FM promises action on capital inflows when it is needed

Ministry is closely monitoring situation, he says.

Finance Minister Pranab Mukherjee said here on Monday that rising capital flows into India had not yet reached an alarming level, but appropriate action would be taken as and when it was considered necessary.

“As far as our economy is concerned, I am not unnecessarily worried. Reserve Bank is watching the situation, the ministry is also watching the situation, and we have not reached a stage where the panic button needs to be pressed,” the minister said, adding that “as and when action is called for, appropriate action will be taken”.

Mukherjee’s statement, made during a brief interaction with Business Standard, is significant in the light of global concerns over rising capital inflows posing fresh risks to financial stability and Reserve Bank of India Governor Duvvuri Subbarao’s statement a day earlier in Washington that the central bank would intervene if capital inflows were lumpy or volatile.

The finance minister was in New York on his way back to India after attending the autumn meeting of the World Bank and International Monetary Fund in Washington, where increasing capital inflows was identified as a “policy challenge” that could “pose significant risks to the financial stability” of Asia.

In his interaction, Mukherjee touched upon a wide range of issues, including the contentious demand made by developing countries for a higher quota in the IMF and the ongoing US-China talks on exchange rate adjustments.

The finance minister said he was optimistic that the quota revision in IMF would be achieved soon, leading to a greater voting share for emerging markets and developing countries in the Fund. “They will have to do it quickly, shortly,” he said. India has argued for a 5-6 per cent shift in quota share from advanced economies to developing countries, and Mukherjee had reiterated this position in Washington.

On the current controversy over the revaluation of the Chinese yuan under US pressure, Mukherjee said India had no desire to take sides between the two countries. The US is expected to raise the issue of the yuan’s valuation at the G-20 Summit in South Korea next month. “We have suggested that this should be discussed and a solution must be found through dialogue,” he said.

US Treasury Secretary Tim Geithner had announced in September that the US would try to mobilise support from G-20 members during the Seoul Summit in an effort to press China for further and faster appreciation of its currency.

Mukherjee also said the controversy over the yuan was not a major issue at the meetings. He also said he did not know if it would be discussed at the G-20 finance ministers’ meeting preceding the summit. The subject was not discussed at the bilateral meeting with his South Korean counterpart, according to officials.

While in Washington, the finance minister also met US Secretary of State Hillary Clinton, and they talked about US President Barack Obama’s upcoming visit to India. But Mukherjee said the agenda for the visit was still under discussion and declined to identify any areas where decisions or progress could be expected during the visit.

According to sources, during the Mukherjee-Clinton meeting, the US repeated its long-standing demand for India to open up its domestic market to American dairy exports. Meanwhile, India conveyed its position that it had fulfilled all its commitments regarding the Indo-US civilian nuclear agreement, and urged the US to complete the remaining formalities on its side quickly.