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Mukerjee: Need to blend growth with inclusion
December, 01st 2010

Finance Minister Pranab Mukherjee sounded a note of caution for emerging economies, saying huge foreign capital inflows could lead to financial instability.

The emerging economies, though faced with brighter growth prospects, are confronting financial instability caused by international capital flows, the minister said on Tuesday at a conference on inclusive growth, organised by his ministry along with New Delhi-based economic think-tank National Institute of Public Finance and Policy (NIPFP).

Foreign Institutional Investors, looking for better returns amid uncertainty elsewhere in the world, have pumped more than $38 billion into Indian shares so far this year.

Mr Mukherjee said inclusive development needs to be combined with consolidation of public finances, financial stability, employment generation and economic growth . His remarks came on a day when official data showed that the Indian economy grew at a better-than-expected 8.9% in the three months to September.

We need to design policies in a manner that the redistribution process does not feed off public finances and the growth process itself is not hampered, he said delivering his inaugural address.

The countrys policymakers are debating on the implications of the right to food Act on the governments finances and agriculture sector.

The government has set up an expert committee under C Rangarajan, chairman of the prime ministers economic advisory council, to look at the National Food Security Bill. Ideally, there should not be any conflict between the objectives of economic development, reforms and inclusive growth, Mr Mukherjee said, adding that these challenges are faced not just by the Indian economy, but probably the entire world.

As a consequence of the global economic crisis, the advanced economies are grappling with the issues of public debt and financial strains, he said.

While the emerging economies face financial instability caused by capital flows, advanced economies need to maintain the policy focus on recovery and management of public debt.

The emerging economies need to leverage growth to improve social outcomes, while monitoring the financial sector.

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