Beef up resources to future-proof global economy: India to IMF

Washington

He also asked the International Monetary Fund (IMF) to beef up its resources to ensure 'future-proofing' of the global economy against recurrence of financial crisis.

Speaking at the meeting of the International Monetary and Financial Committee (IMFC) last night, Jaitley said India's balanced macroeconomic environment and strong growth prospects make it a 'bright' spot in the global scenario.

Jaitley said the Indian economy has managed to put across a 'credible' performance with an estimated growth rate of 7.6 per cent in the just concluded fiscal 2015-16, as against 7.2 per cent in the previous year.

"The growth performance is more credible given that it has been achieved despite contraction in our exports due to slowdown in global economy and two consecutive years of monsoon shortfall," he said.

"However, there are concerns about export growth which is declining consecutively for more than a year due to slowdown in global demand," Jaitley said.

The Finance Minister said subdued growth and low productivity in Advanced Economies (AEs) and elevated risks faced by Emerging Market Economies (EMEs), as also risks of instability of financial system, are hurting global recovery.

"Flagging trade volumes, softening commodity prices, idle capacities and anemic economic fundamentals, particularly in a number of large EMEs are increasingly impairing their ability to sustain economic and financial resilience against rising risk premiums and credit risks.

"Moreover, there are the risks of exogenous shocks from asynchronous normalisation of Unconventional Monetary Polices (UMPs) that can produce disorderly adjustments in exchange and volatile capital flows - increasing the cost of managing external exposures and balance of payments.

"In this milieu, risks faced, especially by crisis-affected countries and low-income countries, require the support of a credible multilateral safety net to provide financing necessary to prevent contagion.

"The IMF is in unique position to take this responsibility but needs to be strengthened further through reforms in its governance. At the same time, the IMF should also examine adequacy of its own resources and whether they are sufficient for 'future proofing' the global economy against recurrence of financial crisis," he added.

Stating that UMPs have added huge uncertainty to financial markets and are harming the prospect of maintaining financial stability, Jaitley said, "Advanced economies should be mindful of the consequences of spillovers on other countries that are negatively affected".

The Finance Minister said it is 'a tall order' to expect a sustainable economic rebound, given the lack of policy space in major AEs and the existing vulnerabilities, especially, of commodity exporting emerging markets.

"Low and/or negative policy interest rates in many AEs have increased the risks of volatility in asset prices and capital flows, while increasing the propensity for competitive currency devaluations. UMPs targeted at reviving growth create disruptive spillovers given the growing inter-connectedness of the global financial system," he said.

About India, Jaitley said the government is following the mantra of 'Reform to Transform India' and has embarked on a path of far reaching structural reforms to foster strong and sustainable growth.

Jaitley, who is on a week-long visit to the US, said the Indian government is taking steps to reform institutions, simplify procedures, repeal obsolete laws and put in place a progressive and non-adversarial tax regime incorporating best global practices.

On IMF, Jaitley said it needs to maintain close oversight upon emerging vulnerabilities and remain committed to safeguarding the stability of the international monetary and financial system, given the wider implications of ongoing developments in the global economy.

"In order to be a reliable source of contingent financing, it is important to assess the sufficiency of Fund's resources in accordance with the changing global realities including levels of global growth, size of trade and capital flows," he added.