The Intenational Monetary Fund chief, Dominique Strauss-Kahn on Thursday exhorted India to create a buffer to deal with any eventuality that could arise from the world economy which is yet in the throes of a fragile recovery. Talking to reporters here, he reiterated that a double dip recession was not the Fund?s projection but did not rule out it given the downside risks.
Stating that Indian economy was growing at its full potential and was likely to match the Fund?s forecast of over 9%, Strauss-Kahn cautioned against possible build up of inflationary pressures with this higher growth trajectory.
The Indian economy grew by 8.9% in the second quarter of this fiscal, beating government projection of 8.5% for the full fiscal. While the global recovery is still fragile and uneven, the impressive growth of India has made it ideal to play a greater role in the world economic platforms like G20, IMF chief said.
Concerned about the situation in Ireland, he said a medium-term fiscal consolidation plan is needed for countries like Ireland and Greece. On a day long visit to India, the tenth IMF chief said, ?We should not underestimate the importance of this crisis which, in Ireland, is coming from the banking sector. But I think the decision that has been made will fix the problems in the banking sector, and the Irish economy will come back on track rather rapidly?, he said.
Strauss-Kahn met Prime Minister Manmohan Singh and later met finance minister Pranab Mukherjee in the capital. He later praised the ?right mix of fiscal and monetary policies? which protected India from any major impact from the global economic crisis.
On Sunday, the European Union (EU) and the IMF announced an $111billion rescue package to shore up Ireland?s banking sector and enable the country to meet its debt obligations. The move has calmed fears about Ireland but led to intensified speculation that fellow eurozone debt-ridden financial stragglers Portugal and Spain could also need help in due course. Greece, another eurozone laggard with chronic public finances, received a 110-billion-euro joint bailout in May from the EU and IMF. Strauss-Kahn?s comments come ahead of a crucial meeting of the European Central Bank, which is under pressure to act to help the euro zone contain a crippling debt crisis that threatens to affect the United States and Asia.
Strauss-Kahn said the massive capital flows witnessed by India can be used for developing infrastructure sector, especially with the huge demand of over 1 trillion dollar investment required in the sector. He prescribed India to monitor short term capital flows as they can disrupt the financial stability of the markets. FIIs have pumped over $38 billion into capital markets in India this year so far, encouraged by the prospect of sizable returns on their investment amid uncertainty elsewhere in the world.
After the meeting with Mukherjee, the IMF chief also proposed a radical break from the past in the way the heads of the IMF and its sister organisation the World Bank are selected. ?I think it would be just fair that the next leaders of the two institutions will come from somewhere else in the world?. India has been demanding a greater say for emerging markets in the global economic governance structure, reflecting their changing importance and their role in recovery from one of the worst global financial crisis in decades. Mukherjee has on more than one occasion told western countries that the relative power in the board of directors and the board of governors of institutions like the IMF and the World Bank should reflect the changing global economic reality or else the legitimacy of these bodies could be questioned. There have been reports that India was pushing for the appointment of Planning Commission Deputy Chairman Montek Singh Ahluwalia as the next managing director of the IMF.
