WASHINGTON: India's government, which is facing pressure from exporters to take steps for arresting the rise of rupee against the dollar, has drawn praise from the head of US Treasury who also asked New Delhi to stay the course."In India we have seen real exchange rate flexibility.

When an exchange rate is set in a competitive market place, it makes a difference and India has a system that allows for that," US Treasury Secretary Henry Paulson said during an interaction at the Council of Foreign Relations here."There is some concern in India on the policy there but you do see that the rupee has, based on the underlying strength and fundamentals of the economy, has appreciated. That has not slowed India's growth and inflation seems to be under control. That is a very good thing," he said.

The rupee has appreciated almost 12 per cent against the greenback in 2007, making it the top performer in Asia. The government or the central bank have so far not intervened much as it makes imports cheaper and helps in controlling inflation in the world's second-fastest growing major economy.

However, the hardening rupee is hurting exporters, who have been pressing for measures to bail them out of the situation. India has an overall trade deficit and exporters say the country is unlikely to meet the target of 160 billion dollars of export in 2007-08.Paulson, who will lead a high-level delegation to India, said there is some movement that could raise concern about capital flows but it should be tacked by market-driven means.

"What has happened in India is good news, what they have done with the exchange rates and I have been encouraging them to stay the course and not backslide," he added. Paulson also compared the South Asian country with China and asked the Communist nation to move toward a market- determined currency exchange rate system. "China is in a different stage of development and I have not argued that China is ready to have a totally market determined exchange rate now. But they need to get to that point when they can have one.

What we are encouraging them is to move quickly so that they have a currency that is reflective of the market," he said.Paulson also said the strong economic growth of India has a positive impact on the US and the real worry in some quarters was not of the performance of India but the implications of India not posting a strong economic record.

"There is a tendency for some people to think that just because India is doing well, this will be bad for the US. It is exactly the opposite," he pointed out. The top US official argued that one of the biggest concern of investors anywhere is about the sanctity of contracts and the manner in which the regulatory system worked."This government (In India) is doing a good job of working through a number of the outstanding commercial disputes and issues. -PTI I don't have anything that overnight will solve this problem," the Treasury Secretary said.