IMF Survey: India’s Deft Economic Approach Pays Off During Global Crisis
December 2, 2010
- Praise for India's goal of inclusive growth
- Addressing advanced countries' public debt a priority
- Strauss-Kahn tribute for transformed Fund
The head of the IMF, Dominique Strauss-Kahn, has praised the Indian authorities’ handling of the economy during the global economic crisis, and expressed support for their response to the large capital inflows which have poured into the country over the past year.
INDIA IN THE GLOBAL ECONOMY
Strauss-Kahn noted that India’s rapid growth—which the IMF forecasts at 9.7 percent in 2010—has made it a driving force of the global economic recovery.
The IMF Managing Director was speaking during a trip to New Delhi, where he held talks with the Indian Prime Minister, Manmohan Singh, and the country’s finance minister, Pranab Mukherjee.
“We had cordial and useful discussions on a range of issues, including India’s impressive economic growth and steps that the Prime Minister has initiated on infrastructure and fiscal consolidation to further boost growth,” Strauss-Kahn said in a press release issued at the end of the trip.
“We also discussed the importance of international cooperation, particularly in the context of the G-20 process, to build and sustain a strong global recovery,” said Strauss-Kahn, adding that India was playing an important role in the Group of 20 leading economies.
Improving life for all
During the visit, the Managing Director also participated in a roundtable discussion organized by the Federation of Indian Chambers of Commerce and Industry (FICCI). In an address entitled “India and the global recovery”, Strauss-Kahn highlighted two features of India’s economic “success story,” which he said help important lessons for other countries.
One was the country’s significant technological advances which was buttressed by India’s commitment to excellence in higher education; the second, it’s focus on inclusive growth.
“In India, the goal is not simply for growth to be rapid, but for growth to also be inclusive—and improve the quality of life for all citizens,” he said.
The Managing Director was joined on the panel by Chief Economic Advisor Kaushik Basu, Nandan Nilekani, former CEO of Infosys and Chairman of Unique Identification Authority of India, and former Reserve Bank of India Governor Y.V.Reddy.
Priorities for securing global recovery
In his speech, Strauss-Kahn warned against any delay in addressing the outstanding problems highlighted by the global crisis.
“Public finances must be put on a sustainable footing, with credible medium-term consolidation plans. And financial sector repair and reform needs to move faster, so that financial institutions can support the recovery,” he said.
Public debt in advanced economies is projected to reach an average of 110 percent of GDP by 2015—up around 35 percentage points since the crisis, contributing to a debt crisis in many European countries.
A policy challenge facing many emerging economies is the surge in capital inflows. He noted that India has received more than $50 billion of foreign capital over the past year, or 4 percent of GDP. He highlighted the potentially disruptive role of capital inflows, which could include excess currency appreciation and asset and credit bubbles.
While other countries have “cried foul” about these flows, India has decided not to tighten further its existing system of capital controls or to intervene heavily in currency markets, recognizing the important role that foreign investment plays in financing India’s huge infrastructure needs.
“In my view, this approach is the right one,” said Strauss-Kahn.
Global problems, global solutions
During the roundtable discussion, the IMF chief called on the international community to deepen policy cooperation. He said that concerted policy action during the global crisis had helped to avert a much greater economic—and ultimately human—disaster.
“The key lesson is that in today’s globalized economy, there are no domestic solutions to global problems, ” he said.
Despite recent talk of “currency wars” and disruptive capital flows, Strauss-Kahn expressed optimism that global cooperation would eventually prevail. He pointed to the emergence of the Group of 20 leading economies, and governance reforms in international financial institutions, such as the IMF, as illustrations of a stronger multilateral approach.
Strauss-Kahn and a changing IMF
Later, the former Reserve Bank of India Governor, Y.V.Reddy, paid tribute to Strauss-Kahn for three “lasting contributions” to the IMF. He said the Managing Director had encouraged unprecedented openness in the working of the Fund.
“Secondly, you have positioned the IMF in a very critical and desirable role at the time of the crisis, and [you] have become a sort of savior of the global economy.”
Reddy also praised Strauss-Kahn for transforming the Fund’s relations with its Asian members. He said he witnessed the improved ties during the major Asia conference organized by the IMF and the Korean authorities earlier this year.
“I am aware in Asia, ‘IMF’ was not a clean word. That has changed dramatically, and that is entirely due to your openness,” he said.