US praises India as key player

India Dispatch: The US Federal Reserve chairman Ben Bernanke highlighted India's growing role on the global economic stage after meeting the country's central bank governor.

Ben Bernanke, left, and Timothy Geithner both praised India's economic performance. Prakash Singh / AFP

MUMBAI // The US Federal Reserve chairman Ben Bernanke highlighted India's growing role on the global economic stage after meeting the country's central bank governor yesterday.

Mr Bernanke was on a two-day visit to India to boost economic ties between the two countries.

"India is becoming more and more a key player on the G20 [major industrialised and emerging economies]," Mr Bernanke said.

He discussed issues, including monetary policy and regulatory policy, banking and the global economy with Duvvuri Subbarao, the governor of the Reserve Bank of India.

"As a central bank, we empathise with the Fed's concerns," said Mr Subbarao. "The crisis has pushed central bank policymaking into uncharted territory. We will not know for many years whether the policy mix we have followed to manage the crisis is right."

The US Treasury secretary Timothy Geithner, who is also visiting India, praised the country's recent move to introduce a series of economic reforms. These include opening up the retail sector to investment from foreign supermarket chains and allowing foreign airlines to buy stakes of up to 49 per cent in Indian carriers.

The federal cabinet in New Delhi last week also approved bills to allow foreign investment in the pensions sector for the first time and to increase overseas investment in insurance companies.

The government's announcement of measures to try to boost the economy have been met with fierce political opposition and protests.

"The recent reforms advanced by prime minister [Manmohan] Singh and [finance] minister [P] Chidambaram will help provide a foundation for stronger economic growth, an increase in investment, and more widespread gains in income," Mr Geithner said at a joint news conference with Mr Chidambaram on Tuesday.

On the same day, however, the IMF cut its forecast for growth in the Indian economy this year to 4.9 per cent, down from a previous forecast of 6.1 per cent.

A growing current account deficit, red tape, and a weaker rupee were among the factors behind the lowering of its forecast, the IMF said.

It warned that price pressures meant that monetary policy should stay on hold until signs emerge of a sustained easing in inflation. "Inflation is a concern," said Mr Chidambaram, speaking in Mumbai on Saturday.

"Price rises affect the common man and woman. But please remember that the steps we have taken have indeed brought down headline inflation, which was over 10 per cent to about 7.5 per cent.

"There are many, many reasons why prices are high - on the food and grain side it's because of supply-demand mismatch. Some other things like coal we have to import and imported prices are higher than domestic prices," he said. "The depreciation of the rupee also adds to the cost of imports.

"While we must through monetary policy restrain demand to some extent, the real answer lies in increasing supplies. That is what we are trying to do."

Mr Chidambaram has also noted that there are risks from the global economy and the euro-zone crisis for India that have implications for exports, as well as capital flows into the country.