Although India advocated the case for exchange rate flexibility, it did not support the US line of putting a cap on current account balance, proposed at 4% of the Gross Domestic Product.
In the midst of an ongoing currency war between the US and China, Prime Minister Manmohan Singh today asked the G20 nations to avoid competitive devaluation and advocated that any resurgence of protectionism be resisted.
"We must at all costs avoid competitive devaluation and resist any resurgence of protectionism," Singh said, addressing the plenary session of the G20 Summit that opened in Seoul this morning.
While the US wants China to appreciate its currency yuan in line with market forces, the Chinese government is resisting the move as it would hurt the country's exports.
The currency war has prompted the US to weaken their currencies by pumping in more funds into the market.
Although India advocated the case for exchange rate flexibility, it did not support the US line of putting a cap on current account balance, proposed at 4% of the Gross Domestic Product (GDP).
India's argument has been that it may not be easy to reach agreement on sustainable current account balances for individual countries given the structural differences of economies.
"Exchange rates flexibility is an important instrument for achieving a sustainable current account position and our policies must reflect this consideration," the economist-prime minister said in his speech that was heard with rapt attention by world leaders, including US President Barack Obama.
Besides Obama, China's President Hu Jintao, Britain's Prime Minister David Cameron, Canada's Prime Minister Stephen Harper, France's President Nicolas Sarkozy and Germany's chancellor Angela Merkel are some of the world leaders attending the Summit.
The prime minister further added that countries with high foreign exchange reserves, "have a special responsibility to ensure that their monetary policies do not lead to destabilising capital flows, which can put pressure on emerging markets".
China has the highest foreign exchange reserves at over $2.5 trillion followed by Japan at about $1.1 trillion. The other countries with high foreign exchange reserves are Russia, Saudi Arabia, India, South Korea and Brazil.
As regards the advanced economies with high deficit, Singh said, "(They) must follow policies of fiscal consolidation, consistent with their individual circumstances so as to ensure debt sustainability over the medium term. This means that fiscal correction need not be frontloaded everywhere."
The prime minister also made a case for structural reforms for increasing efficiency and competitiveness of the economies.
"While structural reforms are necessary everywhere, these should increase efficiency and competitiveness in deficit countries, while expanding internal demand in surplus countries. This re-balancing will take time, but it must begin," Singh said.
G20, a grouping of industrialised and emerging economies, has been at the forefront in combating the impact of the global financial meltdown triggered by fall of the iconic American investment banker Lehman Brothers in September 2008.
Singh also told the global leaders that India will revert to pre-crisis economic growth rate of 9% in the next fiscal.
"I am happy to say that the Indian economy has rebounded fairly well from the crisis... We hope to achieve 9% in 2011-12," he said.
As regards the current fiscal, Singh said the country was likely to clock 8.5% growth rate, up from 7.4% in 2009-10.
India was growing at 9% before the financial meltdown.
"We grew at 9% in the four years prior to the crisis, but slowed down to 6.7% in the 2008-09," Singh said, adding that the emerging economies in Asia are now doing well.
"Emerging market countries have done well on the whole, and especially so in Asia," he said.
Singh said the Seoul Summit is also delivering on the promise of reform of the IMF.
"We have agreed to a shift in quota shares of 6% to emerging market countries and the composition of the board is being changed to reduce the European representation," Singh said.
"With the additional resources already provided to the IMF, we have not only provided the IMF with the firepower that it needs to perform its stabilisation role, but also moves it in the direction of greater democratisation," he said.
The prime minister said further moves are necessary in this direction and India welcomes the decision to comprehensively review the quota formula by 2013 to reflect the growing economic weight of the emerging market countries.
"This should be fully reflected in the next quotas review due to be completed by 2014," said Singh.
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