An upbeat Prime Minister Manmohan Singh, on his way back from the G20 Summit in Seoul today, indicated that India’s position was safe, even as a debate raged over trade surpluses and currency valuations in global economic policy.
“We are not piling up reserves. So, we are not creating any problems for the functioning of the global system. We are not a surplus country in that sense. We have a deficit, but our deficit will be and has been managed within the limits of prudence,” he said, and pointed out that the country had a trade deficit of seven-eight per cent of the gross domestic product and a current account deficit of about three per cent.
Singh dismissed any threat to India from capital flows. “Capital flows can create problems but we are not in that stage where they can become a major problem. We will manage our affairs in such a way that capital flows do not give rise to inflationary problems,” the Prime Minister told journalists on board Air India One, his special aircraft.
China surplus
When Business Standard asked the Prime Minister pointedly what he thought of the valuation of the Chinese currency, he would only say: “The Chinese have a surplus which nobody can deny, but the relation between surplus countries and deficit countries is not a technical issue... The international financial mechanism is essentially a power mechanism, and the way the international financial system has functioned so far, creditor countries have always been able to have their way. Now G20 wants to have a more balanced system, where both surplus and deficit countries would have to take corrective action. But what that corrective action should be, that will be something which will emerge out of this Mutual Assessment Process that has got the approval of G20.”
He believes the recent tension between the United States and China over the yuan’s valuation would not have a lasting impact on their relations. “The US and China have very intimate economic relations. I don’t see, for example, the exchange rate controversy affecting substantially the development of their relations. I do not think the economic relations between China and the United States will suffer.”
Secure in India’s current situation, the Prime Minister is happy to take up cudgels on behalf of the less-developed countries.
“You should look at surpluses and deficits, but also deal with the more fundamental imbalance. Several leaders complimented me for bringing development to forefront of international dialogue… Infrastructure is a critical bottleneck hampering the development of the poor countries in Asia, African and Latin American. In a more rational world, capital should flow from rich countries to poor countries. We should bring in a new order in which surplus capital will become available to the poor countries to accelerate their growth.”