Opinion Not quite right

At the G-20 meeting,a decision has been taken to increase quotas of developing countries by 2012.

October 25, 2010 11:38 AM IST First published on: Oct 25, 2010 at 11:38 AM IST

At the G-20 meeting,a decision has been taken to increase quotas of developing countries by 2012. For instance,Indias quota will increase from 2.44% to 2.75%,taking it from 11th to 8th position (China has also moved up).

Broadly,6% of voting rights will be transferred from developed to developing countries and Europe has also agreed to cede 2 seats from the 24-member Board of IMF. There are certain to be more quota reviews later and reforms of IMF.

However,should any of the 187 members ever have a veto? That veto can be exercised if vote shares exceed threshold of 15% and US still retains it at 16.67%. Vote shares arent determined on the basis of GDP alone,but GDP is single most important factor. Because this is IMF,that GDP is on PPP basis.

While precise figure varies from year to year and since 2007-08 developed countries have witnessed declines in their relative share,the US’s share in world PPP GDP was 20.35% in 2009,while Indias share was 5.03%. IMF reform is linked to altered economic clout with a switch from developed to developing countries,especially China and India. However,beyond the veto point,this is more about Europe (rather than US) accepting this.

PPP conversions required computation of PPP exchange rates,different from official exchange rates. As a general point,use of PPP rather than official exchange rates,increases relative GDP in developing countries and lowers it in developed ones. Thats because some products (such as services) cost loss in developing countries. Obviously,to obtain PPP conversions,we need price data and that comes through surveys,gauging how much an identical basket costs in different countries. We thus had an international price survey in 2005,and this found that prices in China and India were higher than what they had been assumed to be.

Therefore,PPP GDP was reduced downwards for China and India. Though the World Bank and IMF routinely use this data,the source was ADB (Asian Development Bank). In this day and age,when research output is widely disseminated,analyzed and critiqued,one would expect details of the ADB survey to be available.

The survey was undertaken in India in 2004-05,the last such survey being in 1985. How large was the sample? What was its geographical spread? You will be surprised at how little information is available on matters like this,from inside ADB and outside it. The two authors who collected data for India havent published papers. Very odd.