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International Organizations

India and International Economic Institutions - 1 | UGC NET Commerce Preparation CourseAn international organization is a cooperative platform for sovereign states, founded on multilateral international agreements. It typically involves a relatively stable group of member states working together towards common objectives. A defining characteristic of such organizations is the existence of permanent bodies with specific competencies and powers. These organizations perform a variety of functions, including:

  • Safeguarding the sovereignty of states while promoting peaceful cooperation among them, regardless of their diverse social systems.
  • Ensuring that competition between states remains peaceful.

Bretton Woods Conference

The Bretton Woods Conference, officially the United Nations Monetary and Financial Conference, was held from July 1 to 22, 1944, in Bretton Woods, New Hampshire. Delegates from 44 nations gathered to establish a new framework for the international monetary system after World War II. The conference led to two major outcomes:

  1. The establishment of the International Monetary Fund (IMF).
  2. The creation of the International Bank for Reconstruction and Development (IBRD), commonly known as the World Bank.

International Monetary Fund (IMF)

The International Monetary Fund (IMF) is an intergovernmental organization tasked with overseeing the global financial system. It monitors the macroeconomic policies of its member countries, particularly those affecting exchange rates and balance of payments. Headquartered in Washington, D.C., the IMF was formally established on December 27, 1945, following the signing of its Articles of Agreement by 29 countries. Today, the IMF has 190 member countries, with the Principality of Andorra joining as the 190th member on October 16, 2020.

While the IMF is a specialized agency of the United Nations, it operates under its own charter, governing structure, and finances. Member countries are represented based on a quota system, reflecting their relative size in the global economy. The IMF produces key publications like the Global Financial Stability Report (GFSR) and the World Economic Outlook, which are published biannually.

Organization and Structure:

The IMF is led by a Managing Director, who serves as the head of the staff and Chair of the Executive Board, holding the most influential position within the organization. The Managing Director is elected by the Executive Board for a five-year term. The IMF's structure comprises the Board of Governors, Ministerial Committees, and the Executive Board.

  • Board of Governors: Consists of one Governor and one Alternate Governor from each member country, appointed by the respective member states. The board meets annually and is responsible for selecting an Executive Director to the Executive Board.

  • Executive Board: Composed of 24 Executive Directors representing all 190 member countries, with a roster based on geographic distribution. Larger economies form constituencies that represent four or more countries. Voting power within the IMF is determined by a quota system, where each member has basic votes equal to 5.502% of the total votes, plus an additional vote for each Special Drawing Right (SDR) of 100,000 of the country's quota.

The IMF offers two types of lending: non-concessional loans at regular interest rates and concessional loans provided to low-income countries on favorable terms. Currently, concessional loans carry no interest.

IMF Lending:

IMF loans are designed to help member countries address balance of payments issues, stabilize their economies, and restore sustainable economic growth. In the current context, IMF lending serves three primary purposes:

  1. Facilitating smooth adjustments to economic shocks, helping countries avoid disruptive adjustments or sovereign defaults, which can have significant costs for both the country and others through economic and financial contagion.
  2. Acting as a catalyst for other lenders, unlocking additional financing opportunities.
  3. Aiding in crisis prevention, as capital account crises can impose substantial costs on countries and potentially spread contagion to others.

IMF Quota:

When a country joins the IMF, it is assigned an initial quota similar to that of existing members with comparable economic size and characteristics. These quotas determine a member’s financial contributions, voting power, and access to IMF financing. Quota subscriptions form the majority of the IMF’s financial resources.

Special Drawing Rights (SDRs)

Special Drawing Rights (SDRs) were created by the IMF in 1969 as an international reserve asset to supplement the official reserves of member countries. SDRs serve as the IMF’s accounting unit and a stable asset in a country’s international reserves. Their value is determined by a basket of five major currencies: the US dollar, Japanese yen, British pound, euro, and Chinese renminbi. SDRs can be exchanged for freely usable currencies.

The Chinese renminbi was added to the SDR basket on October 1, 2016. There have been calls to elevate SDRs to the status of a global reserve currency. A global reserve currency is widely held by central banks and financial institutions and is commonly used in international trade. For a currency to become a global reserve currency, it must be widely available, freely convertible, and generally held in the form of government bonds. Despite China's economic growth, the yuan faces challenges such as allegations of manipulation and restrictions on foreign bond holdings.

The consideration of alternatives to the US dollar as the global reserve currency stems from concerns about recessionary impacts during financial crises, potential global liquidity shrinkage if the US addresses deficits, and imbalances caused by countries like China accumulating dollars. It is important to note that the SDR is not a currency but a potential claim on the currencies of IMF member countries. To enhance SDRs' international significance, annual issuances should increase, and they should become the primary or exclusive means of IMF financing.

IMF Reforms:

IMF reforms were approved by the Board of Governors on February 17, 2020, marking the conclusion of the 15th General Review of Quotas. The resolution, which did not include a quota increase, guides the 16th Review, set to be completed by December 15, 2023.

IMF Members' Quotas (Major Countries) in Descending Order:

India and International Economic Institutions - 1 | UGC NET Commerce Preparation Course

IMF quotas are crucial as they determine the amount of foreign exchange a member can borrow and their voting power in IMF policy decisions. Quotas are denominated in Special Drawing Rights (SDRs).

Debt Relief

In addition to concessional loans, low-income countries may also qualify for debt relief under two key initiatives: the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI).

India and the IMF

India, a founding member of the IMF, participated in the Bretton Woods Conference in July 1944. The Finance Minister serves as the Ex-officio Governor on the IMF's Board of Governors, with India represented by an Executive Director who also represents Bangladesh, Sri Lanka, and Bhutan. In the 14th General Review of Quotas, India's quota increased to 2.76% from 2.44%, making it the 8th largest quota-holding country. Formerly a debtor, India is now a significant investor, due to its Balance of Payments stability and rising foreign currency reserves.

World Bank

India and International Economic Institutions - 1 | UGC NET Commerce Preparation Course

The World Bank Group (WBG), a coalition of five international organizations, provides leveraged loans primarily to impoverished countries. Established on December 27, 1945, following the Bretton Woods Agreements, the World Bank became operational on June 25, 1946. Its first loan of $250 million for post-war reconstruction in France was approved on May 9, 1947. The World Bank comprises major organizations like the International Bank for Reconstruction and Development (IBRD), International Development Association (IDA), International Finance Corporation (IFC), International Centre for Settlement of Investment Disputes (ICSID), and the Multilateral Investment Guarantee Agency (MIGA). As of January 2022, it has 189 member countries, with David Malpass serving as the 13th President of the World Bank Group.

Objectives of the World Bank

  • Provide long-term capital for economic reconstruction and development in member countries.
  • Encourage long-term capital investment to maintain Balance of Payments equilibrium and promote balanced development of international trade.
  • Promote capital investment by providing guarantees on private loans or capital investments.
  • Provide loans for productive activities when capital is unavailable even after offering guarantees.
  • Facilitate a smooth transition from wartime to a peaceful economy by implementing development projects.

Functions of the World Bank

The World Bank plays a pivotal role in providing loans for development projects, especially in underdeveloped countries. It offers loans for projects lasting 5 to 20 years, up to 20% of its share in paid-up capital. The bank also provides loans to private investors in member countries under its guarantee, with a 1% to 2% service charge. Loan amounts, interest rates, and terms are determined by the bank, and loans are generally extended for specific projects submitted by member countries.

Organizational Structure of the World Bank

The World Bank's structure includes the Board of Governors, Board of Executive Directors, Advisory Committee, Loan Committee, and the President with other staff members. The Board of Governors, the supreme policy-making body, comprises one Governor and one Alternate Governor appointed for five years by each member country. The Board of Executive Directors consists of 21 members, with six appointed by the largest shareholders (USA, UK, Germany, France, Japan, and India) and 15 elected by other countries for two years.

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Which international organization was established following the Bretton Woods Conference in 1944?
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India and the World Bank

India and International Economic Institutions - 1 | UGC NET Commerce Preparation CourseIndia, a founding member of the World Bank, receives assistance through loans, advice, and study groups. The World Bank played a role in resolving the India-Pakistan river disputes and established the “Indian Helped Group” in developed countries to advise India on development projects.

IMF vs. World Bank

Both the IMF and World Bank are global institutions with most countries as members, aiming to strengthen member nations' economies. However, while the World Bank focuses on promoting economic and social progress in developing countries, the IMF oversees and maintains an orderly system of payments and receipts between nations.

World Bank Groups

The World Bank Group includes various organizations, each with distinct roles:

  1. International Bank for Reconstruction and Development (IBRD): Established in 1944 to help Europe recover from World War II, the IBRD works with middle-income and creditworthy poorer countries to promote sustainable growth.

  2. International Development Association (IDA): Founded in 1960, IDA focuses on supporting the world’s most impoverished nations by providing interest-free credits and grants for programs that enhance economic growth and living conditions.

  3. International Finance Corporation (IFC): With 184 member countries, IFC promotes sustainable private sector investment in developing countries, financing private sector projects and providing advisory services.

  4. Multilateral Investment Guarantee Agency (MIGA): Specializing in political risk insurance, MIGA encourages foreign direct investment in developing countries by insuring against political risks and advising governments on attracting investment.

  5. International Centre for Settlement of Investment Disputes (ICSID): Established in 1966, ICSID provides facilities for conciliation and arbitration of investment disputes between member countries and individual investors.

United Nations Conference on Trade and Development (UNCTAD)

Founded in 1964, UNCTAD is a principal organ of the United Nations General Assembly focused on trade, investment, and development. It aims to maximize trade, investment, and development opportunities for developing countries and integrate them into the world economy. UNCTAD hosts quadrennial conferences to assess trade and development issues and formulate global policy responses.

World Trade Organization (WTO)

India and International Economic Institutions - 1 | UGC NET Commerce Preparation CourseThe WTO, established on January 1, 1995, under the Marrakesh Agreement, is an inter-governmental organization regulating international trade. With 164 members, the WTO facilitates trade in goods, services, and intellectual property by providing a framework for negotiating trade agreements.

Structure of WTO

The WTO’s structure comprises various levels:

  • Ministerial Conference: The highest level, meeting every two years.
  • General Council: The highest decision-making body in Geneva, convening regularly.
  • Councils for Trade: Overseeing international trade in goods.
  • Subsidiary Bodies: Addressing specific subjects like agriculture, subsidies, and market access.

Key Agreements of the WTO

  1. General Agreement on Tariffs and Trade (GATT): Operated from 1947 to 1994, focusing on lowering customs duties and trade barriers.
  2. General Agreement on Trade in Services (GATS): Extends principles of fair trade to service sectors.
  3. Trade-Related Aspects of Intellectual Property Rights (TRIPS): Established in 1995, protecting intellectual property through patents for 20 years.
  4. Trade-Related Investment Measures (TRIMs): Safeguards foreign investments from discrimination in host countries.
  5. Trade Facilitation Agreement: Effective from February 22, 2017, this agreement aims to streamline global trade by reducing barriers and enhancing customs cooperation.

Non-Agricultural Market Access (NAMA)

Non-Agricultural Market Access (NAMA) encompasses products outside the agricultural sector, such as manufacturing, fuels, mining, fish, and forestry products. The Uruguay Round significantly enhanced market access for these products in developed nations by reducing average tariffs and increasing predictability for developing countries.

WTO Subsidies

WTO subsidies are categorized using a color-coded system akin to traffic lights: Green signifies allowed subsidies, Amber indicates those that must be reduced, and Red marks prohibited subsidies. In agriculture, there is no Red Box, while the Amber Box limits domestic support above agreed levels. The Blue Box permits subsidies tied to programs that limit production, and the Green Box allows fixed payments for environmental programs, independent of current production levels. Special provisions, often called the S&D Box, are available for developing countries. The Amber Box covers measures that distort production and trade but exempts 5% for developed countries and 10% for developing nations. The Blue Box includes subsidies linked to production-limiting programs, allowing for unlimited increases as long as payments are connected to these programs, like direct payments to farmers to reduce production.

WTO Dispute Settlement Process

The WTO's Dispute Settlement Body is responsible for resolving trade disputes among members. Composed of all WTO members, it has the power to establish expert panels to review cases, accept or reject panel findings or appeals, monitor the implementation of rulings, and authorize retaliation if a country fails to comply. Appeals focus on legal points, such as the interpretation of laws, and are heard by a permanent seven-member Appellate Body.

Intellectual Property and the WTO

The WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), negotiated during the 1986-94 Uruguay Round, introduced intellectual property rules into the global trading system. It addresses five key areas: the application of basic trading principles, adequate protection of intellectual property rights, enforcement of these rights, settlement of disputes between WTO members over intellectual property, and special transitional arrangements for implementing the new system.

Trade Facilitation Agreement (TFA)

Adopted at the WTO's Bali Ministerial Conference in December 2013 and entering into force on February 22, 2017, the Trade Facilitation Agreement (TFA) aims to simplify international trade by reducing red tape and streamlining customs regulations for cross-border goods movement. This agreement ultimately seeks to reduce trade barriers globally.

World Economic Forum (WEF)

The World Economic Forum (WEF) is an international non-governmental and lobbying organization based in Geneva, Switzerland, founded in 1971. It is known for its annual meeting in Davos, where global leaders from politics, business, culture, and other sectors gather to shape global, regional, and industry agendas.

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What is the purpose of the World Trade Organization (WTO)?
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Organisation for Economic Co-operation and Development (OECD)

India and International Economic Institutions - 1 | UGC NET Commerce Preparation Course

Founded in 1961, the Organisation for Economic Co-operation and Development (OECD) is an international economic organization with 38 member countries. Its mission is to promote economic progress and world trade. Initially established in 1948 as the Organisation for European Economic Co-operation (OEEC) to administer the Marshall Plan for post-World War II reconstruction in Europe, it transformed into the OECD in 1961. Most OECD members are high-income economies with a high Human Development Index (HDI), classifying them as developed countries. The OECD collaborates with the Financial Action Task Force (FATF) to combat terrorist financing and money laundering. The OECD’s headquarters are in Paris, France.

Financial Action Task Force (FATF)

The Financial Action Task Force (FATF) is an international inter-governmental body responsible for setting global standards in anti-money laundering and combating the financing of terrorism. Established during the 1989 G-7 Summit in Paris, its secretariat is based at the OECD headquarters in Paris. The FATF comprises 39 members, including 37 countries and 2 regional organizations. India joined as an observer in 2006 and became the 34th full member in 2010. India’s membership strengthens its ability to combat terrorism, terrorist financing, and effectively investigate and prosecute money laundering cases.

Food and Agriculture Organization (FAO)

The Food and Agriculture Organization (FAO), a specialized agency of the United Nations, has been leading international efforts to combat hunger since its founding in 1948. The FAO has a longstanding partnership with India, contributing to the country’s progress in crops, livestock, fisheries, food security, and natural resource management. The FAO supports the Indian government in promoting nutrition-sensitive food systems, agricultural policies, effective interventions, and nutrition education strategies. With 195 members, including 194 countries and the European Union, the FAO is headquartered in Rome, Italy, and operates regional and field offices in over 130 countries.

United Nations Industrial Development Organization (UNIDO)

The United Nations Industrial Development Organization (UNIDO) is a specialized agency of the United Nations focused on supporting countries in economic and industrial development. Headquartered in Vienna, Austria, UNIDO maintains a permanent presence in over 60 countries. As of April 2019, UNIDO has 170 member states that collectively shape its policies, programs, and principles through a biannual General Conference. UNIDO is one of two UN specialized agencies with categorized member groups, the other being the International Fund for Agricultural Development (IFAD), which addresses poverty and hunger in rural areas of developing countries.

South Asian Association for Regional Cooperation (SAARC)

Founded in 1985, the South Asian Association for Regional Cooperation (SAARC) is dedicated to economic, technological, social, and cultural development with an emphasis on collective self-reliance. SAARC’s eight member countries—Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka—work together to promote the welfare of the people of South Asia, improve their quality of life, and strengthen cooperation in international forums on matters of common interest. SAARC’s secretariat is based in Kathmandu, Nepal.

India and International Economic Institutions - 1 | UGC NET Commerce Preparation Course

South Asian Free Trade Area (SAFTA):

The South Asian Free Trade Area (SAFTA) was established on January 6, 2004, during the 12th SAARC summit in Islamabad, Pakistan. The agreement aimed to eliminate import taxes and duties on all goods by 2016.

South Asian Preferential Agreement (SAPTA):

The South Asian Preferential Agreement (SAPTA) is an inter-governmental group of SAARC nations initiated on April 11, 1993, and implemented on December 7, 1995. SAPTA aims to foster mutual trade and economic cooperation among member states through trade concessions.

Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC)

Formed on June 6, 1997, in Bangkok, the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) originally began as BIST-EC (Bangladesh, India, Sri Lanka, and Thailand Economic Cooperation). Myanmar, Nepal, and Bhutan later joined as full members, leading to the organization being renamed BIMSTEC. Headquartered in Dhaka, Bangladesh, BIMSTEC covers fourteen priority sectors for cooperation among its member states.

Association of Southeast Asian Nations (ASEAN)

Established in 1967 in Bangkok, Thailand, ASEAN was founded by Indonesia, Malaysia, the Philippines, Singapore, and Thailand. ASEAN now includes 10 members, with Brunei Darussalam, Vietnam, Lao PDR, Myanmar, and Cambodia joining the founding members. ASEAN serves as a forum for collaboration on economic, social, cultural, technical, scientific, and administrative matters and works towards promoting regional peace and stability by adhering to the principles of the UN Charter.

India and International Economic Institutions - 1 | UGC NET Commerce Preparation Course

Indian Ocean Rim Association (IORA)

The Indian Ocean Rim Association (IORA), formerly the Indian Ocean Rim Initiative (IORI) and Indian Ocean Rim Association for Regional Cooperation (IOR-ARC), is an international organization of 23 states bordering the Indian Ocean. Initially established as the Indian Ocean Rim Initiative in Mauritius in March 1995, it was formally launched on March 6-7, 1997, through a multilateral treaty known as the Charter of the Indian Ocean Rim Association for Regional Cooperation. IORA’s members include Australia, Bangladesh, Comoros, India, Indonesia, Iran, Kenya, Madagascar, Malaysia, Mauritius, Mozambique, Oman, Seychelles, Singapore, Somalia, South Africa, Sri Lanka, Tanzania, Thailand, the United Arab Emirates, Maldives, and Yemen.

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FAQs on India and International Economic Institutions - 1 - UGC NET Commerce Preparation Course

1. How does India participate in the World Bank?
Ans. India is a member of the World Bank and contributes to its funds. It also receives financial assistance and technical expertise from the World Bank for various development projects in the country.
2. What are the different groups within the World Bank?
Ans. The World Bank is made up of five institutions: the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID).
3. How does the World Trade Organization (WTO) impact India's trade policies?
Ans. The WTO sets rules for international trade and helps resolve trade disputes between countries. India, as a member of the WTO, must adhere to these rules and regulations, which can influence its trade policies and practices.
4. How does the Organisation for Economic Co-operation and Development (OECD) collaborate with India?
Ans. The OECD provides policy advice and research on economic and social issues to its member countries, including India. India participates in various OECD committees and working groups to exchange information and best practices.
5. What role does India play in international economic institutions like the World Bank and OECD?
Ans. India is an active member of international economic institutions like the World Bank and OECD, contributing financially and participating in decision-making processes. India also benefits from the technical assistance and knowledge sharing provided by these organizations.
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