The Prime Minister, Dr. Manmohan Singh, has urged international financial institutions to pool their collective wisdom, expertise and experience to devise credible strategies to enable the world economy to cope with the increased unpredictability and volatility of energy prices and their impact on processes of world economic growth. Speaking at the 39th Annual General Meeting of Asian Development Bank at Hyderabad today, the Prime Minister said that the challenge before Asia is to create and maintain a regional and international environment that was conductive to maintenance of high economic growth on a sustainable basis. Dr. Singh said that the Governments have a domestic challenge of ensuring that growth process was socially equitable and regionally balanced. "Particular attention must be paid to reduce the income gap between rural and urban areas", the Prime Minister said.

Referring to the emphasis on infrastructure, the Prime Minister said that India's infrastructure needs in the next few years would be to the tune of over $150 billion. Dr. Manmohan Singh pointed out that the region needed a comprehensive framework of security that would ensure that the process of economic development was not derailed by the threat of terrorism, threat to environment and to energy security, food security and security of livelihood. The Prime Minister expressed the hope that the Pan Asian FTA could be the future of Asia and that it would open up new growth avenues. Referring to the Asian financial crisis of 1997, Dr. Singh said that an important lesson from the crisis was the need for effective, quick and credible responses from international financial institutions in the event of such a crisis. Highlighting the potential for investment demand in the Asian region, Dr. Singh said that ways must be found for making better use of the collective savings.

The following is the text of the Prime Minister's speech on the occasion:

"I am delighted to welcome you all to India. We are honoured that the 39th Annual General Meeting of the Asian Development Bank is taking place in the historic, beautiful city of Hyderabad. I extend to you the best wishes of the people and the Government of India. I hope your stay here is going to be memorable and that your deliberations will be fruitful and purposeful. India is privileged to be a founder member of the Asian Development Bank. We are proud of our record of association with the ADB and we are grateful to the Bank for being our active partner in development. Today, as we seek to further accelerate our growth process we look to an even more cooperative relationship with the ADB. We also commit ourselves to strengthening the ADB as an instrument of development and for the improved governance in our region.

While being a regional bank, the ADB has acquired a global relevance because of Asia's rising global profile. The ADB has played a very important role in dealing with the aftermath of the Asian financial crisis and it responded handsomely to the needs of the people in the wake of the Asian tsunami, major earthquakes and other natural disasters in our vast region. We in India, greatly value the ADB's expertise in infrastructure financing. ADB's loans have funded valuable and important projects in India. I am particularly delighted that far away, distant States of our Union - Jammu & Kashmir and the North Eastern States have also benefited from the funding of ADB.

India's infrastructure needs in the next few years are over $150 billion. The ADB has supported projects in sectors like public transport, power and urban infrastructure. However, I am happy that the ADB is now considering support in new areas like restoration of water bodies, tourism infrastructure and agribusiness. Our investment rate in recent years has climbed up to 31% of our GDP. We expect to see a further increase in the rate of investment and in the rate of foreign investment flow to India in the years to come.

India has a vital stake in the prosperity and stability of Asia. We signaled our renewed commitment to regional economic cooperation with our "Look East" policy. The policy marked a strategic shift in India's evolving perspective of the world. It helped us pick up the threads from the 1940s and the 1950s, when we were actively engaged in building a new Asia. As a natural corollary of our 'Look East' initiative, India has variously reiterated its commitment to work with the ASEAN and individual East Asian States. We are linking India into a web of partnerships with the countries of the region through free trade and comprehensive economic cooperation agreements. We have concluded Free Trade Agreements with SAARC, Singapore and Thailand. We are working on similar arrangements with ASEAN, Japan, People's Republic of China and South Korea. This web of engagements may herald an eventual free trade area in Asia covering all major Asian economies and possibly extending to Australia and New Zealand. This Pan Asian FTA could be the future of Asia and will, I believe, open up new growth avenues for our own economy. The ADB could also study the benefits of such an economic agglomeration in Asia. India is determined to carry forward the India-ASEAN partnership to an enlarged domain for making the 21st century a truly Asian century. With this vision in mind, we have actively pursued external liberalization by cutting down customs duty rates. The current peak rate, at around 12.5%, is quite close to ASEAN levels. India has the announced policy objective of aligning its duty rates with ASEAN levels. Given the rich reservoir of natural, technical, and scientific acumen that South-East Asia harbours, globalization offers a unique opportunity for harnessing such resources for enlarging not only national and regional, but also overall global growth prospects. Our region has shown its capacity to deal with the challenges of globalisation. However, we must remain mindful of the ups and downs and the uncertainties inherent to the process of globalization. The Asian financial crisis in 1997 hit countries that had built up an enviable reputation as miracle economies. The suddenness and severity of the crisis dented the world's confidence in globalization, as well as the consensus that had seemed to be shaping up over a model of economic development. That the crisis has been managed, and importantly that these economies are all back on track, some with strong growth rates, is a testimony to the capabilities of these countries, as well as the resilience of the international financial system.

As we look ahead, we need to look back to take stock of the lessons of the Asian financial crisis. With the benefit of hindsight, we now know that the crisis arose due to four important factors: First, the exchange rates were pegged at unsustainable levels. Second, the fragility of financial systems allowed enterprises to borrow without any regard for mismatches in currency composition, or maturity profile. Third, the regulatory infrastructure, especially in the financial sector was flawed. Fourth, governmental systems for monitoring the quantum and nature of capital flows were found to be inadequate.

The post-crisis analysis has thrown up a number of issues such as the preconditions for capital account convertibility, the relative merits of fixed versus floating exchange rates, which are all standard fare now. What I wish to focus though is on the lessons from the crisis at the international level. An important lesson coming out of the Asian crisis is the need for effective, quick and credible responses from international financial institutions in the event of a crisis. First, it is very important for international financial institutions to inject large enough funding to economies in crisis to provide an assurance of stability. Half-hearted measures do not resolve the problem; they only aggravate it further. In the aftermath of the Asian crisis, international financial institutions came under heavy criticism for not acting quickly enough. There is a view that funding must come before rather than after the foreign exchange reserves bottom out. It is perceptions that fuel a crisis and it is important to manage them by acting quickly and decisively. Thus, not only the quantum of funding, but also the speed with which it is channeled is an equally critical factor. Second, the Asian crisis has demonstrated that financial crises can be contagious and that foreign exchange markets are prone to a bandwagon effect. These are a result of imperfections in capital markets, which generate information bubbles and trigger a herd mentality among investors. In panic situations, markets do not adequately discriminate between countries with strong and weak economic fundamentals and seemingly strong economies can also be engulfed by a snowballing crisis. This means that international financial institutions need to be ahead of the curve, identify potential victims and go to their support in good time so as to contain the crisis. This also means that the size of the funding can be quite large.

Third, continuous vigilance and monitoring of the economy are very important. This requires three things:

• credible systems for gathering, monitoring and disseminating information to markets and regulators;
• international standards for economic management;
• competent and effective regulatory systems for enforcing those standards;