India could be hit by global crisis: Kahn

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New Delhi, Feb 13 (UNI) Stating that India was not immune from a global meltdown, IMF Managing Director Dominque Strauss- Kahn today called for a grand alliance between emerging markets and industrialised countries for a co-ordinated response to mitigate the impact of the current financial crisis which is resulting in global slowdown.

In a speech delivered at a conference here, Mr Kahn said the world economy has entered into a difficult phase as the financial crisis spreads to the real economy.

The IMF Cheif said both India and China as well as other emerging economies will feel the impact of this crisis ''sooner rather than later.'' The event was organsied by the Indian Council for Research on International Economic Relations (ICRIER).

He said while monetary policy was the first line of defence, governments must be ready to unleash temporary spending boosts to shore up economies.

''This has become a global problem that requires a global solution,'' he said.

Mr Kahn said countries such as China and India had not decoupled from industrial economies.

The IMF Chief compared this alliance to two horses yoked together.

''If one is tired, the other can take up more of the strain for a while. But if one stops in its tracks neither is going to get very far,'' he said.

Mr Kahn said countries whose finances were in good shape should be ready to raise spending in a targeted way to support private consumption. But any fiscal boost should be temporary, as discipline remained important.

He said the current financial crisis began as a probem in a single sector in a singe economy--the housing market in the United States, and has now become a global problem.

Mr Kahn said emerging markets need to consider how much scope there was for monetary easing or fiscal stimulus, he said, adding that not all emerging economies should loosen fiscal policy.

In this regard he said India had very high growth and a still-high public debt, with fiscal consolidation remaining a priority. .

Talking about the role of emerging economies in stimulating global growth, Mr Kahn said they could adopt policies to strengthen their domestic demand as a growth engine, including greater exchange rate flexibility.

In the past, he said, a one per cent decline in United States economy had led to growth in emerging economies slowing between 0.5 to one per cent, depending upon trade and financial links with that economy.


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