The World Bank and International Monetary Fund (IMF) are two institutions that were established at the Conference of 44 countries held at Bretton Woods, USA, in July 1944. They were created with the aim of ensuring that newly independent countries, such as India, remain economically, financially and ideologically tied to the world imperialist system.
As has been explained earlier, “The strategy of imperialism, headed by the United States, was to replace colonialism by neo-colonialism … a mechanism of economic and financial relations that would ensure that the former colonies remain dependent on imperialist countries for imported machinery and technology, and on foreign loans and credits to pay for those imports.” (Article published in cgpi.org/25886, on 7 Jan 2025).
The World Bank’s primary function was to extend long-term loans to governments of its member countries, for financing investment projects. The main function of the IMF was to extend short-term loans to governments of its member countries for addressing shortages of foreign exchange due to balance of payments problems. Both institutions demand various conditions to be met by the borrowing country, including specific policies to be adopted.
The official name of the World Bank, when it was established, was the International Bank for Reconstruction and Development (IBRD). It played a key role in financing reconstruction projects in several European countries affected by the Second World War. The International Finance Corporation (IFC) was established in 1956, to extend loans to private industrial companies. In 1960, the International Development Association (IDA) was established to extend longer-term concessional credits to the poor countries. The IBRD, IDA and IFC are collectively known as the World Bank Group.
The repayment period for IBRD loans ranges between 15 and 20 years, while it is 7-12 years for IFC loans. The interest rate in both cases is close to those charged by commercial banks. The repayment period for IDA credits is 35-40 years, and they are interest free, with a service charge of less than 1 percent.
In the case of India, the World Bank has played a significant role in all the decades since independence, while the IMF played a very active role especially during 1981-83 and 1991-93, following crises in the balance of payments.
World Bank operations in India
In the early decades after independence, the Indian ruling class followed a strategy of capitalist industrialization based on the Bombay Plan of 1944-45, also known as the Tata-Birla Plan. It involved the creation of state-owned enterprises in heavy industry and infrastructure, to ensure cheap supply of energy and other inputs to private industry owned by Indian capitalists. Imports of manufactured consumption goods were either banned or subject to high duty rates, to ensure the domination of these markets by Indian industrial houses.
The US imperialists and their European allies were initially not supportive of the industrialization strategy of the Indian bourgeoisie. However, when India turned to the Soviet Union for help in creating state-owned steel plants and other heavy industries, the US and its allies started offering financial and technological assistance, in competition with the Soviet Union. The World Bank advanced as many as five loans for the modernization of Indian Railways in the 1950s. The German and British imperialists extended financial and technical assistance for the creation of public sector steel plants in Rourkela and Durgapur respectively, after the Bhilai steel plant had come up with Soviet aid.
Even though the industrialization strategy of the Indian bourgeoisie was based on the concept of “import substitution”, it required considerable imports of capital goods and technology, far in excess of India’s export capacity at that time. This led to the need for external loans and grants to finance the gap between imports and exports. From 1958 onwards, the World Bank started chairing a gathering of foreign aid agencies called the Aid India Consortium, to coordinate loans and grants to India from the imperialist countries headed by the USA.
One of the important projects of the World Bank in the 1950s was the creation of the Industrial Credit and Investment Corporation of India (ICICI), through which foreign currency loans were channeled to finance major private investment projects such as the expansion of the Tata steel plant.
One of the earliest instances of World Bank influence over government policy in India was the devaluation of the Rupee in July 1966. The World Bank recommended it as being necessary for encouraging the growth of exports and improving India’s balance of payments. An increased level of foreign aid was promised provided the Rupee was devalued. The Government of India responded by lowering the exchange rate from Rs. 4.76 to Rs. 6.36 per US Dollar in 1966, and to Rs. 7.50 in 1967, together amounting to a devaluation of 57 percent.
One of the important interventions of the World Bank in the late 1960s was its support for the Green Revolution, a program which promoted the use of high yielding varieties of wheat and paddy seeds, alongside intensive use of chemical fertilisers and mechanised farming on irrigated land. It led to the growth of capitalist agriculture in selected regions. It not only achieved the goal of self-sufficiency in food grains, but also expanded the home market for the industrial houses.
One of the conditions in World Bank financed projects was that all required materials must be procured through international competitive bidding. This served to secure growing markets in the poorer countries for the multinational companies of the imperialist countries.
By the year 1990, the World Bank had become the biggest source of external loans to the Government of India, and India had become the World Bank’s biggest borrower. Loans and credits from the World Bank financed a wide range of projects including investments in rail and road transport, agriculture and irrigation, energy, education, health and population control.
Total outstanding debt of the Government of India to the World Bank increased from US$ 5.6 billion (Rs. 4,400 crore) in 1980 to US$ 19.1 billion (Rs. 33,400 crore) in 1990 and US$37.1 billion (Rs. 1,70,000 crore) in 2010. Since then, the level of outstanding debt has remained almost constant, with new loan disbursements being roughly equal to repayment of old loans.
IMF Lending to India
In the first two decades after independence, India borrowed a few times from the IMF but they were relatively small loans, not more than US$ 200 million (Rs. 95 crore). The first big loan of was in 1981, when the steep rise in international oil prices had led to a crisis in India’s balance of payments. Although the approved loan amount was US$ 5000 million (Rs. 4000 crore) in four instalments, the Government of India did not draw the last instalment of about Rs. 1000 crore.
One of the conditions of the IMF loan of 1981 was that India must liberalise import policy and let the Rupee decline in value over time. The Government of India responded by shifting more and more items to the Open General License category, which meant that no specific license was required to import them. The exchange value of the Rupee steadily declined from Rs. 7.86 per US Dollar in 1980 to Rs. 17.50 over the next 10 years. There was an acceleration in export growth during that decade, but the growth in the import bill was even higher, leading to further widening of the trade deficit. The oil price shock resulting from the Gulf war precipitated another balance of payments crisis in the year 1990.
With foreign currency reserves declining to a level that could pay for less than one month of imports, the Government of India applied for an emergency IMF loan of US$ 2.2 billion (Rs. 40,000 crore) in 1991. The conditions of that IMF loan included a reduction in subsidies and liberalisation of foreign investment and import policies. They were promptly fulfilled in the July 1991 Budget of the Narasimha Rao government.
The liberalisation policies announced by Finance Minister Manmohan Singh in 1991 closely matched the recommendations of the IMF and the World Bank. However, it would be a mistake to think that the Government of India adopted these policies only due to external pressure. The liberalisation of import and foreign investment policies had been recommended by the IMF even in 1981, and repeatedly by the World Bank at every annual meeting of the Aid India Consortium. The Government of India decided to implement these recommendations only when the Indian monopoly capitalists had prepared themselves for opening up the domestic market and competing with foreign companies.
Ideological Influence
The World Bank and IMF exert their influence over the policies of the Government of India not only through the mechanism of loan conditions. They do so also through the regular analytical reports they publish. They train and cultivate numerous senior government officials, influential economists and journalists. Since the 1990s, most individuals who have occupied the position of Governor of the Reserve Bank of India had spent some years working in the IMF or the World Bank. This is also the case with many of the officers who have occupied important positions in the Ministry of Finance.
Starting in 1997, the World Bank has also played an important role in influencing the thinking of politicians and their advisers at the state level. Until then, discussion of policies between World Bank staff and Indian bureaucrats had taken place only under the supervision of the central Ministry of Finance. With the initiation of a policy-linked project in Andhra Pradesh, the World Bank extended its ideological influence to the state level. The operation in Andhra Pradesh was followed by policy dialogue to prepare similar operations in several other states, including Uttar Pradesh, Orissa, Karnataka and Bihar. Such interventions have served to persuade state governments to implement reforms in policies and regulations for the benefit of Indian and international capitalist investors. They have served to train state level bureaucrats in the implementation of the liberalisation and privatisation program.
Over the past 10 years, borrowing from foreign banks by private Indian companies has become much larger than the external borrowing by the Government of India. As a result, the relative importance of the World Bank and IMF has declined in strictly financial terms. However, they continue to play a major role in shaping the ideas of the Indian ruling class and the economic policies of the central and state governments. Both institutions regularly publish economic reports and policy papers on India. They continue to cultivate and train numerous Indian economists, journalists and senior advisers to the government.
Conclusion
The World Bank and IMF have served the interests of the leading imperialist powers of the world by ensuring that India, the second most populous country in the world, does not break away from the imperialist system and embark on the socialist path, as many other countries did after the end of the Second World War. They have played a role in securing ever growing markets in India for the multinational companies of the G7 countries. They have influenced and continue to influence the economic policies of central and state governments in our country.
The World Bank and IMF claim to be motivated by the aim of reducing poverty in our country. However, their real role has been to assist the bourgeois class and not the poor working people of India. They have played an important role in assisting the Indian bourgeoisie to steer the country along the capitalist path. They have contributed to the ever-intensifying exploitation and plunder of the land and labour of our country, through which Indian and foreign capitalists have accumulated enormous wealth over the past 77 years and more. They have contributed to the ever widening gap between super-rich capitalists and the masses of poor hardworking people in our country.