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Financial markets integration important
February, 15th 2010

How do you see the economic recovery in the larger Asian region?

It is quite evident that Asia is leading the global economic recovery. China took certain very bold and decisive actions that helped anchor Asian recovery. India also had a very coordinated response, both from fiscal and monetary side. Though the risk of downturn was very high, outstanding macro-economic management in Asia helped stave off a global recession.

Has the Indian economy turned a corner?

Recent estimates in India have pegged GDP growth in 2009-10 at 7.2% and this means that the country is getting back to the high-growth trajectory. Downside risk is limited as Indian economy is more domestic and exposure to external trade is limited. But we need to see how broad-based the rebound is.

We also have to look at growth in services and see if it is across the board. Expenditure side is also robust and gross capital formation has gone up. But we need to see break up between private and public investments.

There is growing debate in India over the timing of the withdrawal of stimulus. What is your view?

The worst seems to be over and India is back on the move. It is time to start rethink on continuation of stimulus. While there is a reason for optimism, it (withdrawal) has to be a cautious phased out. We need to watch for another two quarters before we exit.

RBI is of the view that if India hikes rates before others, it risks attracting more capital flows...

Capital flows can cause difficulty. This is really a fine balance. If indias interest rates are high relative to global interest rate, it would attract foreign capital. When the economy is overheating, you tend to raise interest rates and then it means attracting capital inflows. But it is not an issue for India at the moment. You may just let the exchange rate absorb the shock and continue. My view is one needs co-ordination and regional co-operation becomes important. Countries of Asia must get together and start a dialogue on how best to cooperate and collaborate to protect the region against external shocks. Integration of financial markets is very important.

Can greater cooperation in south asia develop it as a local demand-driven high-growth region?

Chinas spectacular rise has had a positive impact on East and Southeast Asian economies. They are integrated economies. Laos, Cambodia, Malaysia all these countries have benefited. Nature of production has changed in Australia and it has become Chinas biggest trading partner. Economic context has changed so much. Centre of economic gravity has shifted to Asia. This is a very opportune time for India to take the lead. Countries in south Asia have definitely lagged behind. Integration among South Asian economies will accelerate the pace of development.

What kind of regional cooperation is ADB promoting?

ADB is working on the mandate of facilitating regional co-operation within larger Pan-Asian region. We take this mandate very seriously. Asean plus three process is progressing very rapidly. There is no reason as to why this regional economic integration should stop at Bangkok. Our mission is that we have to string these links of regional cooperations into a garland and the weakest link in this is South Asia. I hope there is some progress in this region.

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