Prime Minister Manmohan Singh on Friday said trade and current account deficits are not going out of hand and capital flows will be managed in such a way that it does not give rise to problem of inflation.
He also ruled out setting up of a financial sector development council saying the country’s reforms were well thought of.
“We have a trade deficit of about 7 to 8 per cent of our gross domestic product. We have a current account deficit of about 2.5 to 3 per cent of our GDP. We are not piling up reserves. Though we are not creating any problem on the functioning of the global system…
“We are not surplus in that sense. We have a deficit but our deficit will and has been managed within limits of prudence,” he told reporters accompanying him from Seoul where he attended the G20 summit.
Dr. Singh said capital flows can create problems but India was not in that stage where capital flows can become a major problem.
“We will manage our affairs in such a manner that capital flows do not give rise to the type of inflationary problem,” he said.
To a question whether Government would consider setting up a financial sector development council, Dr. Singh said there is no such possibility.
"Our reforms are well though of. They were in response to the needs of the time. And our requirements will be the sole determinant of what type of reforms we wish to do," he said.
The Prime Minister said India needs a reform system which is internationally accepted because there was a way in which an interdependent world can manage flows of capital from one country to another.
‘G20 has achieved a lot’
About the Seoul summit, the Prime Minister said it was a very fruitful meeting and the G20 grouping has achieved quite a lot in two years since its inception.
Listing them, he said first completion of the second stage of the IMF quota reform and restructuring of the executive board of the fund with a new and more flexible credit line.
Secondly, Basel III, a key pillar of the global financial reforms. Much more remains to be done by the financial stability board which has now been democratised to include all G20 members.
Thirdly, agreement on the macro economic mutual assessment process to be reviewed in the next G20 meeting.
This is a complex process but it is the first step towards country-led policy coordination.
Fourthly, putting development on the agenda of the G20 is an achievement.
A high-level panel has been mandated to look at ways of financing infrastructure development in developing countries using private, public and semi-public means.
In addition, there was discussion on proposals for the Doha round of trade negotiations and also the prospects for the Cancun summit on environment related issues.
So on the whole, the Prime Minister said, the meeting did yield positive results.
On his new proposal to recycle surpluses for infrastructure development and whether there was need to limiting inflows into infrastructure in developed countries, Dr. Singh said infrastructure is one critical bottleneck which is hampering the development of large number of developing countries in Asia, Africa and Latin America.
“And you have a queer situation. In a more rational world, capital should flow from rich countries to poor countries. Here capital is flowing from developing countries to rich countries and there is, I think, some oddity in this whole process.
"What I was saying was that these imbalances should be invitations to bring out a new order, where surplus capital would become available to poor countries accelerate the process of their development. If it comes about, I think then it would greatly accelerate the process of growth of poorer countries."
On fiscal consolidation
On whether India plans to further stay on the fiscal stimulus path, Dr. Singh said India has moved to a stage that it cautiously was working toward financial consolidation.
"Monetary policy measures have been taken by the Reserve Bank and gradually, our fiscal system will also move in the direction of consolidation."
Looking back at G20
To a question on the journey of the G20 from Washington at the top of the global financial crisis in November, 2008 to Seoul, the Prime Minister it covers the IMF quota reforms, new facilities in the IMF and the development issue brought explicitly on the agenda of the G20 and the then the mutual assessment process of determining what the surplus countries should do, what deficit countries should do.
"That is the process which has got the approval of the group buy it is a complicated process. It will require a lot of effort to work out operational rules of the game for working out the mutual assessment process," he said.
To a question whether his speech at the plenary session has influenced the final communique, Dr. Singh said he would not claim victory.
"There are ideas which are under discussion in various fora. The sherpas (negotiators) have been discussing these ideas and it is a process of give and take.
"But I do claim some credit that in my speech, I brought the development issue into the very forefront of sustainable, manageable growth process, that you should not only look at mainly surpluses and deficits but you should also see that these imbalances become an opportunity to deal with a more fundamental imbalance which is the development gap between the rich and poor countries.
"And that point, after I made that in my opening speech, was caught up by several other speakers and they complimented that I focussed and brought development to the forefront of the international dialogue," he said.
To a question on BASEL III issue, Dr. Singh said there was no question of rushing into it. "If I remember it correctly, even the BASEL draft has to be adopted by the year 2018-19. So, I think there is a fair amount of time available for us to decide what to do on our own."
On what benefits would flow to the common man out of the G20 summit, the Prime Minister said the amount of development that has to take place in India and the speed with which it has to take place depends on good international environment and encouraging trade flows.
"India has a vested interest that the international financial system should be restructured. It should be well managed because that would mean accelerated growth in our country. That would mean our ability to create jobs for our people will improve."
On the tension between China and U.S. on exchange rate, he said the two countries had very intimate economic relations.
"I don't see, for example, the exchange rates controversy will affect very substantially the development of relations. Certainly the economic relations between China and U.S. will not suffer."
On the valuation of the Chinese currency, Dr. Singh said the Chinese have the surplus which nobody can deny but the relations between surplus countries and deficit countries was not technical.
Now G20 wants to have a more balanced system, where both surplus and deficit countries would have to take corrective action. But what that corrective action should be will be something which will emerge out of this mutual assessment process that has got the approval of G20.