India for global approach to tackle widespread inflation
Compelled to sacrifice growth for curbing inflation, India today pressed for a global strategy to deal with the problem triggered by volatile capital flows into emerging economies, fuelling energy and food prices.
The point was put forth by India's Finance Minister Pranab Mukherjee during his interventions in the annual session of the Asian Development Bank (ADB) and other meetings at the Vietnamese capital.
"Price volatility now appears to be on the way to becoming a long-term and a global phenomenon," he said at the ADB Governors' Roundtable.
According to a UN-ESCAP study released today, due to high food and energy prices, 42 million additional people across Asia and Pacific may remain in poverty in 2011, in addition to 19 million already affected in 2010.
Mukherjee blamed developed countries for causing inflation in the developing nations. He said "loose monetary conditions of advanced economies, to fight deflationary trends and foster recovery, have led to volatile capital flows and partly contributed to volatility in commodity prices".
India too is grappling with high food inflation, which was hovering around 8.5 per cent for the week ended April 23, and the Reserve Bank has been tightening the monetary policy for the past 14 months at the cost of economic growth.
The growth targets have been lowered to eight per cent for 2011-12 from nine per cent.
"If oil prices continue to rise, it would be difficult to achieve higher gross domestic product. It may come down to 8 per cent," Mukherjee said about the Indian economy.
He said lumpy and volatile flows are a spillover from policy choices of advanced economies. "...managing capital flows should not be treated as an exclusive problem of emerging market economies and the burden of adjustment should be shared".
On the problem of hot money faced by India, Mukherjee said there has been steady revival of capital flows to the country in 2009-10 and this trend continued in 2010-11.
On the IMF's framework on managing the global fund flows, he said this attempt should be advisory and not prescripttive.
"Policy makers must, therefore, have the flexibility, and discretion, to adopt macro-economic, prudential and capital account management policies," he said.
They should also be able to do so without a sense of stigma attached to particular instruments, Mukherjee said.
India uses a mix of policy tools to manage capital flows, mainly relying on prudent capital account management and flexible exchange rates, with "good" actual use of inflows.
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