Rarely willing to take personal credit for any policy measure, Prime Minister Manmohan Singh broke with that pattern on Friday. On the flight home from the G20 summit, he acknowledged that he had steered world leaders to consider using the global savings glut to instead fund infrastructure.
The economist in him obviously relished the moment: ?I do claim some credit that in my speech, I brought the development issue into the very forefront. 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.?
But soon, the PM was back to his modest self. ?Well, I do not claim victory. These are ideas which are under discussion in various fora. The sherpas have been discussing these ideas and it is a process of give-and-take.?
Yet there is no doubt, his plan, if one may call it that, has become the biggest takeaway from the Seoul summit. In short, it involves the idea that surplus capital in world?s financial bazaars should not be seen as a problem of plenty. Several countries have erected floodgates of capital control to stem inflows. Just like flood waters, they feel the liquidity will raise prices, creating bubbles that make their economy very vulnerable, once the flood abates.
Singh, instead, advised that one should see these imbalances ?become an opportunity to deal with a more fundamental imbalance which is the development gap between the rich and poor countries.?
So, what he suggested was to set up a market-linked international bond market that will be tapped into by developing countries to finance their infrastructure.
No surprises therefore, that on the most contentious issue ? the US-China currency spat ? it was the Singh line which was used to write the final communiqu?. There should be no ?competitive devaluation?. This was the furthest the Seoul Declaration went, to chide the US on its plans to flood the market with dollars, through further stimulus measures.
What does this mean for India? ?We do want, I think, a reformed (financial) system, which is internationally accepted because that is the way in which an interdependent world can manage flows of capital from one country to the other.?
Tax breaks in the forthcoming budget? ?Monetary policy measures have been taken by the RBI and gradually, our fiscal system will also move in the direction of consolidation.?
