India is planning to give grants or project assistance to developing countries in Africa, South Asia and other developing nations through the 'India Development Initiative' scheme, Reserve Bank Governor Bimal Jalan said on Saturday.
Addressing the spring meeting of the International Monetary Fund, Jalan said a debt relief package has been envisaged in the Union Budget 2003-04, under which India would be writing off all the official dues of the highly indebted poor countries, owing overdue payments to the country.
"We are ready to operationalise our commitments to fully participate in the HIPC initiative," he said at the meeting of International Monetary and Financial committee in Washington.
Jalan reiterated India's commitment to fight against the abuses of the financial system including money laundering and terror funding.
He said the international community should focus on the role of offshore financial centres, tax havens, excessive bank secrecy and oversight of the end use of funds donated to charities.
At the same time, he said the apprehension that the new methodology may be unduly intrusive, needs to be allayed to facilitate voluntary compliance.
Emphasising that the voice of developing countries in international financial institutions is 'weak', Jalan called for raising the quota share of the developing countries appropriately to match their growing importance in the world economy as well as to provide them a larger profile in the governance of the IMF.
Reform of the International Financial Architecture, he said, will not be complete without changes in the way the Fund and other international financial institutions operate.
"The developing countries have been marginalised for far too long without adequate representation in the Fund's decision-making process," he said.
"A comprehensive reform of the distribution of Fund quotas (share holding) is urgently needed to better reflect the changes in the global economy, notably the increased relative position of emerging market economies."
Jalan urged that any revision in the quota formula should take into consideration the Gross National Product or Gross Domestic Product computed on a purchasing power parity.
Under the PPP, India is the world's fourth largest economy and China the second largest.
Under the current formula, the Indian economy is not considered large enough even to merit a seat in the Executive Board on its own. India was one of the top five permanent members in the early years but was stripped of that and now has a board seat combining the quotas of India, Bangladesh and Sri Lanka.
Analysing the difficult global economy, Jalan said the pace of recovery in industrial countries has lost effect with the bursting of the equity bubble.
Trade growth is lower, capital flows are declining and there is pressure on corporate and financial institutions, in particular insurance and pension funds.
Labour market conditions are soft. While global fixed investment has started picking up, though slowly, there is a possibility that feeble consumption growth could imperil the fragile recovery process.
It is indeed worrisome, he said, to witness the profound erosion of the equity markets since 2000.
Bond markets are hesitant and the US dollar is depreciating. The asset price bubble continues to influence the development in both financial markets and real economy.
Consequent to geopolitical tensions and supply irritants, oil prices may fluctuate sharply, bringing further volatility to the commodities markets.
In these difficult times, Jalan said, the international community should be in a state of vigilance and preparedness to take timely and appropriate actions both at policy and operational levels, to ease the impacts of any adverse shocks on countries, which are vulnerable and maintain financial stability.
Jalan noted with disappointment that despite the world economy benefiting from earlier free trade initiatives, progress has been relatively uneven across countries and markets. Trade barriers particularly affect the poorer countries.
Freer trade in agriculture through elimination of distorting subsidies would bring sizeable benefits for both developed and developing countries, he said.
Committed leadership from industrial countries will be crucial to the success of the Doha Trade Round. India, he said, is committed to making the World Trade Organisation negotiations under the Doha Development Agenda a success.
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