India and China need to make their policies more compatible in a world where they have a crucial role to play, said Anoop Singh, director of the Asia and Pacific Department of the IMF on Tuesday. Increasing infrastructure investment and maintaining fiscal sustainability are the two major hurdles these two countries face. The combination can be achieved only if these countries engage in cooperation?making policies more congruent, said Singh.
Speaking at a seminar on Asia?s role in the ?New World Order?, organised by the National Council for Applied Economic Research, Singh said the Asian share of world GDP will rise to over 40% from the current 27% by 2030. This will exceed the combined GDP of the US and EU by 2030. The IMF data is broadly in line with the projections made by Goldman Sachs in its successive Bric reports. However, to sustain and strengthen the current levels of growth, Asia will have to switch from an export led growth to one that rides domestic demand.
As the globalisation level rises further, ?multilateral approaches to policy would become increasingly important, as evidenced in the case of Greece,? said Singh. Asia must focus on four major sectors?enhancing social safety nets to spur a growth in consumption, boost infrastructure spending, work on financial sector reform and encourage greater exchange rate flexibility. In addition, the liberalising labour laws is essential.
According to Singh, one of the key roles of the IMF in the new world order will be ?multilateral surveillance and enhanced vulnerability assessments? as well as reevaluating their ?lending framework, multilateral approaches to capital flows and the global levy on loans?.
Singh?s views on India and China did not much diverge from what economists worldwide have been stating. Both economies will continue to drive growth in the region owing to their large base of a young labour force, relatively underdeveloped financial markets with potential for growth and the promise of infrastructure investment.