With an eye on the approaching India visit of United States President Barack Obama, Finance Minister Pranab Mukherjee expressed hope that India would be made a permanent member of the United Nations Security Council, and that despite the global economic slowdown the Indian government would neither curb foreign investment flows nor allow itself to slip into an inflationary crisis.
Mr. Mukherjee also tacitly advanced arguments to quash any notion that outsourcing of economic activities to India adversely affecting the U.S. He said that trade between India and the U.S. had more than doubled between 2004 and 2008 and as Indian companies sought to position themselves better in the global market place, they have invested over $25 billion between 2004 and 2009 in the U.S., “creating jobs and prosperity.”
Regarding the UNSC Mr. Mukherjee said, “I do hope that as and when the expanded Security Council along with the general reforms of the United Nations takes place, India’s claim for being a permanent member of the Security Council will be considered and accepted.” In his speech on Thursday he further said that international financial institutions needed to reflect in their functioning the realities on the ground and pressed for a “more dynamic and equitable economic architecture for global trade and sustained growth.”
While the Minister emphasised lessons learned in the aftermath of the global economic slowdown, for example regarding the need for financial market regulation, he, however, equally assured the attendees at an event at the Woodrow Wilson Center in Washington that he did not consider Foreign Institutional Investment and Foreign Direct Investment flows to be too volatile presently.
Mr. Mukherjee added that while it was the responsibility of the Reserve Bank of India to “watch the situation and as and when it is necessary to intervene appropriately,” he did not believe that the inflow of FII or FDI had distorted the market sentiments. “Therefore there is no question of putting any cap,” on such flows, he noted.
Responding to a question on whether inflation risk had become worrisome in the Indian economy, Mr. Mukherjee struck a cautious note. He said, “I do agree that there is an inflationary pressure in the system and you will have to agree with me that when we have massive financial expansions we cannot expect to have non-inflationary impact on the economy at all.”
He admitted that he was particularly concerned about inflationary pressures on food items, and in this area the Indian government had taken steps to improve the supply side by importing scarce goods. Overall, he said, the government was following a policy trajectory that sought to strike a balance, “so that the growth is not retarded and at the same time the inflationary pressure is being reduced.” This ought to produce an end-of-financial-year inflation rate of “around six per cent,” he said.
Mr. Mukherjee also highlighted a recently concluded agreement between India and Switzerland relating to double-taxation avoidance. The Minister noted that in order to introduce an amendment to a clause in the agreement, concerning the exchange of relevant information between the two countries, there had been an ongoing bilateral dialogue. However, the negotiations had recently been completed and India was now awaiting the ratification of this agreement as per Swiss laws, he added.
