Stating that ?inflation is now becoming less of a problem?, Prime Minister Manmohan Singh on Sunday said this will give the government and Reserve Bank of India scope for ?greater manoeuvrability to deal with the economic situation.?
Speaking to reporters on board the special aircraft, while flying home from the emergency G20 summit in Washington, Singh indicated that monetary and fiscal policies could be used aggressively. ?I think as far as interest rates are concerned, that is the preserve of the Reserve Bank of India. It would not be proper for me to comment on this, but as I said, this is an evolving situation, if inflation rate comes down, if we feel confident that inflation will not be a problem, there is scope for manoeuvrability, both in more aggressive use of monetary policy and more aggressive use of fiscal policy,? he said.
On the prices of petroleum products, he gave no commitment that they would be reduced in the wake of the sharp fall in international crude prices but said ?all options? were open on the question of reducing fuel prices. ?We will look at all options. We have, I think, still a very considerable deficit on the oil account. This is, as I said, an evolving situation.?
Singh said as far as India was concerned, a stimulus package was already on and steps had been taken for ensuring increased liquidity. ?The fact that we have given record prices to the producers of wheat, to the producers of a rice; that Rs 71,000 crore of loans have been written off, we have a very extensive programme for social service expansion, infrastructure expansion. So as far as India is concerned, fiscal stimulus is by and large already in place. We have already taken steps to provide more liquidity. If more is needed, we will do more.?
Asked what measures could follow those already taken, Singh said: ?I think this is not a once-and-for-all process. We are keeping the situation under review on a day-to-day basis. The Reserve Bank is at it, the finance ministry is at it. I am heading a committee with the finance minister and commerce minister. So whatever is needed to keep the economy on an even keel will be done. And fortunately, inflation is now becoming less of a problem. And if you look at the inflation from a different angle, it is de-seasonalised data. The situation is turning out to be much better on the inflation front than is evident from this year-on-year figures. That will give us greater manoeuvrability to deal with the economic situation.?
Singh said the G20 summit was ?a clear indication that the balance of power is increasingly shifting in favour of the emerging economies.?
?We were previously also, for the last couple of years, being invited to the G8 meetings, but consultations were merely for the sake of form. Our views were not really taken into account, while they were formulating their viewpoints. This is for the first time there was a genuine dialogue between major developed countries and major emerging countries. So, I believe this is one reflection of the shifting balance of economic power and the western world, at long last, has got to realise this reality. That is a positive gain.?
?Before I went, when President Bush first spoke to me about this idea, I had mentioned to him that there was a risk that if the meeting was not well prepared, it could be counterproductive. I was worried that the Europeans and the Americans may not be able to agree. And similarly, the emerging countries? point of view may not receive the attention that we would like (it to receive), in which case there would be a clear picture of dissension, which would not be good for handling the financial crisis, or its aftermath, the recession that is now on the horizon. But I must tell you that the meeting could be described as a very successful affair. There was no attempt to score partisan points. It was recognised that the world was faced with a major financial crisis and it was now threatening to spill over to the real economy of both the developed and developing countries. And there was also the recognition that as far as the developing countries are concerned, though they had done nothing to contribute to this crisis, they were probably the worst sufferers.?
Singh said ?there was complete agreement that a considerable fiscal stimulation? was called for. ?In the present time, inflation was much less of a danger, deflation was the real concern which the world had to grapple with. Therefore, those countries that have the manoeuvrability should use fiscal stimulus to stimulate demand. It was also agreed that as far as the developing countries are concerned, infrastructure investment and its protection will be a major contributory factor to sustaining growth rates and, therefore, international financial institutions, both the World Bank and IMF and the regional development banks, must come out with facilities to increase their assistance to these countries, and I was very happy that in anticipation of the meeting the both the Fund and the Bank came out with schemes.?
?The committee also agreed on a work programme ?short-term, medium-term, long-term. It agreed to meet again in April, to take stock of the situation.
Meanwhile, there is work in progress. The improvement of standards, the other structural reforms of the system, the reform of the supervision and management systems of these and reform of the governance structure, particularly the reform of international financial institutions giving greater weightage to emerging countries. These are some of the concerns which were taken on board? he said.