India asks rich nations to give clear exit policy parameters

A day after the Group of 20 pressed the US to avoid a potentially devastating default, India Saturday asked advanced economies to give a heads up when they exit from unconventional monetary policies.

Noting that "global recovery is as yet fragile," Finance Minister P. Chidambaram said, "It needs to be ensured that it is nurtured and put on a ustainable path through appropriate policy actions, both in advanced and emerging market economies."

"Dialogue, cooperation and effective communication, on a multilateral basis, would be important in ensuring this," he told world's financial leaders gathered here for the International Monetary Fund World Bank annual meetings.

"Although the improving economic activity in the US is a good sign," Chidambaram said, "a smooth exit from the unconventional monetary policies poses a major challenge for the policymakers in advanced and emerging economies."

"Given the risks involved in the exit from the unconventional monetary policies, there is a need to communicate clearly to market participants the parameters that will guide the exit," he said.

"Emerging market economies also need to strengthen their domestic fundamentals and be prepared with appropriate policy responses in different scenarios, to meet the challenge arising out of exit from the unconventional monetary policies in advanced economies," he said.

India's warning came amid report that the negotiations between President Barack Obama and Republicans to raise the US debt limit had broken down - just days before the US reaches its borrowing limit Oct 17 - with the White House rejecting Republican's latest offer.

Addressing the International Monetary and Financial Committee on behalf of Bangladesh, Bhutan, India, Sri Lanka, he said "global growth prospects, have not only weakened, but global recovery has become uneven" since the April Fund-Bank meetings.

Economic growth in India slowed down to 5 percent in 2012-13, Chidambaram said partly due to weak and uncertain global macroeconomic environment and partly due to domestic constraints.

India has, therefore, taken measures to ease supply constraints and improve investment climate as also to contain the fiscal deficit and the current account deficit, he said.

Turning to the issue of IMF quota and governance reform, Chidambram stressed the urgent need to immediately conclude the 2010 IMF Quota and Governance Reform, as well as to complete the 15th General Review of Quotas and arrive at a new quota formula, by the agreed timeline of January 2014.

(Arun Kumar can be contacted at arun.kumar@ians.in)