Discuss the significance of Special Drawing Rights (SDRs) allocations in strengthening India’s balance-of-payments buffers. Evaluate the limitations in their present design.
Kartavya Desk Staff
Topic: Evaluation, IMF and Underdeveloped Countries, SDR’s
Topic: Evaluation, IMF and Underdeveloped Countries, SDR’s
Q5. Discuss the significance of Special Drawing Rights (SDRs) allocations in strengthening India’s balance-of-payments buffers. Evaluate the limitations in their present design. (10 M)
Difficulty Level: Medium
Reference: InsightsIAS
Why the question India’s use of Special Drawing Rights (SDRs) as a stabilisation tool amid recurring global financial shocks and to evaluate the structural limitations of the SDR framework. Key demand of the question The question requires explaining how SDR allocations help India’s balance-of-payments stability and then critically assessing the inherent design constraints of SDRs that limit their broader effectiveness. Structure of the Answer Introduction Briefly introduce SDRs as an IMF-created reserve asset and link their relevance to India’s external-sector stability. Body Significance of SDRs for India’s balance-of-payments buffers – suggest a general idea such as reserve augmentation, confidence enhancement, and crisis-management usefulness. Limitations in their present design – suggest a general idea such as unequal distribution, limited usability, and structural constraints. Conclusion Conclude with a forward-looking line on the need for reforms to make SDRs more equitable and accessible for emerging economies.
Why the question India’s use of Special Drawing Rights (SDRs) as a stabilisation tool amid recurring global financial shocks and to evaluate the structural limitations of the SDR framework.
Key demand of the question The question requires explaining how SDR allocations help India’s balance-of-payments stability and then critically assessing the inherent design constraints of SDRs that limit their broader effectiveness.
Structure of the Answer
Introduction Briefly introduce SDRs as an IMF-created reserve asset and link their relevance to India’s external-sector stability.
• Significance of SDRs for India’s balance-of-payments buffers – suggest a general idea such as reserve augmentation, confidence enhancement, and crisis-management usefulness.
• Limitations in their present design – suggest a general idea such as unequal distribution, limited usability, and structural constraints.
Conclusion Conclude with a forward-looking line on the need for reforms to make SDRs more equitable and accessible for emerging economies.