Hyderabad, May 4 (UNI) Stressing the need for orderly correction of current global imbalances, Finance Minister P Chidambaram today gave a categorical assurance that India will follow policies that are supportive of such an adjustment by maintaining stability of the existing domestic and external policies.
''There is no reason to expect any change in the basic framework of our policies which have served us well both in terms of growth, based on efficient use of capital and stability assured by sound macroeconomic polices,'' Mr Chidambaram said while addressing a seminar here organised at the 39th Annual meeting of the Board of Governors.
The 'Governors' Seminar's theme was 'A Shared Responsibility: Fixing Global Payments Imbalances.' In his address Mr Chidambaram enumerated risks related to global imbalances and their impact on Asian economies, especially India, and gave a genesis of the reasons for such imbalances while making out a forceful case for coordinated action by the global community for unwinding these imbalances.
Fianace Ministers from 34 countries and delegates from 66 countries are attending the AGM held at the sprawling Hyderabad International Convention Centre.
''India has been following policies which are supportive of orderly adjustments in the global imbalances,'' Mr Chidambaram said and added that global integration has provided immense benefits to Asian economies, including India.
''China has benefitted from global integration, but it has also contributed in containing inflation. Again, India has contributed by providing services to the global economy at a highly competitive rate. India has benefited in terms of receiving large remittances from Non-Resident Indians staying abroad,'' Mr Chidambaram said.
The Finance Minister said global imbalances need to be addressed in a manner so that benefits of global integration continue in an uninterrupted fashion.
Indicating the features of the current imbalances, Mr Chidambaram said these are reflected in the large mismatches in the current account positions across the world and its mirror image in the form of domestic saving-investment mismatches among the countries.
He said the large current account deficit in the US is due to the sharp deterioration in the saving-investment balance in that country leading to sustained rise in its consumption demand, which could only be met by rising imports.
On the other hand, in Asia during recent periods, the saving rate has increased faster than investment in certain countries. The high savings rate in these economies, in turn meant low domestic demand, less imports and higher exports driven by external demand, hence large current account surplus. .
''The other feature of this global imbalance is that despite running large and persistent trade surpluses, exchange rates of some of the major trading partners of the US have not either appreciated at all or appreciated only modestly.'' Mr Chidambaram said the nagging global imbalances were not sustainable for too long and if not resolved would pose a major downward risk for the global economy. He warned that disorderly adjustment, which cannot be ruled out, would be a costly affair.
This could result in volatility in the level and cost of capital flows with direct implications for the Emerging Economies.
Developments in the currency and capital market are intrinsically intertwined with the global imbalance.
In the asset market, a disorderly correction would most likely lead to sharp depreciation of the dollar, which could lead to a sharp drop in the demand for dollar assets and possibility of a relocation of portfolio away from dollar assets. This would most likely lead to a sharp rise in interest rates in the US, Mr Chidambaram said.
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