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India Switches from Borrower to International Lender - 2003-07-01

India has joined a pool of lenders to the International Monetary Fund for the first time. It has also told 22 small donor countries that it will not accept aid in the future.

India's Central Bank said the International Monetary Fund has selected India to become a member of its Financial Transaction Plan, which helps bail out poor countries in financial trouble. The Central Bank said the decision was prompted by India's strong foreign exchange reserves of around $82 billion.

The step comes on the heels of another significant decision. Last month, India told 22 small donor nations that it will stop taking aid on a government-to-government basis once existing programs are complete.

However, New Delhi will continue to receive loans from the World Bank and large donors such as United States, Britain and Japan.

But India has begun restructuring its $54 billion debt to pay off its more expensive loans early.

It has also doubled its own $600 million aid budget, adding African countries to its existing list of Asian recipients.

Economists say these steps reflect New Delhi's desire to raise its global profile based on its steadily expanding economy. Anjan Roy, an economist at the Federation of Indian Chambers of Commerce and Industry, said for some time Indian policy makers have been trying to shake off the country's "begging-bowl image." "India's economy is much more stronger, and policy makers have the maneuverability to take some major departures from previous policy milestones and launch the country into a different mold. ... It reflects the inherently strong and stable Indian economy, as well as it reflects a changed mindset also," Mr. Roy said.

At the independent Center for Policy Research, economist C.D. Wadhwa said the transition from aid receiver to aid giver reflects New Delhi's desire to play a bigger role in international affairs. "It seems that India is coming of age, it is gaining confidence, its economic performance is being rated by the international community as potentially very significant for years to come. Foreign exchange reserves are in good shape, economy is in good shape, our external debt management has been very pragmatic," Mr. Wadhwa said.

India plugged into the global economy only in 1991, when its foreign exchange reserves plunged to less than $1 billion, triggering fears the country could default on its loans. The crisis prompted India to liberalize its heavily protected economy.

The economic reform process has been slow, but India's huge market has attracted foreign investment, inflation has been controlled and the economy is growing at about five percent a year. International financial organizations, however, say India needs growth rates of eight percent to reduce poverty among hundreds of thousands of its one billion people.