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[Revision] GS2: Economy- IR/Diplomacy/Treaties-Agreements affecting India’s ECONOMIC INTERESTS - MP Study
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[Revision] GS2: Economy- IR/Diplomacy/Treaties-Agreements affecting India’s ECONOMIC INTERESTS

IMF quota reforms

[Revision] GS2: Economy- IR/Diplomacy/Treaties-Agreements affecting India’s ECONOMIC INTERESTS

  1. Prologue
  2. [Block 1] Economic Bodies-IMF, BRICS Bank, AIIB
    1. Why IMF quota-governance reforms
    2. Why need BRICS, AIIB?
    3. BRICS Bank, Shanghai
    4. AIIB, Beijing
  3. [Block-2] WTO, treaties affecting Indian interests
    1. WTO: structure-function
    2. WTO: SPS agreement
  4. [Block-3] WTO AoA, Peace Clause, Food subsidies, TFA, Bali
    1. WTO: AoA & De-Minimus
    2. WTO: Bali Summit and Peace clause
    3. WTO: TFA-Trade facilitation agreement
  5. [Block-4] US Policy affecting Indian interests
    1. Fed Tapering
    2. Capital account liberalization/Convertibility
    3. What is Capital account liberalization?
    4. Capital acct.liberlization: anti arguments
    5. Special 301 report
    6. US FATCA Act (done)
    7. USA Totalization pact (not done)
    8. OCI-PIO reforms (during Modi visit)
  6. [Block-5] ASEAN, SAARC, Pak
    1. India-ASEAN FTA in services and investment
    2. FTAs hurting Indian Economy: yes or no?
    3. SAARC POWER Pact
    4. MFN status in Pak


  • Revision of selected IR/diplomacy topics affecting India’s Economic interests” in GS2.
  • Next revision article: GS3- Planning, budgeting, resource mobilization.
  • G20 BEPS agreement=> in the upcoming separate revision note for GS3: money laundering.

[Block 1] Economic Bodies-IMF, BRICS Bank, AIIB

Why IMF quota-governance reforms

Mains-2013 already asked question about world bank vs IMF so chances of another IMF question dim. But IMF-quota reform also serves as fodder for the “why AIIB/BRICS banks setup?” question. Hence useful. Let’s check:

IMF quota reforms

IMF में सुधार करना असम्भव क्योकि अमरीका आणि मंडली का वोट पावर ज्यादा है.

  • Post WW2: Bretton Woods conference (’44)=> World bank + IMF + GATT(=>WTO).
  • IMF Executive board decides member’s quota on GDP & other parameters.
  • Quota decides voting power.
  • USA: 18%; China 4% (Even though Chinese GDP running parallel to US); India-Russia 2.5%.
  • 2008: Post-Subprime crisis= Western powers’ GDPs weakened.

2010: IMF reforms proposed (bracket shows votes needed to pass it)

  • Increase developing countries’ quota. (70%)
  • All directors be elected. No permanent chairs to US, Jap etc. (85%)
  • But neither passed because US+its allies control ~40% votes.
  • 2014: Brisbane G20 communique expressed disappointment & urged Obama to get it done.
Indian interests involved in IMF reform
Present 2.44% 11th largest
After reform 2.75% 8th Largest

Why need BRICS, AIIB?

Why BRICS Banks & AIIB

ब्रेटन वुड्स संस्थानों में सुधार की विफलता, इन नई बेंको के जन्म के लिए जिम्मेदार है.

  1. Bretton woods lack of reforms. as stated above.
  2. BRICS : 1/5th of GDP; 2/5th population.
  3. Yet none of its citizen can hope to become IMF chairman given voting quotas.
  4. But in BRICS bank chairman, President will be Russian and Indian respectively
  5. Asia needs 800 billion$ every year till 2020. beyond World bank’s aukaat.
  6. Subprime crisis, Fed Tapering => Dollar volatility affecting import/export of BRICS. So they want to Reduce dollar domination, loans with less conditions.
  7. Same reason for previous Development banks: Latin Bank of America, Chiang Mai initiative, Bank of South, ADB.
BRICS Bank, Shanghai AIIB, Beijing
6th summit Fortaleza 2014=>ops.to start from 2016
  • AIIB: Asian infra investment bank
  • 2014: MoU signed. start work from ’15.
  • 2014: China+21 member MoU=>2015 starts.
Five members, equal voting power (not in IMF or AIIB.) China + 21 members. S.Korea, Aussie did not join.
capital: 10 million x 5 members (hence equal voting)
  • 100 billion capital=>Shareholding based on GDP.
  • Voting power based on shareholding. China:1st, India: 2nd.
  • But, China to dilute shareholding when new members come.
3 function: loan for infra, sus.Development, BoP crisis.
  • as name suggest: infra. investment projects
  • Structure: Board of governors >> directors >> President (HQ: Beijing)
For BoP crisis: separate contingency reserve: 100 billion. China gave highest. 2013: Jinping ‘s idea: make profit from forex reserve+ Silkroad finance+ U$ domination reduce.

Indian interests: BRICS Bank + AIIB

  • 12th FYP: need $1 trillion infra investment. FDI alone can’t fill.
  • Competition =cheaper loans.
  • World bank can focus on Africa=> export, piracy, extremism angles.


As such 50 dozen UN related bodies, but UNICITRAL important due to Vodafone-Nokia tax disputes.

Structure Functions
  • United Nations Commission on International trade law
  • Core legal body 60s. (1966), budget from UNGA
  • Decision by consensus rather than voting.
  • 60 elected from UNGA (General Assembly) for 6 years.
  • Geographical quotas in membership.
  • Indian membership to expire in 2016.
  • Annual sessions @New York and Vienna alternatively.
  • doesn’t appoint arbitrators or private judges
  • Drafts rules for arbitration. Private Parties can use.
  • Drafts model trade laws & Helps member adopt them.
  • Reduce legal obstacles, facilitate trade and investment

[Block-2] WTO, treaties affecting Indian interests

WTO Food subsidies

WTO: structure-function

  • Post ww2: Bretton Woods conference (’44): Trinity of World bank (cheap loans 4 Development); IMF (BoP and exchange rates); GATT later became WTO (reduce intl. trade barriers).
  • WTO Structure: ministerial conference (160); General council (Day2day, dispute res.) ;  DG 4 years, Geneva
  • Agreements: goods related; services related; IPR related; dispute

Settlement. A few Plurilateral agreements not signed by all.

  • WTO Want to reduce tariff and non-tariff barriers.
  • Absurd quality controls= one type of non-tariff barrier. WTO fixes it via SPS agreement for food/bio items and TBT for non-food items.

SPS agreement important because Indian mango & American murgi (poultry)- from two angles:

  1. GS2: agreements affecting Indian interest
  2. GS3: food processing downstream issues.

WTO: SPS agreement

  • Sanitary and phytosanitary (SPS) measures
  • Allows members to ban import of xyz item, to protect its own local plant, animal and human lives.
  • But QC (Quality control) must be scientific. FAO-Codex standards can be used. Higher QC need scientific explanation.
  • Developing countries be given additional time to comply with SPS.
2014: SPS in news because
Mango Murgi (Poultry)
  • 2014: EU trade commissioner banned Indian Alphonso, eggplant etc.
  • Reason: fruit fly contamination in previous shipment. (2013)
  • 2007: India bans US poultry import
  • Reason: avian influenza danger to local poultry.
Indian challenges ban:

  • Fruit fly in 2013. But since 2014, only APEDA certified Indian mangoes exported. So more imminent danger.
  • SPS permits longer time to Development countries to comply.
USA challenges ban:

  • Even after ban, India saw multiple outbreaks of bird flu.
  • So our poultry not responsible.
Verdict:EU officials will come to inspect then may clear India’s ban. Verdict:

  • WTO ruled IN US-favour because India couldn’t justify ban scientifically.
  • Although India can appeal further to get taarikh pe taarikh.
Indian Interest:

  • Mango export earns Rs.1.5 billions, thousands of farmers livelihood attached.
  • EU Mango export: only 7% but negative publicity = others may ban us. Then significant export decline.
  • Pak. will steal our clients.
  • (positive) export ban=more mangoes @local market, cheap MRP
Indian interest:

  • More competition for local poultry cos. and farmers.
  • (positive) More choice /cheaper price for Indian customer.

Same points can be used for Food processing industry- downstream issues/agreements in GS3.

[Block-3] WTO AoA, Peace Clause, Food subsidies, TFA, Bali

WTO: AoA & De-Minimus

  • WTO agreement on Agreement on Agriculture (AoA).
  • Wants members to reduce (1) import duty (2)export subsidy (3) domestic subsidy (amber box)
  • Amber subsides: disrupt trade, promote excessive production e.g. fertilizer, seed, electricity
  • WTO amber subsidy quota: developed 5% of 86-87’s production; developing: 10% L.D.C: exempt.
  • This is known as de-minimum limits.

India opposed because:

  • USA’s 5% in 86 higher than our 10% in 86, because our agro production wasn’t that high.
  • Food prices doubled since ’86. No provision for Inflation adjustment.
  • We need MSP and PDS for supporting farmers and poors respectively. (total subsidy bill 1.15 lakh crore for budget 2014. Out of that 88k for NFSA)

WTO: Bali Summit and Peace clause

9th conference Dec.2013. Bali package= 3 outcomes

  1. L.D.C: other nations to give duty free quota free access to their products.
  2. Trade facilitation agreement. But India refuses to sign hence third outcome-
  3. Peace clause: WTO won’t hear de-minimum quota disputes against developing nations for 4-yrs. till Dec.2017 (11th Conf.). condition: said subsidy only for food security / public stockholding.

WTO: TFA-Trade facilitation agreement

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