India on the Imperative of Reform of the International Financial Institutions


The global configuration of financial and economic powers have undergone a dramatic transformation, but international financial institutions (IFIs) have not adjusted to the transformation. India started its participation in these financial institutions in a strong position as the fifth largest shareholders in 1940s but declined its ranking as other countries performed better. However, When India and other emerging countries showed steady growth in economic by the turning of the century, the Western countries that dominate these institutions shown reluctance reforms. India has been one of the leading voices in demand for reform of these financial institutions. The present demand for reform is not of giving greater voice to the poor and indebted countries but to address the problem of countries with credit do not have a voice in these IFIs. The reform of these institutions is not just a moral imperative; it is an economic imperative.

Evolution of India’s Relationship with IFIs

India was one of the 44 founding members of the World Bank and International Monetary Fund (IMF) in 1944. The governance structure arrangement of the IFIs reflected economic and political power at the end of the Second World War. Power and influence of the member countries in IFIs depend on voting weightage, which depends on the countries’ shareholding or quota in these institutions. The shareholding/quota depends on the economic strength of the countries. The stronger the economic, more shareholding or quota allotted, leading to higher voting strength. The US ranked the first and India ranked the fifth largest quota-holders among the member countries at the initial stage of the 1940s.

Another aspect of the governance system is that, according to the Article Agreement (basic constitutional Document) of IFIs, the five largest quota-holders were entitled to appoint their own Executive Director to the Board of Directors. They along with other 20 executive directors appointed by various groups constituted the Board of Directors, the highest decision-making body. India, because of it being the fifth largest shareholder of the Bank, had the privilege to appoint its own Executive Director to the Executive Boards. This was a significant entitlement compare to the rejection of its proposal for an associate membership to UN Security Council without voting rights in 1945.

The report said that although the crisis has reaffirmed the World Bank Group’s indispensability, its effectiveness is undermined by its hierarchical governance structures, in which the American and European roles remain too dominant and many member countries find too few opportunities for voice and participation.

However, due to its failure to keep pace with the economic growth of other countries, India’s shareholding/quota had been on the downward spiral up to 2009 when it was fallen to the position of eighth-largest shareholder. In 1970, even the right to appoint its own executive director was also deprived as Japan’s economic performance was far ahead of India and that right was given to Japan. India’s position of authority and power in these IFIs declined and taken way without any squabble.

This weightage voting system of IFIs gives a clear edge to the developed countries, and these countries’ preferences influence the decision of whom to give a loan base on their strategic interests. The overall pattern is that the industrialized countries command a majority in voting, while the borrowing countries, which are at present developing countries, are in the minority. Through the IFIs, these powerful countries ram down on the borrowers the conditions like devaluation, the abolition of subsidies and other unpalatable conditions for the loan. India was the first country to be imposed the structural adjustment condition by the IFIs in 1966, and this was the precursor of the structural adjustment programme of the 1980s and 1990s imposed on other developing countries. India has been the single largest borrower of the World Bank group for last nearly seven decades.

Transformation in the Global Economic Configuration and Issue of refrom

However, the steady growth of the Indian economy is witnessed from the mid-1990s onwards, and since 2003 India has been one of the fastest growing economies in the world. This steady growth trajectory enables India to reposition itself from the role of the borrower to partner in the IFIs. A similar trajectory is witnessed in other emerging countries.

India and the other emerging powers have no contention about norms and values of the neoliberal institutionalism that undergird these IFIs, but they contested the dominant powers’ behavior within these institutions and turned these into a form of liberal imperialism. The centrality of the USA and the hegemonic exercise of power by the established powers in these institutions that have become the major point of contestation. The adjustment of the IFIs’ shareholding/quota and voting weightage was not done to reflect the change in relative economic strength. The emerging powers frequently raised the demand for reforming the IFIs. India’s voice for reform is one of the most strident and influential. The emerging countries’substantial financial contribution to the Wolrd Bank to address the global financial crisis of 2008 gave further impetus to the demand for reform. After a great deal of hesitation, a first major recognition of the economic power of the non-western countries took place with the replacement of G8 with G20 as the world’s dominant economic coordinator in 2009. In the changed circumstance, the World Bank President Robert Zoellick set up a high-level external commission under the leadership of former Mexican President Ernesto Zedillo to offer a comprehensive blueprint for modernizing the bank.

Unless policy makers in Brazil, Russia, India, China and South Africa build a broad alliance and agree on one name, Western countries would not have any compunction about promoting their candidates to head the IFIs in the next round as well.

The report of the Commission, release in October 2009, urged major reforms in the institution’s governance. The report said that although the crisis has reaffirmed the World Bank Group’s indispensability, its effectiveness is undermined by its hierarchical governance structures, in which the American and European roles remain too dominant and many member countries find too few opportunities for voice and participation. Interestingly, among other specific reform recommendations, the commission suggested reducing the size of the Board of Directors from 25 to 20 chairs to create a more “compact, efficient, and effective” body and to reduce the significant “overrepresentation” of European countries on the board. Also the commission suggested abandoning the historical convention that linked countries’ shareholding to voting power in the World Bank as well as the gentlemen’s agreement that has traditionally given the US the right to name the World Bank president and the Europeans the right to select the IMF head.

At the G-20 Summit in 2009, global leaders announced that the heads of international financial institutions “should be appointed through an open, transparent, and merit-based selection process.” Annual Meetings of the IMF and World Bank at Istanbul in early October 2009 stressed the importance of moving towards equitable voting power in the World Bank over time and committed to pursuing the voice reform at the World Bank with the intention to strengthen the share of the total votes that are exercised by developing. It was also agreed at that meeting to raise the developing countries voting power by at least a further three percentage points, bringing their share above 47 percent. The quota reform was approved by the IMF Board of Governors in 2010.

Despite agreement on modest reform of voice and representation, the developed countries dragged their feet as reform of the IFIs means sharing the powers and influence with the emerging countries. They continued to hold a high portion of the shareholding and vote in the World Bank until January 2016 as reflected inTable 1.

Table 1: Voting Strength of the Top Five Countries at the World Bank till 2015


In 2011, European leaders failed to honor their promise reform of the leadership selection and insisted on a European to be appointed as director of the IMF. In 2012, the Obama administration nominated Jim Yong Kim as its choice to be the new World Bank president. Unless policy makers in Brazil, Russia, India, China and South Africa build a broad alliance and agree on one name, Western countries would not have any compunction about promoting their candidates to head the IFIs in the next round as well.

These frustrating experiences with the IFIs made India initiate along with other emerging countries to establish alternative institutions such as New Development Bank and Asian Infrastructure Investment Bank. There is no difference regarding norms and rules from that of the IFIs, but these new institutions strive for equity and equality among the members.

After more than five years of dithering and hesitation of the established powers, finally in January 2016 they agreed to implement the agreed upon reform of 2010 which made China, Russia, and India among the top-nine quota-holders in the World Bank, along with the U.S, Japan, France, Germany, the U.K. as reflected in Table 2. Despite the reform, however, the US continue to maintain its veto power and centrality in the World Bank.

Table 2: Voting Strength of Top Nine Countries as of 2017


The fundamental logic of the demand for reform remains sound as the demand has been that global financial institutions should adapt to today’s distribution of economic power. While European and U.S. leaders have prompt in asking emerging powers to act as “responsible stakeholders” during the financial crises of 2008 and 2012, they are largely unwilling to constructively engage new actors and allow them the possibility of assuming leadership within existing institutions.


Engaging with the emerging powers and accommodating their aspirations is the only way to ensure continuity of these established institutions. The emerging powers have already established the alternative institutions like New Development Bank and Asian Infrastructure Investment Bank. These new institutions could be the precursor to rival non-western large trans-regional institutions. There is no substantial difference between the IFIs and these non-western alternatives as the new institutions do not challenge the basic liberal norms and standards. The difference is the desire of the emerging powers for equitable voting power and a fair chance for a leadership role in the established institutions.

So instead of letting fragmentation and dilution of power and influence of the established institutions, there is a need for strengthening these institutions with required reform and accommodation. After all, the global economy needs global institutions to help provide global public goods.


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Yeshi Choedon is Professor, Centre for International Politics, Organization and Disarmament School of International Studies, Jawaharlal Nehru University.