Reuters

Timothy Geithner

Delhi - US Treasury Secretary Timothy Geithner praised India's domestic-led growth and foreign exchange flexibility, calling it an example of how to build a sustainable emerging market economy.

In an opinion piece published in Monday's Hindustan Times newspaper, Geithner said India was doing its part to rebalance global growth to avoid the kinds of massive trade surpluses and deficits that helped fuel the recent financial crisis.

“India is meeting this challenge, helping to demonstrate the dynamism that can accompany domestic demand-led growth combined with significant exchange-rate flexibility,” wrote Geithner, who arrived in Delhi on Sunday to join President Barack Obama for a state visit with India's leaders.

Without naming China and its tightly controlled yuan, Geithner said key emerging economies will need to move to market-determined exchange rates “in line with economic fundamentals,” and should boost internal demand through structural reforms.

India, essentially, is already doing this, he said.

“India is succeeding in fostering greater domestic growth in part by directing economic policies and incentives toward the bottom of the income pyramid,” he added.

Geithner travelled to Delhi from weekend meetings in Kyoto, Japan, where finance ministers from the 21 Asia Pacific Economic Cooperation countries endorsed Group of 20 pledges to shun competitive currency devaluations and to reduce excessive current account imbalances.

The United States has been pressuring China to allow its currency to rise faster to help reduce its trade surplus and ease capital flow pressures that are causing more freely floating emerging market currencies to appreciate.

US lawmakers and manufacturers, along with the International Monetary Fund, say China's yuan is significantly undervalued, providing Chinese exporters a pricing advantage.

China has been critical of the US Federal Reserve's decision last week to pump another $600-billion into the US banking system as a move that will weaken the dollar and boost capital flows to emerging markets. China, along with Germany and some other countries, has resisted calls to put numerical targets on current account balances. - Reuters