Political and Social Effects of IMF and World Bank on India - Essay Example

? Political and Social effects of IMF and World Bank on India Introduction IMF is an international financial that was formed in the year 1945 with the aim of stabilizing exchange systems and reconstructing world international payment systems. It is an organization that has a played a crucial role in the growth and development of developing countries. On the other hand, the World Bank is an international financial institution which gives loans and financial assistance to poor states. Debatably, the major aim of the World Bank and IMF is to reduce poverty and instill growth and development into the poor countries (Kumar, 2012). Social and Political effects of IMF Both IIMF and World have played an imperative role in shaping the political, social and economic environments of India, especially with the knowledge that India has been one of the developing countries with unstable environments. In this regard, with the IMF and the World Bank, both the social and political environments of India have been profoundly impacted. Scholars assert that India has received more benefits than losses from the International Financial Institutions. This is because; it is notable that India’s economy has improved since the two institutions came into action. Still, others state that the World Bank created more harm than good by reducing the Indian Economic growth rate (Mishra, 2012). However, one of the notable impacts of World Bank on the Indian economic and social environment is poverty alleviation. Statistics show that so far India has borrowed a total of US$ 65.8 billion from the World Bank. This played a key role to India since it assisted in funding its projects (Kumar, 2012). Needless to say, the funds provided were used in projects such as development of the infrastructure, rural development and social improvements among the citizens. The living standards of Indians have been improved since the poverty level has been reduced. Another noticeable impact is the development of education systems in the country. Using the funding, India has been able to promote its education level and thus, most of the Indians have been educated. Consequently, the workforce in India has been improved and enriched with different skills. Being equipped with labor resources, the country has experienced industrial development. Arguably, IMF also plays an extremely significant role in the Indian political and economic environments through a number of ways. This is mainly by providing economic assistance in terms of funding the government projects in the country. In addition, the IMF also provides consultancy services to the country in policy making. Kumar (2012) asserts that these policy making services have had a substantial impact on India’s political and social economy. This is because; with better policies in the country, cases of corruption are reduced and there is political integrity. In addition, borrowed funds will be utilized efficiently and thus there will be overall growth among the citizens (Eiras, 2003). Another social impact that has been observed is the improvement of the health of the citizens. A report by Kumar (2012) about the effects of IMF on India showed that, due to lack of food and other necessities the country suffered from health problems. In addition, a report given in the year 2007 showed that most children of the poor families in India were born while suffering from malnutrition (Mishra, 2012). This is because, the pregnant mothers had not been well fed during their maternity periods. With funding from the IMF and the World Bank, the country can provide food assistance to the poor families and thus, promoting the health of many of the citizens (Mishra, 2012). Cases of food starvation in the country have also been reduced, thus impacting the society positively since cases of theft or tribal clashes have reduced. This is a serious social effect in India since it promotes peace and stability in the country. In reference to Lagarde (2012), the World Bank and the IMF have positive effects on a country’s democracy, in this case, India. Social equality is materially affected by the funding provided by these institutions. This is because, involvement with the International Financial Institutions assists domestic institutions dealing with democracy issues in India to protect individual rights and improve the quality of democratic deliberation. Thus, quality democracy is a notable social impact achieved by India. This has mainly been achieved through the availability of financial integration in the country. Financial integration enhances the domestic demand of the country due to greater access to financial services, thus reducing inequality in the country (Lagarde, 2012). The health of the country has also been positively impacted since; the government has used the funding obtained from the World Bank and the IMF to improve the health facilities in the country. This is a considerable benefit to the country since; citizens can receive health services at a low and affordable cost. This ensures preservation of the workforce since the death rates are reduced significantly. With the reliable workforce, again the economy will develop since it will engage in production efficiently (Lagarde, 2012). There has also been the development of trade in India due to the services provided by the IMF and the World Bank. This culminates to both economic and political impacts that are aggregated into trade integration. This is majorly through policies implemented by the IMF in the economy of India. An example of the policies is the devaluation of the currency. A report given about the Indian current implemented policies showed that the country, in conjunction with the IMF, was devaluing its rupee by 23% (Mishra, 2012). Devaluing of the rupee played a key role in promoting trade for the country since, it promoted the country’s exports and thus increasing the trade incomes in the country. In addition, devaluation of the country’s currency made the country more attractive to the foreign investors and thus, Investors would come from the developed countries such as the US, and invest in the country since they could see the probability of future profits on their investments. This was also supported by the new industrial policy that had been implemented by the IMF in the country. With the development of trade in the country, the country can then use the incomes generated to promote the welfare of the citizens. In addition, the incomes can also be used to pay part of the fund borrowed from the World Bank and the IMF (Lagarde, 2012). With the aid of the structural adjustment program by the World Bank, the Indian government has also been able to implement different measures into the country that have had economic, social and political impacts on the country. For instance, reduction of the social sector spending in order to reduce the fiscal deficit is a measure which has ensured that the government provides quality social services to the citizens at a low and favorable cost. Therefore, with this measure, the country has grown both socially and economically (Limpach & Michaelowa, 2010). Other policies implemented into the country that have had positive impacts in the country include liberalizing the banking system, installation of market friendly approach and reducing the government participation in trade. This is a policy which many people assert that it has done more harm than good. This is because; the government cannot be set aside altogether from the trade environment. There are some critical decisions which require government intervention in order to succeed. Despite all these positive impacts obtained by India from the IMF and the World Bank, the country has also suffered negative impacts. Some scholars also indicated that the International Financial Institutions have created problems instead of bringing solutions into the nation (Eiras, 2003). A record given in the year 2003 showed that the two institutions were far from being a resolution to economic stability and paucity in the country. This is because, despite the benefits obtained from the funds lend by the institutions, there is also the result of an increase in the country’s external debt. Taking for instance, India’s external debt keeps on increasing as the country keeps on borrowing funds from the IMF and the World Bank. Thus, this hinders maximum development since; the country uses most of its incomes to pay the external debt. The debt is also at times a burden to the country since, the funds will at times be given with rules and regulations such that; a country cannot freely invest in the projects of its interest. Though this might be a way of ensuring accountability in the country, it is demoralizes the country to some extent since; the country cannot make decisions on its own without being followed up by the fund providers (Eiras, 2003). This is also referred to as lack of economic freedom. Studies show that economic freedom is a key ingredient to economic growth. This is because; countries, which are economically free, can implement efficient monetary policies with minimal regulation and control. With aid from the World Bank and the IMF, it is clear that India has lacked economic freedom for a long period, a fact that has led to minimal growth in the country. The institutions are also said to have negative political impacts because, the lending of funds discourages government incentives and encourages corruption in the government. With the funds lend to India by the World Bank and the IMF, the Indian government reduced the incentives that it was giving to the citizens and also, cases of corruption increased. This is whereby; the funds were put into different uses than those which they had been borrowed for. In addition, some funds were also reported to have ended up in personal accounts of the head government officials. Other negative impacts that have been noted arise from the notion of removal of government intervention. Without quantitative restrictions, there will be an increase in the countries imports. Consequently local industries in the country will experience increased competition thus leading to high production costs. On the other hand, with high production costs, the industries will also increase the prices charged to the citizens. In addition, prices will also increase as an effect of the rupee devaluation. With rupee devaluation, economists state that there will be an increase in prices in the country. Therefore, with these two factors leading to increased prices in the Indian economy, the cost of living in the country will increase. Increased production costs also have the effect of causing layoffs. Clearly thus, the economic growth will not be high with these negative impacts (PIRG, 2006). Conclusion World Bank and IMF have indeed had a notable and significant impact on the political, social and economic environments of Indian. The social and political environments have also been extremely impacted. The poverty levels have been reduced in India, and the country has grown immensely. The two institutions have also enhanced the democracy in India and inequality has been appreciably reduced. However, the World Bank and the IMF have also had negative impacts to the political and social environment of India. This is because; the external debt for India has continued to increase over time and has led to poor performance of the domestic industries. The two institutions also bring the problem of lack of economic freedom in the country thus limiting the extent of growth in the country. When the country lacks economic growth, it cannot invest freedom and hence, it cannot obtain maximum benefits from its funds. Arguably, the funding from the IMF and the World Bank also reduces government incentives in the country since; the government begins to over rely on the funds. Thus, apart from the problem of reducing government incentives, this also brings the problem of increased dependency. The country becomes overly dependent on the funds from the IMF and the World Bank and thus, it cannot develop on its own. Evidently therefore, the limited growth experienced from the funds is offset by these negative effects. References Eiras, A. I. (2003, September 17). IMF and World Bank Intervention: A Problem, Not a Solution. Conservative Policy Research and Analysis. Retrieved November 18, 2012, from http://www.heritage.org/research/reports/2003/09/imf-and-world-bank-intervention-a-problem-not-a-solution Kumar, S. (2012). World Bank & Impact On India [Web log post]. Retrieved from http://www.slideshare.net/soniasunilagrawal/world-bank-impact-on-india Lagarde, C. (2012, November 14). "Asia and the Promise of Economic Cooperation" By Christine Lagarde, Managing Director, International Monetary Fund [Web log post]. Retrieved from http://www.imf.org/external/np/speeches/2012/111412.htm Limpach, S., & Michaelowa, K. (2010). Working Paper: Impacts of IMF and World Bank on Democratization Programs. Zurich: Center of Comparative and International Studies. Mishra, A. R. (2012, January 19). World Bank Reduces India Economic Growth Estimate. Mint & the Wall Stree Journal, 1(1). PIRG (2006). The World Bank and India : Chapter 10 [Web log post]. Retrieved from http://www.ieo.org/world-c10-p2.html Read More