US Treasury Secretary Henry Paulson, who will visit India next week, has praised New Delhi for maintaining currency flexibility despite pressure from some quarters.
Paulson has also taken a dig at China "for not being bold" despite the fact that Beijing is integrated into the global economy.
During a question and answer session that followed a major speech he delivered on 'The Economic Power and Promise of India' at the Council on Foreign Relations, Paulson said, "In India, we've seen real exchange rate flexibility, you know, where the exchange rate is set in a competitive market place, and it makes a difference."
"And, India is a system that allows for that and there is a fair amount of push and concern in India among some that are concerned with the policy, but you do see that the rupee as based on the underlying strength and underlying economic fundamentals has appreciated," he said. He said that has "not slowed India's growth and inflation seems to be under control and so that's a very good thing".
Paulson acknowledged that there's "been some movement to say, "Well, we need to be concerned about capital flows and so on,' and again, I am a big believer in market-driven means."
"China is in a different stage of development and no one has argued. I have not argued that China's ready to have a totally market-determined exchange right now," he said.
"But they need to get to the path --the point--where they can have one because it's a bit of an unnatural act to be as integrated as they are in the global economic system and to goods and services and not when you look at financial markets."
Paulson said, "So, what we are encouraging them to do is to move more quickly to appreciate in the short-term, so that you have a currency that's more reflective of the market and send the proper market signals to the economy around the world and then make the kinds of changes in their capital markets so they get to the point where they can have a market determined currency."
He reiterated that "what's happened in India here is good news in terms of what they've done with exchange rate, and I would just be encouraging them to stay the course and not backslide."
