Washington: Finance minister Pranab Mukherjee said fast inflation is preventing the country from achieving higher growth, as US treasury secretary Timothy Geithner urged the world’s second-most populous nation to take further steps to open up financial services.
“Inflation is an important constraint that we have to tackle,” Mukherjee said in Washington on Tuesday. “We can live with inflation of between 6% and 6.5%, though a 5% to 5.5% rate would be ideal.”
The wholesale price index, the country’s main inflation gauge, rose 9.06% in May from a year earlier, a government report showed on 14 June.
Charting cooperation: US treasury secretary Timothy Geithner (right) and India’s finance minister Pranab Mukherjee during a conference on India-US relations in Washington on Tuesday. Geithner urged India to take further steps to open up financial services as Mukherjee said high inflation was preventing the country from achieving higher economic growth. Photographs by Jason Reed/Reuters
“India is returning to a higher growth path, though price pressures are a serious limit on those efforts,” Mukherjee told the forum organized by the Confederation of Indian Industry and the Brookings Institution.
The Reserve Bank of India has boosted borrowing costs 10 times since the start of 2010, the most aggressive tightening by a Group of Twenty (G-20) member. The nation’s decision last week to increase diesel prices for the first time in a year will stoke inflation and step up pressure on the central bank to extend its longest streak of rate increases in a decade, economists at Nomura Holdings Inc. and Standard Chartered Plc said.
At the same event on Tuesday, Geithner called for India to take more steps in opening up financial services.
“From our perspective, the most important things we’d like to see are progress on financial reforms that provide a deeper, more liquid market for corporate debt, for infrastructure financing, that allow a little bit more access to American companies and their technology,” Geithner said in the panel discussion.
He and Mukherjee will hold meetings this week as part of the second US-India Economic and Financial Partnership summit.
“There isn’t any big hurdle in ties between the two countries and India is committed to ongoing reforms,” Mukherjee said.
Mukherjee said G-20 is playing a significant role not only in the revival of the world economy, but also in jointly addressing the common problems being faced by the world, such as money laundering or sustainable growth. “We do recognise without taking into account development component, merely addressing the current crisis by proving finances and resources would not be possible unless development is taken into (account) as an important ingredient in the decision-making process of the G-20, which has been recognized in the Seoul summit,” he said.
“I think G-20 is doing well and we should encourage it to play more effective role in the coming years, unless we achieve sustainable growth,” Mukherjee added. “G-20 is doing a great job,” Geithner agreed. “One thing we have done in the last two years is to build a consensus on reforms of the governing structures of international financial institutions, more balanced, more legitimate,” he said. “We all recognize that for there to be better economic apparatus for the world as a whole, we have to find a way for countries to work together more carefully to make sure they take into consideration the external effects in their policies in making judgments together,” Geithner said.
Lalit K. Jha of PTI contributed to this report.