Reddy seeks end to BPO outcry

The Reserve Bank of India (RBI) yesterday asked industrialised nations to shed protectionism and end the outcry against Business Process Outsourcing (BPO).

"The protectionist postures by industrialised countries need to be shed, particularly in agricultural and textile sectors, especially when developing countries have started to get out of their protectionist mindsets," RBI Governor YV Reddy said, addressing the International Monetary and Financial Committee.

"Developing countries are increasingly realising that trade is after all not a zero sum game, but a win-win proposition for both trading partners," he said.

He also urged a reorganisation of the IMF and World Bank boards to give a greater say to developing and emerging economies in keeping with their new weight in the international economy, and to calculate the relative weight of countries by purchasing power parity.

Favouring "swift" revival of international trade talks, Reddy said: "in this context, as presented eloquently by most eminent policy-makers in industrialised countries, the recent protectionist measures by some countries against business process outsourcing misses out not only the efficiency gains from such outsourcing but also the employment gains from resources saved in the process and deployed in other employment generating sectors."

Reddy also referred to the issue of India's fiscal deficit and agreed that "the main challenge of macroeconomic management today continues to be fiscal consolidation."

Both the IMF and World Bank have called for a reduction of India's 10 per cent fiscal deficit""taking into account Central, State and state-owned corporation deficits""and have said the the country is moving too slowly to reduce it.

However, Reddy, the leader of the Indian delegation, said there were "definitive signs" of progress towards deficit reduction.

"The fiscal deficit of the central government as a proportion of gross domestic product has also declined considerably. Revenues are buoyant, the disinvestment programme has picked up speed, and expenditure control and management measures are firmly in place.

The fiscal responsibility and budget management acts, operating at the Centre and several states, can be expected to deliver solid progress on the fiscal consolidation front," he said.

Reddy indicated indirectly that the IMF, in the opinion of India, is too transparent in revealing to the media and to the public its assessments of countries' vulnerabilities on the economic front.

"Perhaps of paramount importance," he said, "we would like to stress that increased transparency, resulting from assessments of a member country's incipient vulnerabilities may, in turn, exacerbate a crisis even when such a country does not face any liquidity problems and its macroeconomic conditions are stable."

"Thus," he said, delicately, "there is need to reconsider the issue of the optimal degree of transparency in such vulnerability assessments."

He noted that the official development assistance (ODA) by developed to developing countries fell significantly short of the committed target of 0.7 per cent of their gross national product (GNP).