Emerging markets in general will see their foreign capital inflows dwindle if the US central bank, Federal Reserve (Fed), continues to tighten its monetary policy further, but India may escape this prospect, International Monetary Fund (IMF) research head said.
“Emerging markets have done extremely well over the last few years. Global capital flows are volatile. If the Fed tightens its policy further, inflows into emerging markets will suffer. But India is not susceptible to such threats,” said Dr Charles Collyns, Deputy Director, Research Department of IMF.
He was responding to media queries after speaking at a talk on ‘World Economic Outlook’ organised by Bombay Chamber of Commerce and Industry and Delhi-based think tank, Icrier.
Collyns said that a slow down in US economy might not have a huge impact on the global economy. US economy had been the growth driver for the world economy. It has been taken over by China, India and Europe as the world growth drivers ease the impact of slowdown in the US, he added.
Regarding the appreciation of rupee by about 5 per cent during the current month and its possible erosion of competitiveness of Indian exports, Collyns said, “Indian business is extremely profitable. So, they would be in a position to sustain export competitiveness. No major erosion in it is expected.”
Referring to Indian government and regulatory policy to discourage global sourcing of funds by domestic companies, Collyns said that the country should encourage market based global sourcing method to reap higher benefits.
Backing the Reserve Bank of India’s policy to adopt tight monetary policy stance in its fight against inflation, Collyns said, “Gentle tightening of liquidity was one of the best means to control inflation without affecting growth mometum.” However, he was unwilling to put a peak percentage to the tightening process.
Earlier, talking on the World Economic Outlook, he identified inflationary expectations in several countries as one of the threats to the markets worldwide. Besides, US sub-prime woes, he identified crude prices, disorderly unwinding of global imbalances and financial stability as other threats to the markets. However, he said that growth in emerging markets and domestic growth in Euro and Japan would work positively.
Dr Rakesh Mohan, Deputy Governor of RBI, who chaired the session, said that there was an overall optimism at the IMF and World Bank meeting he attended a couple of days back. IMF has projected a 5.5 per cent growth in world economy.