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No need for global approach to capital controls: Pranab

To plug high current account deficit,india needs more foreign inflows.

New Delhi |
February 20, 2011 11:16:43 pm

The Group of 20 negotiators appeared close to reaching a deal on using current account balances and real effective exchange rates to measure imbalances in the economy,according to agency reports. India’s current account deficit is expected to touch 3.5 per cent of the GDP in 2010-11,and it needs foreign inflows to bridge this widening deficit.

While finance minister Pranab Mukherjee on Friday sought to allay concerns of some G20 members lest they saw the process of arriving at a set of indicators on global imbalances an attempt to shape country-specific policies in a “one-size fit all” manner,he categorically made it clear India was against any global approach to capital controls.

“Our position is that we do not want any arbitrary mechanism to discourage capital inflows. We have stated that this decision should be left to the discretion of individual countries,” Mukherjee told reporters on the sidelines of the G20 summit in Paris.

Speaking at the morning session of the G20 meeting of Finance Ministers and central bank governors,he said,“The objective is clearly to arrive at a consensus on a set of ‘indicative’ guidelines that could reduce excessive external imbalances.” A positive outcome,he said,was needed to provide a signal that the G20 was serious about addressing structural problems in the global economy and not just crisis-fighting.

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As far as India was concerned,he reiterated Prime Minister Manmohan Singh’s suggestion at the Seoul Summit that a way must be found to channel global savings to regions where huge investments are required for development and infrastructure. He said India did not contribute either to the buildup,or to the persistence of global imbalances.

“Nor does it contribute to the volatility that we have been witnessing in several of the international markets,including commodity markets,” he pointed out.

According to Mukherjee,India was vulnerable to seasonal factors and their effect on the food prices. As a result of vagaries of weather,it witnessed a high and unsustainable inflation on the food items.

“The food inflation has also been accentuated by structural changes in the consumption pattern thanks to our growth. Such high food inflation has a tendency to feed into general inflation throwing challenges at our macroeconomic management. The high and persisting international prices of food commodities do not give us room for comfort in tackling food inflation in India,” he said.

India was concerned about elevated commodity and asset prices,and economic problems of a more structural nature.

“Some of these uncertainties also derive from the aggressive macro-economic policy response to the global crisis itself,” he said. Any sustainable recovery,he stressed,must necessarily be global,where trade and capital will need to flow in a stable manner.

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