The Hindu : Front Page : India will feel the pinch sooner or later: IMF chief

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Thursday, Feb 14, 2008
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India will feel the pinch sooner or later: IMF chief

NEW DELHI: Emerging economies like India are not insulated from the impact of a slowdown in the U.S. and would feel the pinch “sooner or later,” the International Monetary Fund said on Wednesday.

“The industrial and emerging economies are like two horses yoked together,” IMF Managing Director Dominique S. Kahn said, adding that nations would have to face the impact of global financial crisis “sooner or later.”

Mr. Kahn, who is on a three-day visit to India, also underlined the need for a global solution to the problem of financial crisis, which could have a ripple effect on several economies.

While firming up their response to the global crisis, he said the emerging economies should consider the scope of monetary easing and their ability to provide fiscal stimulus. The extra spending, he added, should be for a smaller period and must be backed by policy measures such as exchange rate flexibility.

Lucrative option

Referring to the Indian growth story and future prospects, he said: “India’s economic engine will run smoothly and there is no reason why the country should not remain a lucrative investment option for the rest of the world.”

The IMF chief added that India’s economic growth rate of 8.2 to 8.3 per cent was “not that bad.” He suggested that India should use fiscal and monetary instruments to sustain the demand.

Elaborating on the impact of the financial crisis on world economies, he said: “One per cent decrease in growth rate of U.S. economy affects the growth rate of emerging economies by 0.5 to 1 per cent.” — PTI

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