India has a plan to save the world economy. Prime Minister Manmohan Singh on Monday announced a "vision" of rebalancing the global economy through the building of infrastructure in the developing world.
Mentioned at the end of his joint press conference with US President Barack Obama, Singh's plan amounts to one of the most ambitious diplomatic initiatives in Indian history. Officials say it will be placed before the G-20 "sherpas" conference in Seoul in a few days.
Singh said, "The world needs a new balance between deficit countries and surplus countries, and that balance has to be restored by paying more attention to the development potential, including infrastructure development (in the poorer countries of the world)."
The world economy is having problems because countries like China, which run up "unhealthy" capital surpluses through high savings and export earnings, and deficit countries like the US, which flood their economies with cheap capital because China pays for the debt.
Indian officials familiar with the plan say this is a loss for everyone concerned. China gets a negative return on US Treasury bills.
The US economy runs the risk of speculative bubbles in its economy.
"If China were to take its surpluses and invest them overseas as foreign direct investment, no one would complain," said a source.
If this investment were to go into infrastructure development in poorer countries, the demand created would also lead to a rise in US exports. As Singh pointed out, many of the deals Obama signed in India were infrastructure-driven.
India is benefiting from capital flows from the present imbalance, say officials, because it has the proper environment and ability to absorb them. If this process can be globalised, then the gains would be enormous.
"India is not proposing a new World Bank at the G-20 for this purpose," say sources.
"We are looking at creating an environment where there is certainty, policies that find credit, of the kind that India already has.