In the midst of a raging war over currency exchange rate between the U.S. and China at the G20 Summit in Seoul, India on Friday cautioned against competitive devaluation and resist any resurgence of protectionism.
India also spoke against talk of putting a cap on current account balance, proposed by the U.S. at 4 per cent of the Gross Domestic Product (GDP), saying it is not easy to reach agreement on what are sustainable current account balances for individual countries given the structural differences across the countries.
India’s forthright views on these and major issues troubling the fifth G20 Summit in Seoul were put forward by Prime Minister Manmohan Singh, who spoke at the Plenary Session of the Summit that opened on Friday morning under South Korean Presidency chaired by President Lee Myung-bak.
U.S. President Barack Obama, Chinese President Hu Jintao, British Prime Minister David Cameron, Canadian Prime Minister Stephen Harper, French President Nicolas Sarkozy and German Chancellor Angela Merkel are among a host of world leaders attending the Summit.
“First, we must at all costs avoid competitive devaluation and resist any resurgence of protectionism,” the Prime Minister said on the raging issue.
On the U.S. attempts to cap current account balances at 4 per cent, the Prime Minister said “it is not easy to reach agreement on what are sustainable current account balances for individual countries given the structural differences across countries, the many uncertainties that prevail, and the multiple goals that each country has to balance.”
Despite these difficulties, Dr. Singh said the G20 must persevere to develop a workable mechanism for international coordination.
Noting that there is considerable agreement on some broad principles, Dr. Singh said advanced deficit countries must follow policies of fiscal consolidation, consistent with their individual circumstances so as to ensure debt sustainability over the medium term.
“This means that fiscal correction need not be front-loaded everywhere... while structural reforms are necessary everywhere, these should increase efficiency and competitiveness in deficit countries, while expanding internal demand in surplus countries. This re-balancing will take time, but it must begin,” he said.
Dr. Singh said exchange rates flexibility is an important instrument for achieving a sustainable current account position and policies must reflect this consideration.