India for global approach to tackle widespread inflation

Hanoi, May 5 (PTI) Compelled to sacrifice growth for
curbing inflation, India on Thursday pressed for a global
strategy to deal with the problem triggered by volatile
capital flows into emerging economies, fuelling energy and
food prices.
The point was put forth by India's Finance Minister
Pranab Mukherjee during his interventions in the annual
session of the Asian Development Bank (ADB) and other meetings
at the Vietnamese capital.
"Price volatility now appears to be on the way to
becoming a long-term and a global phenomenon," he said at the
ADB Governors' Roundtable.
According to a UN-ESCAP study released today, due to high
food and energy prices, 42 million additional people across
Asia and Pacific may remain in poverty in 2011, in addition to
19 million already affected in 2010.
Mukherjee blamed developed countries for causing
inflation in the developing nations. He said "loose monetary
conditions of advanced economies, to fight deflationary trends
and foster recovery, have led to volatile capital flows and
partly contributed to volatility in commodity prices".
India too is grappling with high food inflation, which was
hovering around 8.5 per cent for the week ended April 23, and
the Reserve Bank has been tightening the monetary policy for
the past 14 months at the cost of economic growth.
The growth targets have been lowered to eight per cent for
2011-12 from nine per cent.
"If oil prices continue to rise, it would be difficult to
achieve higher gross domestic product. It may come down to 8
per cent," Mukherjee said about the Indian economy.
He said 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".
On the problem of hot money faced by India, Mukherjee
said there has been steady revival of capital flows to the
country in 2009-10 and this trend continued in 2010-11.
On the IMF's framework on managing the global fund flows,
he said this attempt should be advisory and not prescriptive.
"Policy makers must, therefore, have the flexibility, and
discretion, to adopt macro-economic, prudential and capital
account management policies," he said.
They should also 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.
At an another session of Governors' of ADB, Mukherjee
asked multilateral development banks (MDBs) to plough global
savings into emerging and developing economies for ensuring
food security and creation of infrastructure.
India has been emphasising that global savings must feed
the infrastructure requirements of developing countries.
He said the MDBs will have to play a bigger role in this
regard.
"In our view, there has to be a substantial increase in
the role of MDBs in recycling of savings to developing
countries and emerging economies, particularly for
infrastructure, food security and human resource development,"
he said.
The Asian Development Outlook for 2011, Mukherjee said,
has rightly pointed out that deepening of ties among such
economies is vital for growth in Asia.
The finance minister said ADB needs to build on and
strengthen regional cooperation among member countries for
their mutual benefit.
"As it goes about doing so, the focus has to be on hard
infrastructure for connectivity, soft infrastructure for
information and financial flows and institutional arrangements
for cooperation and ownership," he said.
He further said that as recommended by the report,
there is a need to remove barriers on trade amongst developing
countries.
On the role played by India in this regard, Mukherjee
said the country has a comprehensive scheme to allow duty-free
imports of several products from least developed countries.