Liquidity boost may have costly side effects: Nirmala Sitharaman

Liquidity boost may have costly side effects: Nirmala Sitharaman

Union Finance minister Nirmala Sitharaman on Thursday (April 16) said that India could not support a general allocation of the new Special Drawing Rights (SDR) proposal by the International Monetary Fund (IMF) because it might not be effective in easing out the economical pressure created due to the COVID-19 pandemic.

The SDR allocation proposes to provide all 189 members with new foreign exchange reserves with no conditions.

Sitharaman in a statement to the IMF`s steering committee claimed that such a major liquidity injection could produce potentially costly side-effects if countries used the funds for "extraneous" purposes.

"In the current context of illiquidity and flights to cash, the efficacy of an SDR allocation is not certain, she said, adding that most countries rely on national reserves as a first line of defense. Consequently, extraneous demands for these reserves, not related to domestic monetary and financial stability, would be costly, and hence cannot be supported," she was quoted as saying in a report by Reuters.

This proposal has been opposed by US Treasury Secretary Steven Mnuchin as well.

Meanwhile, during the Plenary Meeting of the International Monetary and Financial Committee, which Sitharaman attended through video-conference, she outlined various measures taken in India to respond in the time of crisis as well as to mitigate the impact of the virus.

She mentioned about the allocation of $2 billion (Rs 15,000 crore) for strengthening the healthcare system; announcement of a scheme of social support measures amounting to $23 billion (Rs 1.70 lakh crore) to alleviate the hardship of the poor and the vulnerable; provision of relief to firms in statutory and regulatory compliance matters; easing of monetary policy by the RBI; and a three-month moratorium on loan installments.

In India, there are a total of 12,759 coronavirus positive cases which includes 1,515 cured cases and 420 deaths, as on April 16 at 5 pm. While globally the total number of cases across 185 nations reached 21.5 lakh and the death toll stood over 1,40,000.