The balance of economic power is now increasingly shifting in favour of the emerging economies, said Prime Minister Manmohan Singh on Saturday on his way back to India from the Summit on Financial Markets and World Economy called for G20 leaders in Washington by President George Bush.
He described the meeting held to find ways to tackle the financial hurricane that has ravaged the global economy as "a very successful affair."
"We were previously also, for the last couple of years, being invited to the G8 meetings, but consultations were mere formalities. Our views were not really taken into account, while they were formulating their viewpoints. This is for the first time that a genuine dialogue was held between the major developed and major emerging countries. 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."
He said his apprehensions -- about the meeting not being well prepared, the possibility of dissension between the Americans and the Europeans, and the likelihood of emerging countries' point of view may not receiving required attention -- had been totally laid to rest.
"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," said the prime minister.
He said that the world leaders recognised that although developing countries had done nothing to contribute to the current financial crisis, they were probably the worst sufferers, with dwindling exports, slowdown in flow of capital and direct investment and foreign capital flying out.
"All the developing countries were united in making this demand that this crisis should not become an occasion to divert the world's attention from the development dimension of the human condition. There our point of view was that in a situation where private capital was not available for various reasons, there was need to mount a considerable fiscal stimulus to make good for the deficiency in private demand," said the prime minister.
He said that there was complete agreement that a considerable fiscal stimulation was called for. In the present time, inflation was much less of a danger, and deflation was the real concern, which the world had to grapple with.
Therefore those countries which have the maneuverability should use fiscal stimulus to boost 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 the 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, he added.
He also said that there was unanimity at the meeting that international financial institutions must be provided with adequate resources to meet the challenge of the crisis as far as developing countries are concerned.
Singh also said that the leaders also agreed on a work programme -- short-term, medium-term, and long-term. It agreed to meet again in April, to take stock of the situation.
The tackling and containment of the crisis will take time, but work is in progress. Improvement of standards, reform of the supervision and management systems, and governance structure, particularly that of the international financial institutions, and giving greater weightage to the emerging countrieswere some of the concerns that were taken on board.
He said that President Bush, in his closing remarks did touch on the subject of his relationship with the incoming administration. He said that the coming administration has been fully briefed about what was happening and its outcome. Stating that he was, therefore, hopeful that there will be broad convergence of views, the prime minister added that, "..but I am not an expert on American politics to predict what will be the shape of things when the new administration takes over."
The prime minister, however, cautioned that the situation was so serious that one cannot wait until January 20 (when Barack Obama will take over as the 44th President of the US), because the financial crisis is now spilling over to the real economy and for the world to say that it will do nothing until then 'would not be a very responsible act so'.
So despite all the uncertainties associated with the change of administration, Singh, said it was clear from the Summit meetings that the world leaders are truely concerned and are committed to find practical, pragmatic solutions to this problem.
In a media briefing that was held on board his special aircraft the prime minister took a few questions from the travelling media. Excerpts:
You had predicted that growth rate would be impacted...
Well, I don't take credit, but Finance Minister, Mr (P) Chidambaram, and I had anticipated that there is likely to be a global slowdown this year. Therefore, in preparing for the Budget for the current year, we budgeted for a very substantial amount of deficit, precisely to take care of the slack that may emerge.
So as far as our economy is concerned, I think, our fiscal stimulus is already on. The fact that we have given record prices to the producers of wheat and rice; that Rs 71,000 crores (Rs 710 billion) of loans have been written off, we have set in motion a very extensive programme for social service and 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, and ready to provide even more, if required.
Is there anything else which is being given apart from what is already provided for? What is the next fiscal stimulus package that can be expected?
Well, 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 of India is at it, the finance ministry is at it... I'm heading a committee with the finance minister and Commerce Minister (Kamal Nath). So whatever is needed to keep the economy on an even keel will be done.
Fortunately inflation is now becoming less of a problem and if you look at the inflation from a different angle, it is de-seasonlized 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 maneuverability to deal with the economic situation.
Should we be more proactive in cutting interest rates?
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 maneuverability, both in more aggressive use of monetary policy and more aggressive use of fiscal policy.
Is the global crisis a failure of capitalism as an ideology or a mistake
Well, financial capital certainly has shown weaknesses. There has been lack of supervision, there has been too much faith that self-interest will make people behave in an enlightened manner. So these are weaknesses of the system, the financial system regulation has been ineffective. But I don't believe that these are inherent in the system.
The Left is saying that they have saved the nation by not allowing the pension bill. Your comment please.
But what has that got to do with this. Even if the pension bill was not there, I don't see the world situation would have been different. We are a small player. Global meltdown is not a crisis which is the result of wrong policies of the Government of India. It is a crisis made outside India. We are the victims of it, not the cause.
Oil prices have come down. Do you intend to respond?
Well we will look at all the options. We have still a considerable deficit on the oil account. This is as I said an evolving situation.
Was there consensus on your point on protectionism?
Yes there is a general agreement that protectionism would be a wrong response to the present situation. It would only accentuate the crisis. Such 'beggar thy neighbor policies' have never worked in the past. They only slowdown and lead to decline of economic activity all around. There is in the communiqué, I think, a reaffirmation that all countries will resist a recourse to protectionist tendencies.
Would there be an impact on the Doha round of WTO talks?
Yes. A part of the same communiqué states that this gives urgency to the task of completing the Doha round as early as possible.
Your comments on the capital account convertibility and banking review as stated in your speech at RBI in 2006
When I went to the Reserve Bank some two years ago, I had said that the whole issue of capital account convertibility needs to be relooked at. There was a Tarapore Committee Report, so I suggested that maybe Tarapore should be asked to relook and revisit it. I did not pronounce anything about if we were going to have capital account convertibility or when. It was a suggestion and Reserve Bank followed it up. And that report is a public document.
What about banking sector review?
This is a question about FDI (foreign direct investment) in banking- (indicates to FM)...
Finance minister: The notification was made towards the end of the NDA Government in January-February 2004. All that we said was that since the notification has been made, we will allow foreign capital in private-sector banks. If any Indian investor wants to buy shares in a private-sector bank, he is subject to a voting cap. As long as there is a voting cap new capital will not come into a private-sector bank. We plan to remove the voting cap.
That amendment (reviewing the voting cap) had been introduced in the parliament. Whether it is foreign capital or Indian capital into a private-sector bank, as long as this cap is there no capital is going to come.
Is the government satisfied with the way it has handled the situation (financial crisis)? Will the people of this country vote the government back?
Well, I think we have done reasonably well and I sincerely hope that the people of India would repose their confidence in us.
When would this crisis get over?
I am not an astrologer. I think there are apprehensions that we haven't seen the worst of the crisis. There are conflicting viewpoints. Our efforts must be to contain and rollback the crisis. But how long will it take, I am afraid, I cannot pronounce with any sense of authority.
Are there any apprehensions in India about Obama regime?
No, no. From whatever feedback I have, I think we have no reason to be apprehensive about the change of regime in the United States. There is general recognition in the US regarding the role that India can play, ...India should play. There is considerable appreiciation of the way Indian economy is managed. And more recently, also Obama did send Madeleine Albright and former Congressman Leach to interact with us. They have given us all the positive indication, so there is no reason to have any doubts about the intentions of the Obama administration towards India.
Your response to the approaching elections and the crisis...
Well, as I said the crisis is not our making. What I would like is for the people of India to judge us by the response of our government to this crisis. We acted in time, and while the rest of the world is in doom and gloom, we will still maintain a growth rate of 7.5 per cent. Growth with stability, more socially inclusive growth is a reality and will remain a reality despite the onslaught of the adverse turn in our external environment.
Will the crisis postpone or hasten elections?
It has no bearing on the elections. Elections will be held on schedule.
What has been to IMF's role, as far as the crisis is concerned?
It has been endorsed that more resources should be provided to the International Monetary Fund and the World Bank. At the meeting itself, the Japanese government announced a loan of hundred billion dollars to the IMF. So on the whole I think, the climate in the developed world is to recognise that international institutions need extra resources if they are to come to the rescue of the emerging countries and other developing countries.