India can now, if required, borrow up to $30 billion a year, up from $6 billion, from the International Monetary Fund for a three-month period which can be renewed twice more in 3-month cycles.
The IMF has set up an emergency contingency liquidity facility to provide quick-disbursing funds to developing countries, with acute but short-term problems, of up to five times their quota without negotiating a programme, said Planning Commission Deputy Chairman Montek Singh Ahluwalia in Washington on Friday.
He was addressing the media after a day of hectic parleys ahead of the summit of the G20 leaders on Financial Markets and World Economy.
The World Bank too has thus increased its efforts to soften the effects of the crisis and make resources accessible to the developing countries, he said. The World Bank announced that it will make available $100 billion for the next 3 years, and India can draw an extra $3 billion a year, added Ahluwalia.
The current global financial crisis is unique in the sense that it originated in the developed nations, but it has ravaged the developing world too, said Ahluwalia. The crisis has shown that even among the developed countries, liquidity provision for financial institutions is not efficient in times of crisis. For developing countries, a temporary shortage of liquidity can be crippling. The coordinated IMF and World Bank moves could thus help developing nations.
The Planning Commission deputy chairman said that the government may guarantee private sector borrowing without violating the fiscal deficit targets set under the Fiscal Responsibility and Budget Management Act. With a liquidity crunch threatening to turn into a major solvency crisis if not dealt with effectively, the move would warm the cockles of the private sector heart.
Stating that all nations are agreed upon the proposition that better governance and maintaining the basic impetus of development is required to counter the recessionary trends, Ahluwalia added that a coordinated macroeconomic policy and fiscal stimulus, and some unorthodox steps were necessary to cushion the impact on the real economy.
He said that there was a need to come up with fiscal packages to stimulate demand, which would mean that nations spend on infrastructure projects like roads, ports and power that would help create domestic demand.
Ahluwalia said that Indian banks are adequately capitalised and better regulated than banks in developed nations. He asserted that the Indian government had been 'pretty damn nimble-footed' in addressing the current crisis, with the Reserve Bank of India taking a set of significant measures to infuse more liquidity into the financial system to encourage banks to resume normal lending.
Although the financial tsunami had hit India too since it 'is integrated with the global economy', the nation's growth will be hampered but it will still be higher than what it was the in the four years preceding the United Progressive Alliance government.
He, however, cautioned that there was a need to moderate expectations.
Ahluwalia said that there was an exchange of views on issues related to the current international economic and the financial crisis with former Secretary of State Madeline Albright and Congressman Jim Leach.
Lauding the lead taken by the United States to tackle the issue, he said the US attached high priority to the further strengthening of relations between India and the US.
And even as the world waits with bated breath, Prime Minister Manmohan Singh and other G-20 leaders will meet in Washington on Saturday to tackle the greatest financial turmoil of their time.