The Hindu : Front Page : PM, Ahluwalia sanguine about economy

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Wednesday, Sep 24, 2008
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PM, Ahluwalia sanguine about economy

Harish Khare

ON BOARD THE SPECIAL AIRCRAFT: As it heads towards the United States, the Manmohan Singh establishment seems inclined to display a cultivated equanimity over the impact of the American financial meltdown on the Indian economy.

While Prime Minister Manmohan Singh himself told journalists, en route to New York on board his special plane, that the primary lesson from the American meltdown was “that the multilateral institutions must be strengthened,” Deputy Chairman of the Planning Commission Montek Singh Ahluwalia thought that the direct impact on India would be “negligible.”

Mr. Ahluwalia is part of the Prime Minister’s official delegation to the United States and France.

However, he conceded that there was no total escape from an indirect impact on the Indian economy. Global financial uncertainty would have cross-border consequences for growth, he said.

Yet, as Mr. Ahluwalia saw, there was a silver lining: India’s ample stock of foreign exchange reserves. “Earlier there was a surge of excessive inflow that was no longer needed,” but the same would “insulate us” in the downturn days.

The American economic crisis would also mean that international investments in every country, including India, would be uncertain.

However, Mr. Ahluwalia said, the Manmohan Singh government’s contention that “India has strong fundamentals remains valid.” And, in fact, the emerging economies (Brazil, Russia, India and China) would be better placed to help the world financial system recover.

On the inflationary pressures, Mr. Ahluwalia was confident that the inflation rate would be “back to a single digit” before the year-end.

On the whole, the man who has the reputation of being the most pro-economic reforms voice in the Manmohan Singh establishment thought that at the end of the global crisis, “financial liberalisation strategy has been vindicated.” But he entered a caveat: “excessive financial innovations could be harmful to your economic health.”

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