Lauding India's approach to capital inflows as "the right one", IMF Chief Dominique Strauss-Kahn on Thursday said the strategy will help attract the targeted investment of USD 1 trillion in the infrastructure sector during the 12th Five-Year Plan (2012-17).
"So in my view, the Indian approach (on capital inflows) is the right one... so the capital inflows may prove even more useful (for infrastructure development)," Kahn said at a Ficci function.
In general, capital flows are beneficial for economies when they are driven by growth prospects, he said, adding that as far as India is concerned, capital inflows can be put to good use without sacrificing economic stability.
"So the general view that we should have on this capital flows, of course, is that as India is now looking for something like USD 1 trillion for infrastructure, so the capital inflows may prove even more useful," he said.
Long-term capital inflows have to be welcomed, while short-term destabilised inflows have to be managed, he said.
Since January this year, the country has receive capital inflows to the tune of USD 39 billion. Furthermore, some other countries with high growth, especially emerging countries, are attracting a lot of capital inflows, he said.
He also pointed that "India has neither undertaken massive interventions nor decided to strengthen its capital control, even if its understandable that some other country have to do (that) just to avoid the consequences of too big disruptive capital inflows."
Pointing out that India has weathered the crisis remarkably well because of to its macroeconomic policies, he said, "India has truly become an economic superpower... Now it is time to play its role in the global economic framework and governance."
India recorded a GDP growth rate of 8.9 per cent in the first six months of the 2010-11 fiscal, one of the highest in the world.
At the same time, Kahn said, the global economic recovery is still fragile and uneven and the crisis in Europe is still strong. "It is overoptimistic to believe that the crisis is behind," he said.
"We need a strong medium-term consolidation plan in most advanced economy," he said while appreciating India's approach on fiscal management.
"One of the lessons of this crisis is very clear, that is, the value of fiscal space. That is very important for India, because India's commitment to ambitious medium-term deficit and debt reduction target is very important," he said.