India’s huge loan

Press, 14 November 1981, Page 14

India’s huge loan

. The International Monetary Fund loan of SUSS.B billion to India is the biggest loan in history except for one: a loan from Saudi Arabia, to the I.M.F. which partly enabled it to make the loan to India. The size of the loan is great but it has to be borne in mind that India is the world’s second most populous country and if such a loan were to be contemplated at all, India would be the likely recipient. The loan is not the first that the I.M.F. has made to India but, because of its size, its application is likely to be watched with some care and conclusions drawn about India’s economic performance, about the wisdom of the 1.M.F., about economic aid and soft loans in general. The conclusions may influence the decisions of other institutions such as the Asian Development Bank and the World Bank. The United States, in particular, which is a major supporter of these institutions, has been pressing for changes in attitudes both in the lending institutions and in the economies of the recipient countries.

The economy of India suffered badly during the years of the Jaxata Party. When Mrs Indira Gandhi came back to power in January, 1980, she inherited an economic mess which she has done a certain amount to clear up. The country’s economy is a complex one. The huge population, 42 per cent of whom were under the age of 15 (on 1980 figures), relies heavily on the monsoons to produce rice. Agriculture contributes 41.9 per cent to the country’s gross national product. Manufacturing contributes 22 per cent, services 33,3 per cent, and mining about 3 per cent. This 1979 figure for mining may have increased after the discovery of more oil. In

manufacturing India is a major producer of steel, cement, paper, chemicals, and engineered products. In science India is significant in a number of-fields. Although there is much to be regretted in the fact that India has exploded a nuclear device, from the point of view of scientific development, it indicates the degree of the country’s sophistication in science and engineering.

The United States was reluctant to give its approval to the loan in the I.M.F. The Reagan Administration has developed some definite ideas on aid and lending by world institutions. It sees, merit in a country providing a favourable climate for investment and believes that the investment and the technology will follow. The corollary to this principle is that the United States believes in providing access to markets for developing countries and thinks that other countries should do the same.

India has not revealed the conditions that the I.M.F. has imposed on it in granting the loan. Doubtless they are reasonably strict. One Western fear is that, if countries rely on loans and aid to make up their huge trade deficits, the cycle will be never-ending and continuing inflation will be the inevitable consequence. Although India’s problems are huge, the country’s resources are also huge and if some of the limiting factors, such as the restricted power supply are overcome, production should rise. India is two years into its sixth five-year economic plan. The loan will provide something of a breathing space; its effects will be watched anxiously in India and in all capitals concerned with progress in developing countries.