Summit opens in Seoul today; US’ quantitative easing not a problem, says Montek.
Planning Commission Deputy Chairman Montek Singh Ahluwalia today said the fifth summit of the Group of 20 countries, or G-20, which begins here tomorrow, may see the formalisation of what is called the Mutual Assessment Process (MAP).
Briefing Indian journalists who have come here for the summit, Ahluwalia, India’s Sherpa to G-20, also said the new round of quantitative easing, or QE2, by the US did not pose a problem for India. “If flows are excessive, we must learn to deal with them… These are the good problems to have.”
In saying so, Ahluwalia differed from the stands taken by China and Germany, which have been griping about the decision of the US Federal Reserve to buy $600 billion in Treasury bonds over the next few months to shore up the economy.
Interestingly, if MAP does sail through, such differences can be minimised, since it is a process of coordination of policy among countries. Under this process, countries would make projections, which would be assessed by the International Monetary Fund (IMF). “For the first time, the communiqué may have a reference to this framework for consultative and balanced growth,” Ahluwalia said. A key element of MAP is to reach an agreement on trade balances which are sustainable.
Big exporters such as China and Germany say QE2 will drive down the dollar, helping US exports, even as the US is telling economies with big trade surpluses to cool it. India as an exporter is not on a par with China or Germany. Its economy is growing at the second-fastest pace among major economies. With many other major industrial countries growing at 2 per cent or so, a lot of global capital may flow into India and finance its current account deficit, which has crossed 3 per cent of the gross domestic product and is projected to soon touch 3.5 per cent.
According to Ahluwalia, the country expects $55 billion to flow in this financial year and even $75 billion would not pose a problem. “I do not think at the present moment there is any need to introduce any capital controls on portfolio flows. We have capital controls on debt and I do not think we should relax those too readily. But, yes, those are things that you look at on a month-by-month basis.”
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With no need to ask G-20 for any significant concessions, India has thrown its weight behind MAP. Before leaving New Delhi this morning for Seoul, Prime Minister Manmohan Singh made the country’s stand clear on this. “We have to be particularly wary of protectionist sentiments. There are also developmental imbalances within and between countries, and rebalancing of the world economy is a major challenge. The success of the Mutual Assessment Process is important in this regard,” he said. “India will actively participate in this process to strike the right balance between ensuring its credibility as well as the national interests of countries,” he added.
His statement appears to gel with what US President Barack Obama said today. In a statement, Obama pleaded with world leaders to put aside their differences and work together for global economic recovery.
Ahluwalia was however quick to clarify that MAP would not put countries in IMF’s clutches, an important clarification, considering that the East Asian crisis of 1997 left this part of the world feeling bitter about IMF and its ways.
“IMF will not be telling us what to do. It will just analyse the projections and give recommendations to G-20,” he said.