US’ Geithner: India a model for balanced growth

* Praises India’s currency flexibility

* India’s “inclusive growth” aids employment

* Key emerging economies need market-driven forex

By David Lawder

DELHI, Nov. 8 (BestGrowthStock) – U.S. Treasury Secretary Timothy
Geithner praised India’s domestic-led growth and foreign
exchange flexibility, calling it an example of how to build a
sustainable emerging market economy.

In an opinion piece published in Monday’s Hindustan Times
newspaper, Geithner said India was doing its part to rebalance
global growth to avoid the kinds of massive trade surpluses and
deficits that helped fuel the recent financial crisis.

“India is meeting this challenge, helping to demonstrate the
dynamism that can accompany domestic demand-led growth combined
with significant exchange-rate flexibility,” wrote Geithner, who
arrived in Delhi on Sunday to join President Barack Obama for a
state visit with India’s leaders.

Without naming China and its tightly controlled yuan,
Geithner said key emerging economies will need to move to
market-determined exchange rates “in line with economic
fundamentals,” and should boost internal demand through
structural reforms.

India, essentially, is already doing this, he said.

“India is succeeding in fostering greater domestic growth in
part by directing economic policies and incentives toward the
bottom of the income pyramid,” he added.

Geithner traveled to Delhi from weekend meetings in Kyoto,
Japan, where finance ministers from the 21 Asia Pacific Economic
Cooperation countries endorsed Group of 20 pledges to shun
competitive currency devaluations and to reduce excessive
current account imbalances.

The United States has been pressuring China to allow its
currency to rise faster to help reduce its trade surplus and
ease capital flow pressures that are causing more freely
floating emerging market currencies to appreciate.

U.S. lawmakers and manufacturers, along with the
International Monetary Fund, say China’s yuan is significantly
undervalued, providing Chinese exporters a pricing advantage.

China has been critical of the U.S. Federal Reserve’s
decision last week to pump another $600 billion into the U.S.
banking system as a move that will weaken the dollar and boost
capital flows to emerging markets. China, along with Germany and
some other countries, has resisted calls to put numerical
targets on current account balances.


But in Kyoto, both China’s Vice Finance Minister Wang Jun
and Geithner appeared to ease tensions a bit. Wang said the
so-called “quantative easing” by the Fed would help boost U.S.
growth, which was important for the global recovery.

Geithner said while the United States wanted “indicative
guidelines” to determine when imbalances are too big, he denied
any plans to press the G20 leaders to limit them to 4 percent of
gross domestic product. [ID:nN06143046]

China’s current account surplus this year is expected to be
around 5 percent of GDP and its officials have said they expect
it to fall below 4 percent in the next three to five years. The
IMF has said that global recovery could push it back above 8
percent of GDP.

India, meanwhile, has a current account deficit of nearly 3
percent of GDP, which has allowed it to absorb strong capital
flows without putting too much upward pressure on its currency.
Should flows reverse, however, this could cause
balance-of-payments problems for India.

But with India’s economy expected to grow in the 9 percent
annual range over the next five to six years, inflows look set
to increase. The country’s Finance Ministry has said it will
look at “all options” to deal with such flows, but its central
bank has maintained it will intervene in foreign exchange
markets only if inflows turn volatile.

In his opinion piece, Geithner said India will continue to
make substantial investments in public infrastructure that will
help drive its future growth.

“In short, India’s focus on inclusive growth,” through
targeted fiscal spending and investment, is contributing to
greater support of Indian households and higher employment,”
Geithner said.

Geithner also said the United States would do its part to
secure balanced global growth, including increasing household
savings, reducing its fiscal deficit as economic recovery
strengthens, and remaining committed to open investment and

Later on Monday, Geithner will U.S. and Indian business
leaders and hold a bilateral meeting with Indian Finance
Minister Pranab Mukherjee. He also will join Obama for meetings
and a state dinner with Indian Prime Minister Manmohan Singh.
(Reporting by David Lawder; Editing by Erica Billingham)

US’ Geithner: India a model for balanced growth