Eco Ppt Final

Balance of Payments ANAND AGARWAL

28101

SANJAY MEENA

28127

PRANESH SANCHETI

28193

ANJAN MUNDLUR 28189 VIVEK KEDIA

28180

DIRECTION OF INDIA'S FOREIGN TRADE

• Trade Turnover increased from $95 bn in FY02 to $245 bn in FY06 (CAGR of 26%) •India’s Exports increased from $44 bn in FY02 to $103 bn in FY06 (CAGR of 23%) •India’s Imports increased from$51 bn to $142 bn (CAGR of 29%) •Share in world merchandise exports in 2005 – 0.9%

Approval vs. Actual

•Indian overseas direct investments (ODI) have shown a rising trend –both in terms of approvals as also in terms of actual outflows. • Approved ODI increased from US$ 557 mn in FY 1997 to US$ 2800 mn in FY 2005. • Actual outflows shot up by more than seven times from US$ 205 mn to US$ 1554 mn during the same period

• USA – India’s largest trading partner; but Asian countries gaining significance • China – increasingly becoming an important partner (has become the largest source of imports)

• Direction of exports moving towards the Southern countries, particularly Asia. • Share of Asia & Oceania increased from 38% to 47%. • Future trade flows to be geared towards the developing nations (buttressed by GOI policies).

Source-RBI

TRADE BALANCE The trade deficit for April-June, 2006 is estimated at US $ -12609.35 million (provisional) which is higher than the deficit of US $ -11459.82 million (provisional) during April-June, 2005. •

DEPARTMENT OF COMMERCE IMPORTS & EXPORTS : (PROVISIONAL) (Unadjusted for late returns) (US $ Million)

Source-RBI

THE HUMAN CAPITAL EDGE • • • • •

Over 3 million scientific & technical manpower Stock of over 0.8 million post graduates in science. Over 1 million graduate engineers 0.4 million doctors 0.3 million graduates in agriculture and veterinary sciences. • Today India turns out more than 50,000 computer professionals and 360,000 engineering graduates each year.

SIZE OF DOMESTIC MARKET • 1.1 billion population • Estimated Number of Households by Income Groups (Based on 1999-2000 prices) • Middle (Rs 80,000 – Rs 1,20,000): – 27.3 Million

• Upper Middle (Rs 1,20,000 – Rs 1,60,000): 12.5 Million • High (Above 1,60,000): 12.2 Million

• Size of the market at Purchasing

ENTREPRENEURIAL TALENT • 5000 years of entrepreneurship • •

Indians’ business acumen now globally acknowledged From Africa to Silicon Valley to South East Asia – one can witness the footprints of Indian entrepreneurship

DEMOGRAPHIC PROFILE • Total population below 25 years of age – 547 million

DEMOCRACY • Amongst the most vibrant in the world with a well established Judicial system and Free Press

PHARMACEUTICALS •

India is world's 4th largest pharmaceuticals producer with 8% share of global production by volume • 3 New Molecules discovered by Indian companies - 12 more in the final stages. • Over 100 Indian formulations have received United States FDA approval

BIOTECH • More than 900 companies involved in traditional biotech products • rDNA biopharma products – 35 new companies set up in past 5 years • R&D and commercialization of products on agricultural biotechnology is the latest trend • Opportunities for fresh investment in Indian biotech sector in next 5-7 years - US$ 1.5 – 2 billion

AGRI & FOOD PROCESSING • India - One of the largest food producers of the world • Output of the organized segment - US$ 34,827 million (2002-03) • Marine and Spices together contribute more than 70% of Export earnings • India is looking for investment in infrastructure, packaging and marketing, where ASEAN countries have shown technological prowess. • The Indian scientific and research talent - a knowledge source that can be tapped by the ASEAN food industry to its advantage

AUTO & AUTO COMPONENTS • 2nd largest small car market in the world. • Largest motorcycle manufacturer in the world • 2nd largest scooter and tractor manufacturer in the world • Many international auto majors are manufacturing in India – Daimler Chrysler, General Motors, Toyota, Ford, Honda, Hyundai, Volkswagen, Suzuki • Most of them are also outsourcing their components from India

IT & IT ENABLED SERVICES • Compounded annual growth rate (CAGR) exceeding 50 % over the last five years • IT enabled services key driver of growth. Engine for outsourcing • This segment poised to grow very rapidly, world-wide India has potential to tap 38 % of the world market. • Revenues from ITeS (remote services) showed an annual growth rate of 68.2 %.

The WTO

What is the WTO? The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.

Fact File • Location: Geneva, Switzerland • Established: 1 January 1995 • Created by: Uruguay Round negotiations (198694) • Membership: 149 countries (on 11 December 2005) • Budget: 175 million Swiss francs for 2006 • Secretariat staff: 635 • Head: Pascal Lamy (Director-General)

WTO Agreements • The Uruguay round of trade talks, resulted in the singing of three major agreements: – General Agreement on Trade & Tariffs (GATT) – General Agreement in Trade & Services (GATS) – Agreement of Trade Related Aspects of Intellectual Property Rights (TRIPS)

WTO Functions: • Administering WTO trade agreements • Forum for trade negotiations • Handling trade disputes • Monitoring national trade policies • Technical assistance and training for developing countries • Cooperation with other international organizations

10 benefits of the WTO for India • • • • • • • • • •

The system helps promote peace Disputes are handled constructively Rules make life easier for all Freer trade cuts the cost of living It provides more choice of products and qualities Trade raises incomes Trade stimulates economic growth The basic principles make life more efficient Govt. are shielded from lobbying The system encourages good govt.

The ten Indian misunderstandings • The WTO dictates policy • The WTO is for free trade at any cost • Commercial interests take priority over development … • … and over the environment • … and over health and safety • The WTO destroys jobs, worsens poverty • Small countries are powerless in the WTO • The WTO is the tool of powerful lobbies • Weaker countries are forced to join the WTO • The WTO is undemocratic

GATT Objective of Agreement

Impact on Indian Policy/Laws •Peak Import duties Prohibit govt. policy/actions that: down from 300% to •Distort normal trade 30%. Complies WTO binding on •Discriminate b/w most items member nation •QRs abolished in •Discriminate b/w domestic & lawfully April 2002 •Legislations taken imported foreign up for freeing up of goods trade

Business Implication •Increased Competition •SSI reservation has no meaning because of free import •Fast liberalization

GATS Objective of Agreement •All services come under GATS(12 Sectors) •Req. countries to ensure MFN principle, transparency, mutual recognition of qualification etc. •Lists liberalization commitments of countries •Further negotiation to take place

Impact on Indian Policy/Laws •Exim Policy now incorporates services chapter with status same as merchandise •Committed to open most services •Banking, telecom, Insurance, Media, etc already opened up substantially

Business Implication •Services constitute 60% of GDP •Competitive advantage leading to reduction in cost •Public sector service providers will have to be efficient or close down •Huge potential for export of services, e.g. IT, ITES areas

TRIPS Objective of Agreement •Provides protection to Patents, Copyrights, Trade marks, Industrial Designs, Layout designs for ICs, Geographical indications etc. •National and MFN Treatment

Impact on Indian Policy/Laws •Changes already make in Patents act, copyright act etc.. •TRIPS agreement will also trigger changes in certain provisions of Contract Act, IT Act, Companies Act etc. these amendments are in process..

Business Implication •Reverse engineering practiced by SMEs will have to stop •Transfer of Technology will increase on commercial terms •India’s R&D institutions will reap benefits from more investments and market acceptability

Foreign Trade Policy  Exim Policies Streamlined trade procedures Liberalised import regime Thrust on export orientation  Medium Term Export Strategy, 2002 1% share in global exports by 2007  Foreign Trade Policy 2004-2009 To double India’s share in global merchandise trade by 2009

Past EXIM Policy Strategies • identified growth markets and products. • The essential assumption - resources are limited • Increase share

Past Policy Strategies The Extreme Focus Product Strategy • introduced - 1992 • objective - giving focused attention to products that have high production capacity and potential for export competitiveness.

Past Policy Strategies The 15X15 Matrix Strategy • launched - 1995. • objective - identify market diversification and commodity diversification. • share of the total top 15 product groups exported to the top 15 market destinations • declined due to market diversification • The top three items of India’s exports • The top three destinations changed from US, UK and Japan to US, Hong Kong and UAE.

Past Policy Strategies Focus LAC • launched - 1997 • objective - boosting exports of select items • like Textiles including RMG, Engineering goods and Chemical products to Latin American Region. • there is scope for enhancing two-way trade between India and the LAC region. • It is obvious that the overall export strategy must include regional focus wherever potentialities are identified.

Lessons learnt • Composition and competitiveness are fast changing • a dynamic approach with a built in institutional mechanism for constant review is essential • to achieve a higher share of global exports on a sustainable basis.

Lessons learnt • The thrust was on the existing export products of India • need to review the import baskets of our current and potential markets • need to examine our export competitiveness, both revealed and real based on our potentialities (ProductMarket Opportunity Identification)

Lessons learnt • key strategic policy issues to be brought to one place • Sector-wise strategies to be fully examined. • Need to take into account the international developments • the complexities arising under the WTO.

Product Opportunity Identification • •

three major markets: EU, Japan, and USA These countries constitute a good representative sample of world trade as they account for 53% of the world’s trade. • A total of around 220 items were identified for special focus . • The potential items identified are grouped into 7 main sectors: – – – – – – –

• •

Engineering (including instruments and items of repairs), Textiles, Gems & Jewellery, Chemicals & allied, Agriculture and allied (including Marine and Plantations), Leather & Footwear items and other items.

the three E’s- Electronics, Electrical and Engineering goods potential for exports to other than USA, EU and Japan.

Market Opportunity Identification Twenty five markets have been identified •

•

•

N.America – USA – Canada – Mexico S.America – Brazil – Argentina Europe – EU – Switzerland – Turkey – Poland – Russia – Norway – Greece

•

•

Asia – Hong Kong – China – S. Korea – Australia – Turkey – Chinese Taipei – Singapore – Thailand – Isreal – Indonesia – Saudi Arabia – UAE Africa – South Africa

•For Markets of developing countries, region-specific policies •For Markets of developed countries, FDI linked exports and special preferential trading arrangements

Policy Development Main Issues • • • • • • •

Price competitiveness Trade defense Mechanism WTO compatible policies Foreign Direct Investment Tax Rebate Transaction Costs Export Infrastructure

Policy Development Main Issues • • • • • • •

Trade Agreements Flexibility in Labor Policy Export Credit State export participation Developing SSI export industry Special Economic Zones Market Development Programs & Dissemination of Information

Foreign Trade Policy 2004-2009 •

While increase in exports is of vital importance, we have to facilitate those imports which are required to stimulate our economy.

•

The primary purpose is not the earning of foreign exchange, but the stimulation of economic activity.

•

Objectives – (i) Double percentage share of global merchandise trade within the next 5 years – (ii) give thrust to employment generation

•

Exoprts, Imports are free unless regulated

•

Special focus initiatives have been identified for the following sectors – agriculture – handlooms – handicraft – gems & jewellery – leather – Marine – Objective : employment in semi urban and rural areas

Exports Promotion Schemes • Target plus scheme to accelerate growth of exports. • Vishesh krishi upaj yojna for agro-exports. • Additional flexibility under EPCG • EOUs shall be exempted from Service Tax in proportion to their exported goods and services. • A scheme to establish Free Trade and Warehousing Zone is introduced to create trade-related infrastructure to facilitate import and export with freedom to carry out trade transactions in free currency.

FOREIGN EXCHANGE RESERVES • •

$5.8 Billion in March End –1991 Gradually increased to $25.2 Billion dollars by march end 1995 to $ 141.5 Billion Us dollars in march end 2005 Table 1: Movement in Reserves

(US $ million) Date

FCA

SDR

GOLD

31-Mar-04

107,448

2 (1.6)

4,198

30-Sep-04

114,083

1 (1.0)

4,192

31-Mar-05

135,571

5 (3.0)

4,500

30-Sep-05

136,920

4 (3.0)

4,712

31-Mar-06

145,108

3 (2.0)

5,755

RTP 1,311 1,303 1,438 1,423 756

Forex Reserves 112,959 119,579 141,514 143,058 151,622

FOREIGN EXCHANGE RESERVES

FOREIGN EXCHANGE RESERVES • Source of accretion of foreign reserves (US $ billion) Items

April-March

April-March

2005-06

2004-05

I.

Current Account Balance

-10.6

-5.4

II.

Capital Account (net)

25.7

31.6

(a to f)

III.

a.

Foreign Investment

18.2

12.2

b.

Banking Capital

1.4

3.9

Of which: NRI Deposits

2.8

-1

c.

Short-term Credit

1.7

3.8

d.

External Assistance

1.4

1.9

e.

External Commercial Borrowings

1.6

5

f.

Other items in Capital Account

1.4

4.8

Valuation Change

-5

2.4

10.1

28.6

Total (I+II+III)

FOREIGN EXCHANGE RESERVES • Prepayment/Repayment of external debt – Paid $ 3.03 Billion to World Bank and ADB in feb 2003 – During 2004-05, prepayment of bilateral loan was to the tune of US$ 30.3 million was made. – During 2005-06, no prepayment of high-cost multilateral/bilateral loan was carried out.

FOREIGN EXCHANGE RESERVES •

Deployment Pattern of Foreign Exchange Reserves (US $ Million) As on March 31, 2006 (1) Foreign Currency Assets

As on March 31, 2005

145,108

135,571

(a)Securities

35,172

36,819

(b) Deposits with other central banks, BIS & IMF

65,399

65,127

(c) Deposits with foreign commercial banks

44,537

33,625

3

5

5,755

4,500

756

1,438

151,622

141,514

(2) Special Drawing Rights (3) Gold (including gold deposits) (4) Reserve Tranche Position (5) Total Foreign Exchange Reserves

FOREIGN EXCHANGE RESERVES • Management of FOREX – Similar to other emerging economies • Demands on FOREX depends on – the exchange rate regime adopted by the country, – the extent of openness of the country's economy, – the size of the external sector in a country's GDP and the nature of markets operating in the country • Most countries have adopted the primary objective of reserve management as preservation of the longterm value of the reserves in terms of purchasing power and the need to minimize risk and volatility in returns

FOREIGN EXCHANGE RESERVES • Reserve Bank of India Act, 1934 define the scope of investment of external assets. In brief, the law broadly permits the following investment categories: – (i) Deposits with other central banks and Bank for International Settlements(BIS). – (ii) Deposits with foreign commercial banks. – (iii) Debt instruments representing sovereign/sovereignguaranteed liability – (iv) Residual maturity for debt papers should not exceed 10 years. – (v) Other instruments / institutions as approved by the Central Board of the Reserve Bank.

CURRENT ACCOUNT • The current account of the balance of payments is the sum of the balance of trade (exports less imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid). A current account surplus will increase a country's net foreign assets by the corresponding amount, and vice versa.

CURRENT ACCOUNT • The current account deficit during 2005-06 was almost double of that in the previous year, in line with the growth in investment demand in the economy. • Reason being the increase in investment demand in the country. • Net inflows under major components of capital flows – – – –

foreign direct investment, portfolio investment, NRI deposits and commercial borrowings Were higher than a year ago

TREND IN CAD 20000 15000

US $ in millions

10000 5000 Series1

0 1990-91 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-5000 06(aprsep) -10000 -15000 YEARS

CURRENT ACCOUNT DEFICITREASONS • Large inflows of FII which were 11 times larger than the similar period i.e. April – September 2004 • an increase in inflows of commercial borrowings and short term credits on account of lower interest rate spreads on external borrowings and higher import financing requirements.

CURRENT ACCOUNT FACTS AND FIGURES • In 2004-05, earnings from invisibles crossed US$ 30 billion. In the first half of 2005-06, invisibles grew by 31 per cent. • Traditionally, private transfers, comprising mainly remittances from Indians working abroad, have been the main source of invisible earnings • Services exports – captured by net non-factor services, and including software and IT-enabled services – have emerged as another key component of invisibles. Such exports, after growing by 71.3 per cent in 2004-05, increased further by 75.3 per cent in the first half of 2005-06

Investment in India • Investment in Indian market • Success in India • Market potential • Lack of enthusiasm among investors

Foreign Direct Investment (FDI) is permitted as under the following forms of investments • Through financial collaborations. • Through joint ventures and technical collaborations. • Through capital markets via Euro issues. • Through private placements or preferential allotments

Forbidden Territories FDI is not permitted in the following industrial sectors: • Arms and ammunition. • Atomic Energy. • Railway Transport. • Coal and lignite. • Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc

Foreign Investment through GDRs (Euro Issues) • Foreign Investment through GDRs is treated as Foreign Direct Investment • Indian companies are allowed to raise equity capital in the international market through the issue of Global Depository Receipt (GDRs). • GDRs are designated in dollars and are not subject to any ceilings on investment. • An applicant company seeking Government's approval in this regard should have consistent track record for good performance (financial or otherwise) for a minimum period of 3 years. • This condition would be relaxed for infrastructure projects such as power generation, telecommunication, petroleum exploration and

Clearance from FIPB • No restriction on the number of Euro-issue to be floated by a company or a group of companies in the financial year . • A company engaged in the manufacture of items covered under Annex-III of the New Industrial Policy whose direct foreign investment after a proposed Euro issue is likely to exceed 51% or which is implementing a project not contained in Annex-III, would need to obtain prior FIPB clearance before seeking final approval from Ministry of Finance.

Use of GDRs • The proceeds of the GDRs can be used for: • Financing capital goods imports, • Capital expenditure including domestic purchase/installation of plant, equipment and building and investment in software development, • Prepayment or scheduled repayment of earlier external borrowings, and •

Restrictions However • Investment in stock markets and real estate will not be permitted. • Companies may retain the proceeds abroad or may remit funds into India in anticipation of the use of funds for approved end uses. • Any investment from a foreign firm into India requires the prior approval of the Government of India

Investment in India - Foreign Direct Investment - Approval • Foreign direct investments in India are approved through two routes: 1. Automatic approval by RBI: • The Reserve Bank of India accords automatic approval within a period of two weeks (provided certain parameters are met) to all proposals involving: • foreign equity up to 50% in 3 categories relating to mining activities (List 2). • foreign equity up to 51% in 48 specified industries (List 3). • foreign equity up to 74% in 9 categories (List 4). • where List 4 includes items also listed in List 3, 74% participation shall apply. • The lists are comprehensive and cover most industries of interest to foreign companies. Investments in highpriority industries or for trading companies primarily engaged in exporting are given almost automatic

Investment in India - Foreign Direct Investment - Approval • Opening an office in India Opening an office in India for the aforesaid incorporates assessing the commercial opportunity for self, planning business, obtaining legal, financial, official, environmental, and tax advice as needed, choosing legal and capital structure, selecting a location, obtaining personnel, developing a product marketing strategy and more

Investment in India - Foreign Direct Investment - Approval 2. The FIPB Route: • Processing of non-automatic approval cases FIPB stands for Foreign Investment Promotion Board which approves all other cases where the parameters of automatic approval are not met. Normal processing time is 4 to 6 weeks. Its approach is liberal for all sectors and all types of proposals, and rejections are few. It is not necessary for foreign investors to have a local partner, even when the foreign investor wishes to hold less than the entire equity of the company. The portion of the equity not proposed to be held by the foreign investor can be offered to the public.

WHY INDIA??? • INDIA is the 'best destination' for foreign direct investment (FDI) and joint ventures, claims country's Commerce and Industry minister Kamal Nath . Addressing an audience of US investors at the Focus India Show in Chicago recently • India had emerged as an across the board low cost base, attractive enough to multinationals to relocate in the country.  • More than one hundred of the Fortune 500 companies have a presence in India, as compared to only 33 in China. • Reiterating that India promises high return on investments • Repatriation of profits was freely permitted (while according to a survey conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI) a few months ago, 70 percent of foreign investors were

MAJOR DEBATE • FDI IN RETAIL • Allow massive, multinational corporations, to buy Indian retail businesses and open new ones, forcing thousands of local businesses and kiranas to close • Push down wages across the economy • Destroy our indigenous and unique cultures • Take money out of local economies and send it to multinational corporations. • Reinforce caste and regional economic disparities • Do tremendous damage to our natural environment

IMF • The International Monetary Fund (IMF) is an international organization that oversees the global financial system by monitoring exchange rates and balance of payments, as well as offering technical and financial assistance when asked. • Its headquarters are in Washington, D.C. • Agreement for the creation of the International Monetary Fund came at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire, United States, on July 22, 1944. •

The principal architects of the IMF at the conference were British economist John Maynard Keynes and the chief international economist at the US Treasury Department, Harry Dexter White. The Articles of Agreement came into force on December 27, 1945, the organization came into existence on May 1, 1946, as part of a post-WWII reconstruction plan, and it began financial operations on March 1, 1947.

IMF • The IMF is the referee and, when the need arises, rescuer of the world’s financial system. • It was set up to supervise the newly established fixed exchange rate system. • After this fell apart in 1971–73, the IMF became more involved with its member countries’ economic policies, doling out advice on fiscal policy and monetary policy as well as microeconomic changes such as privatisation, of which it became a forceful advocate. • In the 1980s, it played a leading part in sorting out the problems of developing countries’ mounting debt. • More recently, it has several times co-ordinated and helped to finance assistance to countries with

What does IMF do??? • The work of the IMF is of three main types • Surveillance involves the monitoring of economic and financial developments, and the provision of policy advice, aimed especially at crisis-prevention. • lends to countries with balance of payments difficulties, to provide temporary financing and to support policies aimed at correcting the underlying problems; loans to low-income countries are also aimed especially at poverty reduction. • Third, the IMF provides countries with technical

FACTS • • • • • •

Fast Facts on the IMF Current membership: 184 countries Staff: approximately 2,716 from 165 countries Total Quotas: $317 billion (as of 7/31/06) Loans outstanding: $28 billion to 74 countries, of which $6 billion to 56 on concessional terms (as of 7/31/06) Technical Assistance provided: 429.2 person years during FY2006 Surveillance consultations concluded: 128 countries during FY2006, of which 122 voluntarily published information on their

Main Responsibilities • Article I of the Articles of Agreement sets out the IMF's main responsibilities: • promoting international monetary cooperation; • facilitating the expansion and balanced growth of international trade; • promoting exchange stability; • assisting in the establishment of a multilateral system of payments; and • making its resources available (under adequate safeguards) to members experiencing balance of payments difficulties.

Member and Rights

Membership Membership qualifications • Any country may apply for membership of the IMF. • The application will be considered, first, by the IMF's Executive Board. After its consideration, the Executive Board will submit a report to the Board of Governors of the IMF with recommendations in the form of a "Membership Resolution.“ • These recommendations cover the amount of quota in the IMF, the form of payment of the subscription, and other customary terms and conditions of membership. • After the Board of Governors has adopted the "Membership Resolution," the applicant state needs to take the legal steps required under its own law to enable it to sign the IMF's Articles of Agreement and to fulfill the obligations of IMF membership. • A member's quota in the IMF determines the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs. • As of 2006, participating nations were discussing changes to the voting formula, to increase equity

Criticism • The role of the two Bretton Woods institutions has been controversial to many since the late Cold War period. • Critics claim that IMF policy makers deliberately supported capitalistic military dictatorships friendly to American and European corporations. • Critics also claim that the IMF is generally apathetic or hostile to their views of democracy, human rights, and labor rights. • These criticisms generated a controversy that helped spark the anti-globalization movement. Others claim the IMF has little power to democratize sovereign states, nor is that its

Criticism • Two criticisms from economists have been that financial aid is always bound to so-called "Conditionalities", including Structural Adjustment Programs. Conditionalities, it is claimed, retard social stability and hence inhibit the stated goals of the IMF. • Typically the IMF and its supporters advocate a Keynesian approach. As such, adherents of supplyside economics generally find themselves in open disagreement with the IMF. The IMF frequently advocates currency devaluation, criticized by proponents of supply-side economics as inflationary. Secondly they link higher taxes under "austerity programmes" with economic contraction. • Currency devaluation is recommended by the IMF

Criticism • Argentina, which had been considered by the IMF to be a model country in its compliance to policy proposals by the Bretton Woods institutions, experienced a catastrophic economic crisis in 2001, generally believed to have been caused by IMF-induced budget restrictions — which undercut the government's ability to sustain national infrastructure even in crucial areas such as health, education, and security — and privatization of strategically vital national resources. The crisis added to widespread hatred of this institution in Argentina and other South American countries, with many blaming the IMF for the region's economic problems • Another example of where IMF Structural Adjustment Programmes aggravated the problem was in Kenya. Before IMF got involved in the country, the Kenya central bank oversaw all currency movement in and out of the country. IMF mandated that Kenya central bank had to allow easier currency movement. However, the adjustment resulted in very little foreign investment, but

IMF on India • Question:  Can you give us an update on India's economy? • Answer:  Growth in India in 2006 and 2007 should moderate to about 8 percent against a backdrop of higher oil prices and rising global interest rates. A further rise in oil prices and a slowdown in global growth constitute risks to this outlook. IMF staff strongly supports the resumption of fiscal consolidation in 2006 and 2007 budgets. This should help counter growing demand pressures while enhancing the credibility of the Fiscal Responsibility Law. Over the medium term, tax base broadening and subsidy reform will be key to improving the fiscal situation. With inflationary pressures building and credit growing rapidly, the Reserve Bank of India needs to remain vigilant. Further rate increases may be needed to anchor inflation expectations and curb demand pressures, particularly in light of need for