U.S.Treasury Secretary calls India a model for balanced growth

U.S.Treasury Secretary calls India a model for balanced growth

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.

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 trade.

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.

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