Prime Minister Manmohan Singh on Friday blamed "failure" of international surveillance, supervision and regulatory mechanisms for the current global financial crisis and sought immediate "coordinated action" to restore confidence and "de-clog" the credit market.
Making an impressive debut at the seventh Asia-Europe Meeting (ASEM), which formally admitted India into its fold, Singh said the current international financial crisis could be attributed to three failures.
Singh, a renowned economist who had successfully launched India's reform process in early 90s, said the first cause was a regulatory and supervisory failure in developed countries.
"Massive failure of regulatory and supervisory mechanism has really been the reason for the present turmoil and if there had been a good regulatory mechanism, this would not have happened," Singh said.
Secondly, the crisis surfaced due to a failure of risk management in the private financial institutions and finally because of failure of market discipline mechanism, he said as the other 44 global leaders listened with rapt attention.
"The Prime Minister had in fact had the last word," N Ravi, Secretary (East), Ministry of External Affairs, told reporters while briefing about the first day's deliberations at the two-day summit.
Singh, during an intervention, pointed out that the resulting crisis of liquidity, accumulation of bad assets, shortage of capital and collapse of confidence threaten to spill over into the real economy of many developing nations.
This, he said, could be by way of reduced demand for exports, reduced access to trade and suppliers credits super-imposed on other crises -- food and fuel price crisis that have strained budgets and balance of payment leading to rising inflation and living costs in many developing countries.
Singh noted that the President of the World Bank has identified at least 30 countries whose balance of payments will experience a severe deterioration in the wake of financial crisis.
"The immediate task (is) to de-clog the credit markets the world over. Coordinated global action is essential to restore a measure of confidence in the credit market," Singh told the summit, also attended by French President Nicholas Sarkozy, German Chancellor Angela Merkel, Japanese Premier Taro Aso, European Commission President Jose Manuel Barroso and Chinese President Hu Jintao and Premier Wen Jiabao.
Singh, who has worked with institutions like IMF, said that from the stand point of developing countries, global financial institutions, particularly the IMF and International Bank for Reconstruction and Development (IBRD), need to put in place 'Exogenous Facilities' to provide additional assistance more quickly and in large amounts, with less service conditionality and greater flexibility.
He also pointed out that globalisation without global financial governance structure can lead to severe problems as has been seen in the recent turmoil.
"As a counter cyclical device, increased infrastructure investments in developing countries, if backed by increased resource flows from multinational financial institutions such as the IBRD and the Regional Development Banks, can act as a powerful stabiliser," the Prime Minister suggested.
Further, he said the IMF should revisit the potentially powerful instrument of creating liquidity through fresh allocation of Special Drawing Rights (SDR) in favour of multilateral development financial institutions.
The reform of reconstruction of financial system has to be a collective international effort since borders no longer confine financial institutions or can keep out financial turmoil, he said.
"Given the growth in cross-border investment, trade and banking in the last three decades, the world must ponder over the need for a global monitoring authority to promote international supervision and cooperation in the increasingly integrated world we live in," Singh said.
In devising a reform agenda, one must bear in mind the "wise" saying of John Maynard Keynes, a British economist, regarding the economically damaging role of excessive speculative or innovative activity, Singh said.
"Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done," the Prime Minister quoted Keynes.
Singh also used the opportunity to brief the august audience on India's economic situation. He said India's economy is sound and is likely to grow at 7 to 7.5 per cent and the government, since the financial crisis emerged, has injected more liquidity into the system.