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| 'Monetary policy should target investment' |
| BS Reporter / Mumbai Mar 19, 2010, 00:58 IST |
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India’s monetary policy should focus on increasing investments in productive sectors rather than inflation-targeting, according to Supachai Panitchpakdi, Director-General of the United Nations Conference on Trade and Development (UNCTAD).
“Inflation can be controlled by expanding supply rather than by clamping down on demand. India has underutilised human resources and this is no time for demand management,” Panitchpakdi told reporters in Mumbai on Thursday.
On global trade, he said there was a fear that economic nationalism, which is a form of protectionism, might become a permanent feature.
“Leaders of major countries do lip-service at international trade platforms and do exactly the opposite once they go back. Economic nationalism, disguised in the form of stimulus measures, has been raising its head,” he said.
When asked if the stalled Doha Round of the World Trade Organisation would conclude this year, Panitchpakdi was not optimistic.
“Major countries are not ready at this moment. Because of the global economic crisis, international trade talks have been pushed into the background, which is not justifiable. For the Doha Round to conclude this year, countries will have to act now,” he said.
According to Panitchpakdi, the growth rate for trade among southern countries is double that of global trade. “South-South trade now accounts for one-third of the total trade, and is growing much more rapidly than North-South trade. It is now a part of the global supply chain,” he said.
He said there was a case for increasing competition in the Indian banking industry. “In India as well as in other Asian countries, there should be more competition in the baking space. This will help drive down the difference between lending and deposit rates,” he said.
On capital flows, Panitchpakdi said he had no objection to capital account management. When asked if he favoured a so-called Tobin Tax on all short-term cross-border capital flows, he said this was one of the alternatives, but not the only option. “There are alternatives to a Tobin Tax. Countries can control short-term flows by using reserve requirements or by imposing caps,” Panitchpakdi said.
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