Global economic outlook has changed for the better with some silver linings finally emerging, Mr Jaitley said at the meeting of the International Monetary and Financial Committee (IMFC).
Mr Jaitley noted that this momentum was expected to strengthen in 2017 based on gradual improvement in economic conditions in advanced economies, particularly in the US, as well as due to the pick-up in growth in some large emerging markets.
However, the confidence in global recovery remains weak owing to the risks associated with the future course of economic policies and monetary policy stance of advance economies, resurgence of commodity price pressures, and the increasing recourse to protectionism, Mr Jaitley said.
"In these circumstances, it is imperative to fortify efforts to support global recovery by committing ourselves to growth-friendly policies and ensuring free and fair trade practices as called for by G-20 leaders at the Hangzhou Summit in September last year," said the finance minister.
Advanced economies have an important role in stimulating global demand with supportive fiscal and monetary policies and eschewing protectionism, he asserted.
At the same time, he noted that the emerging market and developing economies (EMDE) were vulnerable to external shocks and must take ample caution to safeguard ongoing economic recovery.
Improving the flexibility of labour markets and increasing competition in factor and product markets along with incentives for skill building and innovations are important structural efforts required for boosting productivity and potential growth, he said.
Noting that the emerging risks to the global economy call for enhanced surveillance by the IMF, Mr Jaitley said the global lender needs to be sufficiently resourced to be able to fully discharge this responsibility.
It also needs to function as a quota based institution, he asserted.
Mr Jaitley said the IMF should play a proactive role by productive engagement with Regional Financing Arrangements (RFAs) by way of sharing information and joint mechanisms for surveillance and policy signaling to build confidence among creditors.
Moreover, co-financing arrangements between the IMF and regional financing elements would help in mitigating stigma and delay in programme financing, he said.