[Reuters]

Published date: 27th Aug1991

27 August 1991

Reuters News

English

(c) 1991 Reuters Limited

TOKYO, Reuter – India hopes to receive substantial financial aid from a consortium of donors next month, Finance Secretary Sriranga Shukla said on Tuesday.

Shukla, in Tokyo for talks ahead of the September 19-20 meeting in Paris, said the International Monetary Fund (IMF) and World Bank sent missions to India earlier this month and talks with both had gone smoothly.

He told Reuters India was likely to ask donors for more money than the $6.1 billion the consortium pledged last year.

India plans to hold the recently devalued rupee at current levels for the next two or three years, Shukla, the top civil servant in the finance ministry, said.

The Reserve Bank of India (RBI) devalued the rupee twice by a sharp 18.74 per cent against the U.S. dollar in July.

“We will have to maintain this level for the next two or three years, otherwise the whole package (of reforms) that we are working on will have little stability,” Shukla said.

In addition to the rupee’s devaluation, India’s new government announced a dramatic set of reforms last month. It raised interest rates, cut subsidies, unveiled a radical new industrial policy and set out to woo foreign investment.

Shukla said the World Bank has prepared a memorandum on India. “On that basis they will ask the members of the consortium to come with their pledges.”

He said if there was need for additional funds, particularly if such funds were needed quickly, India would request the consortium to disburse such aid.

World Bank vice-president Attila Karaosmanoglu said in Washington last week the Bank plans to increase its lending to India in the current year ending June 30, 1992 to about $3 billion from $2.05 billion in the last fiscal year.

Karaosmanoglu said the Bank would ask aid donors at the Paris meeting to try to speed up their assistance.

Beset by a balance of payments crisis and a foreign debt of $71 billion, India borrowed $1.8 billion from the IMF at the beginning of the year and with foreign exchange covering only two weeks of imports an emergency $220 million loan in July.

Japanese officials had responded very positively to last month’s reforms, Shukla said.

The Japanese have been very forthcoming. They extended about $300 million in fast-disbursing loans (earlier this year), and they did so at our request without waiting for other members of the consortium,” he said.

Shukla said he would not be able to comment on the amount of aid the IMF is likely to extend to India.

He said the new tranche will be much larger than the $777 million standby tranche India drew in January. Monetary sources in Washington expect the IMF to lend India around $2 billion.

India is pursuing a very stringent monetary policy in order to rein in inflation, Shukla said. Consumer price index inflation surged to 13.6 per cent in 1990/91 from 6.6 per cent in 1989/90.

Broad M3 money supply growth was targeted at 13 per cent in 1991/92 ended March 31 after 15.1 percent growth a year earlier and 19.4 per cent in 1989/90.

Despite confusion caused by political instability, Rajiv Gandhi’s assassination and an annual budget that was presented four months late in July, India hoped to limit its fiscal deficit to 6.5 per cent of the gross domestic product in 1991/92 against 8.6 per cent the previous year, Shukla said.