Prime Minister Manmohan Singh on Thursday told leaders of developed economies that they had as much responsibility as emerging economies in weathering the adverse impact of their monetary policies, which has hit several currencies, including the Indian rupee which has had a free fall of about 20% this year.
He called for a meeting of finance ministers of developed and emerging economies to resolve differences on monetary policies of the kind that has weakened the rupee.
Addressing leaders of the G20 group of the world's elite economies in the Strelna island forming part of this historic Russian city of palaces and canals, Singh donned the hat of the economist that he is to systematically build a case that effectively said that India cannot suffer the consequences of the clean-up in Western economies that involved cheap loans which in turned flooded India and wreaked havoc on its currency.
He asserted that India will eventually cut its current account deficit – the gap between foreign exchange inflows and outflows in a year - to 2.5% from last year's 4.8% (the main trigger for the rupee's fall) but added that if developed economies needed leeway with unconventional monetary policies, economies like India needed their own elbow room in mending their reforming economies.
In effect, he asked for more room on trimming the fiscal deficit, on account of which India is being threatened with a credit rating downgrade by agencies.
"With markets now anticipating a reversal, we are seeing a large outward flow from emerging markets. Since most emerging markets now operate with flexible exchange rates, they have experienced varying degrees of currency depreciation, posing problems in many cases," Singh said.
"These problems suggest that the G20 policy co-ordination process needs to pay more attention to monetary policy than it has," he said.
"If we accept the need for coordination of fiscal policy among the systemically important countries, there is an equally compelling case to cover monetary policy in the reserve country currencies. There is certainly room for more extensive consultation and more effective communication on this issue," the prime minister said.
The theme of the summit is economic growth and the need for quality jobs. Singh turned the agenda into an opportunity to present India's case that the US Fed should not be in a hurry to withdraw its easy cash policy and give as much visibility for emerging economies.
The Fed has been pumping $85 billion a month to aid America's economy but plans to taper off the programme as growth recovers. This has caused a reversal of the flood of cheap money into economies like India.
Singh also spoke for taxation coordination among leading economies so that multinationals do not evade tax by using inter-country loopholes.
In a wide-ranging speech, the prime minister questioned measures that curbed movement of labour – in effect taking aim at the restrictive US immigration bill that limits opportunities for India's IT companies.
"Our efforts at restoring growth will be greatly helped if we have a stable external environment that is supportive of growth," he said.
"Fiscal consolidation is important for many countries and must remain a key medium term objective. However, it must be pursued with realistic time paths, keeping in mind the current weaknesses in demand in many countries."