India, China have major roles in revival of economy: IMF

The International Monetary Fund has said India and China are playing a significant role in the revival of the global economy.

"When you have two relatively large economies growing at 7 and 10 per cent, respectively, India and China, they are contributing quite a lot to global growth," IMF deputy director, Asia and Pacific department, Kalpana Kochhar, said during a teleconference in Washington.

"Our forecast for global growth for next year is close to 4 per cent. I think it's 3.9 per cent, of which advanced countries are only contributing less than two per cent. So the rest of it is in fact coming from emerging markets, and from within emerging markets, a large part from China and India," Kochhar said.

"So it's a significant contribution that's coming from these two countries," the IMF official said in response to a question.

In response to a question, Kochhar said the Indian rupees is broadly in line with fundamentals.

"We have a number of ways in which we look at whether the value of any currency, including the rupee, is in line with what we call fundamentals. Our assessment in the case of the Indian rupee is that it is broadly in line with fundamentals," she said.

"Our assessment actually hasn't changed in a couple of years that this is the case, and we believe this is because of the policy of the RBI to allow the exchange rate to float and to move in both directions in line with market forces," Kochhar said.

IMF division chief, Asia and Pacific department, Laura Papi, said India is not the only country facing large capital inflows.

"A lot of emerging markets are facing that situation. Actually India itself has faced that situation a couple of years ago, and the authorities have handled it well."

Of course, with the floating currency, it would mean that the currency could appreciate in response to inflows.

If the inflows were to be seen as contributing to asset price bubbles, the RBI in the past also employed some prudential measures. That could be also employed, Papi said.

"There is also quite a healthy outflow out of India for, mainly for FDI purposes, which would reduce the pressure on the currency.

"In the past, the central bank has also used its policy on external commercial borrowing in response to capital inflows. So we feel that the authorities have a good mix of tools that could be employed if capital inflows surge very significantly," the IMF official said.