India for global efforts to control inflation: Pranab

Chandra Shekhar
Hanoi, May 5 (PTI) Warning that volatility in
international food and fuel prices may be on the way to
becoming a long term and global phenomenon, India on Thursday
called for a coordinated effort at the global level to control
inflation.
Recent volatility in global prices of food and fuel has
thrown up fresh challenges in management of inflation, India's
Finance Minister Pranab Mukherjee said, adding, "...
Management of inflation, in addition to domestic efforts, will
increasingly have to be a globally coordinated effort."
Mukherjee was speaking at a session on managing inflation
and capital flows at the Governors' Roundtable of the Asian
Development Board's annual meeting here.
He, however, blamed the policies of advanced economies of
loose monetary conditions to fight deflationary trends and
foster a recovery for leading to volatile capital flows and
partly contributing to volatility in commodity prices.
"Today, the entire globe is facing simultaneous
volatility in food, fuel prices and commodity prices. Thus,
over the last four years, we have moved from a fuel crisis to
a food crisis to a financial and economic crisis and now, we
are back to a food and fuel price crisis," he said.
India is grappling with high food inflation, which was
hovering around 8.5 per cent for the week ended April 23 and
the Reserve Bank of India has tightened the monetary policy to
contain inflation even at the cost of economic growth.
"We need to look closely at contribution of different
factors to food price volatility and inflation in order to
understand and respond through policy reform," Mukherjee said.
He said a significant part of inflation is due to
imbalances and inadequacies in global financial and monetary
management.
The minister said one set of policies needs to address
issues such as excessive liquidity and speculation and another
set of policies needs to address other issues such as panic
buying and exchange rate fluctuations.
On capital flows, Mukherjee said there has been steady
revival of capital flows to India in 2009-10 and this trend
continued in 2010-11 due to its strong economic fundamentals.
"However, easy monetary policy in terms of very low
interest rates and quantitative easing in advanced economies
have led to an increase in liquidity and lowering of long term
interest rates. These are also driving capital to emerging
economies in search of higher yields," he said. Mukherjee said capital flows have exhibited considerable
volatility, imparting macroeconomic instability in the event
of sudden stops and reversals, eroding competitiveness and
complicating the setting of policies.
"I believe that policy prescriptions with respect to
capital flows should be even-handed," he said.
He said so far as lumpy and volatile flows are a
spillover from policy choices of advanced economies, "managing
capital flows should not be treated as an exclusive problem of
emerging market economies and the burden of adjustment should
be shared".
He said policymakers must therefore have the flexibility,
and discretion to adopt macroeconomic, prudential and capital
account management policies.
"More importantly, they should be able to do so without
a sense of stigma attached to particular instruments,"
Mukherjee said.
India uses a mix of policy tools to manage capital flows,
mainly relying on prudent capital account management and
flexible exchange rates, with "good" actual use of inflows.