide grants to autonomous agencies to study various
works taken up with government resources and with IMF funds and evolve a

methodology that works best for India for creation of durable assets of
high BC ratio. The results of such a work can then be used as a guide in

making future loans to the country.

Jagadiswara Rao

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