Seeking to downplay any urgency in stabilising its foreign exchange reserve, Ahluwalia claimed India was looking to the common currency pool only as a long term safety net.
India, he said, was not looking to operationalise the proposed contingency reserve arrangement, or the common currency pool, among BRICS member countries immediately to stabilise the domestic currency. However, India's presence at the summit, and the prime minister's forceful intervention for coordinated monetary policy management, failed to find buyers among other member countries. He was largely ignored by other global leaders assembled here. Singh managed a tete-a-tete with the Argentine President Cristina Fernández de Kirchner, while he had to make do with a one-on-one with the deputy prime minister of Japan Taro Aso instead of a scheduled meeting with Japanese prime minister Shinzo Abe. Singh did not manage exclusive meetings with President Vladimir Putin of host country Russia, President Barack Obama of the US and the Chinese President Xi Jinping. He also did not manage bilateral meetings with heads of South Africa and Brazil, who along with India, Russia and China make the BRICS grouping, where India has been seeking a currency swap deal among member countries. Singh was scheduled to meet the French President Fracois Holland later in the evening.
Briefing newsmen ahead of the conclusion of the two-day G20 summit, Ahluwalia agreed that part of India’s problems were of its own making, though he claimed that he had not read the statements of the Chinese and Russian officials blaming India for its economic mess. Instead, he said, it was necessary to realise that in dealing with international economic management, “there will be a big gap between the dialogue and the results that follow.”
“The Indian position is not that we have no problem. Domestically, the prime minister has said that we have problems, but it is certainly our view that (much of) the exchange rate volatility that we faced was because of market reaction, and it was not that what was happening was not entirely connected with the global economy.”
He also agreed that there was a case for rupee depreciation (as suggested by the Chinese vice finance minister on Thursday), suggesting that taking inflation and the current account deficit into consideration, various estimates had pegged the rupee’s value at between 59 and 65 to the dollar. But the rupee breaching the 65 mark was on account of global currency volatility, he insisted.
Ahluwalia said the currency sharing arrangement was really for building long-term safety net, and not for tackling the current volatility of the rupee that had already been tackled by recent central bank measures.
He said that India was looking at a regional currency reserve on the lines of the Chiang Mai arrangement that its northern neighbour China has with the south east Asian economies, as a second line of defence, should the flight of dollars rapidly erode India’s own foreign exchange reserve to unsustainable level. Resort to IMF loan would be India’s third line of defence in case of an exigency, he said.
He said, “With $280 billion reserve, you don’t really draw down on a common reserve, but it makes sense to have a second line of defence.” Having a currency reserve pool in place would also reflect on the market sentiment.
India already has a currency reserve pool with Japan, where the kitty was enhanced to $50 billion on Friday following prime minister Singh's bilateral talks with the Japanese deputy prime minister Aso. The swap arrangement earlier entitled India to withdraw up to $15 billion.
However, India has no regional arrangement with other emerging countries, which makes it vulnerable to rapid depletion of its forex reserve. Ahluwalia said the only other similar arrangement India could have on the lines of the Chiang Mai agreement was within the BRICS framework. India was not even looking to drawing on the currency reserve with Japan, at this stage, he claimed.
Ahluwalia conceded that the BRICS reserve pool would still take time to materialise and would be finalised in time for the next BRICS summit.
A currency reserve pool allows member countries to draw down up to their respective pledge to the pool in case of exigencies, while making it obligatory for other members to contribute to the withdrawal in proportion to their respective pledges.
Drawing attention to prime minister Manmohan Singh’s statement at the summit inaugural on Thursday, Ahluwalia said there was a case for not exacerbating monetary policies at a time when markets were affected because of a lot of capital was sloshing around affecting currency volatility. Instead, it made a case for coordinating monetary policies.
He said that resorting to monetary policy consolidation was not part of the original G20 agenda, which originally focused on fiscal stimulus. That is why the G20 members coordinate the fiscal policy among themselves. However, a strong signal for fiscal consolidation was first sent out at the Toronto summit in June 2010.
He said emerging economies were not as much surprised by the tapering of the quantitative easing programme of the US Fed as it was by the market’s reaction to the move. “Most of us knew that the reversal would happen,” he said.
He said the prime minster’s speech pointed that the key to the current global currency crisis was in the reserve currencies -- the yen, euro, dollar and increasingly the renmimbi -- that affect economies. Though the renmimbi was not yet freely traded, he said China had been pushing the renmimbi as an international reserve.
He claimed India’s position on the need for greater monetary policy coordination was being supported by many countries.