Asia's focus must be hiking FDI; EMs to lead growth: IMF

Anoop Singh, director-Asia Pacific, IMF feels the priority for Asia and India should be to attract foreign direct inflows (FDI).

FDI will stay for longer and will hopefully support infrastructure and other areas important for growth. Capital requirements cannot be met by only public investments," he said speaking to CNBC-TV18 at the IMF and the World Bank meet in Washington. Therefore, the FM’s strategy to encourage capital to come to India in the form of FDI is correct, he added. He expects emerging Asia including India to be the growth leader over the medium term. Here is the edited transcript of his interview with CNBC-TV18. Q: In your outlook on the Asia Pacific region you have said that there is a huge influx of capital flows coming into this region. Do you see any signs of over heating possibly in the Indian economy because of this flow of capital, especially portfolio flows coming into the country? A: You are right that capital has rebounded all across Asia since the second half of last year and the first quarter of this year it was above trends. Since then, there has been moderation. You are right that a surge has been more in portfolio flows. Over the longer term, the priority for Asia and India is to increase the share of FDI because that will stay for longer and it will hopefully support infrastructure and other areas important for growth. Talking about overheating - there are many ways to see this. In many countries, in Asia, credit ratios are well above historical trends. At a time when output gap is narrowing, and therefore there is a need to preemptive to ensure that financial imbalances do not reassert themselves. That is the main context. Q: But the finance minister has been going around trying to woo investors, investments into India. Do you think this is the kind of financing that India needs to finance its infrastructure needs and other requirements? A: We have to recognise that over the medium term, emerging Asia will be the growth leader. Therefore, capital will come to emerging markets, especially Asia, including India. Infrastructure needs in these countries is large - they cannot be met by only public investments. Therefore the FM is right to encourage capital to come to India in the form of FDI.