Washington, October 12:

Saying that global monetary crisis holds important lessons for emerging market economies (EMEs) like India, finance minister P Chidambaram said India’s challenges lay in curbing inflation without hurting growth momentum, preserving financial stability and moving more vigorously on fiscal consolidation.

“With a real GDP growth at nine per cent during 2007-08, India’s economy continued to perform well,” he told the International Monetary and Financial Committee meeting here, noting that it was the third year in succession when the Indian economy achieved a growth rate of 9 percent and above.

“Headline inflation, however, has increased significantly since early 2008, partly reflecting supply-side pressures on key agricultural commodities, increase in iron and steel prices in line with international prices, and pass-through (though partial) of international crude oil prices to domestic prices as well as continued high domestic demand,” he said.

In the absence of the minister who cancelled his trip in order to deal with the effects of the market meltdown on the Indian economy, his statement was read out by Reserve Bank of India (RBI) Governor D Subbarao, who is now leading the Indian delegation at the World Bank Fund meetings as also at the G-20.

“Our current challenges are to rein in inflation without hurting the growth momentum, preserve financial stability and move more vigorously on fiscal consolidation,” Chidambram wrote in his constituency report.

He said in a globalising world no country can claim to be completely unaffected. “However, EMEs have been less affected so far by the crisis.” Their relative stability could be reflective of policy improvements, prudent practices, strengthened reserves and strong growth performance in recent years. He, however, warned, “But the EMEs are not islands of tranquility and the crisis could be transmitted to them through multiple channels.”

Noting that external corporate and bank borrowing was becoming scarcer and dearer and housing and real estate markets were slowing down, Chidambaram said: “The current crisis holds important lessons for EMEs which they should factor in as they move forward on financial sector reform.”

“Concerted policy efforts to minimise operation of speculative factors in food and fuel price rise and financialisation of commodities are essential,” he added. IMF through its financing instruments should also attempt to cushion the impact on worst-affected countries and support them in adjusting to the changed global economic scenario, he said.