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The idea that India sold

delhi Updated: Nov 14, 2010 23:34 IST
Pramit Pal Chaudhuri
Pramit Pal Chaudhuri
Hindustan Times

It's often said a country gets clout at financial clubs like the Group of Twenty by offering either ideas or money. India's influence has largely come from the former. Prime Minister Manmohan Singh is a fount of thought, being among the more clear-minded and the only economics-friendly G20 leader.

But in a world of financial friction, India also gains points by being among the few countries without a dog in any of the fights marring the world economy today. As Singh noted on his return from Seoul, India is neither a surplus- nor a deficit-nation — at least not enough for it to be of any global significance.

New Delhi can afford to be mildly critical of the main deficit-nation, the US. As Singh noted in his plenary statement: "Reserve currency countries [which can only be the US] have a special responsibility to ensure their monetary policies do not lead to destabilising capital flows." And it has been elliptically censorious of the surplus camp — export-addicted nations like China and Germany.

Among the emerging economies, India (along with, say, Turkey) is among the few unbothered by the wave of cheap capital flooding the world. C Rangarajan, head of the Prime Minister's economic advisory council, sounded like the banking equivalent of Dirty Harry by declaring India could absorb $70 billion in foreign capital without a hiccup.

By assuming the US will continue to print dollars in abundance, New Delhi feels it can let its deficit get a little out of control. The Fed will fill the hole that depressed exports and, indirectly, a swelled government deficit are helping create.

But the really Big Dream of Singh is to turn the present Surplus-Deficit Bipolarity and into a Triangle of Development. India has been carefully selling the idea that if surplus countries such as China take their dormant surpluses and spend them on infrastructure building in the developing world, the resulting boom would help grow everyone's economies back into health.

If this were to work, this would effectively end the need for foreign aid and create a virtuous cycle of market-based investment and returns that would enrich everyone. Angel Gurria of the Organisation of Economic Cooperation and Development said, "This is really going to change the way in which we address development."

Singh is clearly proud of this concept, even if it will be future G-20 summits that will be looking into the modalities. As Singh has noted, "In a more rational world, capital should flow from rich countries to poor countries." Which is what economics textbooks have said for years even as reality has resisted.

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