Freedom to move

The finance ministers of the G-20 countries met on Friday and Saturday in Paris at an intriguing time for the organisation. The 20 large economies in the loose association all have different rates of recovery and different priorities for the road ahead. Without adaptation to these different priorities,the G-20 would have lost its new-found relevance as the primary method of international economic cooperation; but also,it needed to ensure that it was able to focus on actually getting things done,rather than in dissipating energy between several unmanageable non-core priorities.

The Paris meet has not done too badly,given these constraints. The focus remained on strengthening the international financial system,and on what some call the economic imbalances that are blamed for the crisis of 2008. To that end,currencies especially Chinas yuan were the focus of discussion. India stayed out of the continuing international spat on the subject. In focus,too,was the nature of international capital flows,which concern many for two reasons. First,because surging capital flows could create asset bubbles,in real estate or in commodity prices,with all the attendant dangers. Second,because large capital flows could theoretically complicate monetary policy for countries with correctly-,as opposed to under-,valued currencies. Unsurprisingly,the Chinese finance minister blamed malicious capital flows for international inflationary pressures. The French hosts,too,wanted closer regulation of capital flows. The Brazilians have already imposed capital controls. India,on the other hand,has by most accounts carefully not intervened in foreign exchange markets something that sets it apart from other emerging economies.

Indias stakes in ensuring that capital can flow easily across borders is considerable. While we should be on guard against asset bubbles,it is nevertheless the case that the infrastructure deficit badly needs financing. Finance Minister Pranab Mukherjees robust defence of the freedom of capital in Paris was,therefore,welcome. It is also welcome that the G-20 called for actions to strengthen local capital markets and domestic currency borrowing in emerging and developing economies. That is the long-term antidote to asset bubbles caused by capital inflows.