News: Global economic imbalances may impact India

(BL 04/05/2006) Hyderabad - India on Thursday warned that global economic imbalances could have 'spill over effect' on its domestic interest rates and could pose challenges for foreign exchange reserve management. "There could be a spill over effect of global developments on domestic interest rates. It could also pose challenges for reserve management as currency values may fluctuate violently," the Finance Minister, P Chidambaram told the annual Asian Development Bank meeting here. Though India did not depend on the international capital market for financing the fiscal deficit, the fiscal position of the Government could be indirectly impacted due to the global imbalance, Chidambaram cautioned. He said that the global imbalance arose due to the rising of current account of the to $805 billion in 2005, which was 6.4 per cent of its GDP. On the other hand Japan and emerging Asia had a current account surplus, which was equivalent to 60 per cent o f the US current account deficit. "Now with rising oil prices, the oil exporting countries, having recorded large current account surpluses, are emerging as new players in the global scene and will have to play an important role in the correction of these imbalances," he said. As far as India's current account deficit is concerned, Chidambaram said it was likely to remain in deficit in the near future.