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Sharing tax info: India expresses concern
Europe dominated the agenda of the just-concluded G20 meeting of finance ministers and central bank governors in Paris, yet India managed to voice its concerns on the issue of sharing of tax information.
As the G20 resolved to adequately recapitalise banks to deal with a crisis, Finance Minister Pranab Mukherjee said the government would provide additional capital to SBI, which was downgraded by the Moody's recently.
During a short halt at Tabriz airport in Iran on his way back home, Mukherjee gave Vrishti Beniwali a brief account of the summit, euro zone crisis and what it meant for India. Excerpts:
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Sharing tax info: India expresses concern
The G20 finance ministers have endorsed the action plan, along with the working group on framework for strong, sustainable and balanced growth, co-chaired by India and Canada.
One outcome is the availability of the actual action plan for the remaining period. Secondly, some of the issues, it was decided, will spill over to Cannes summit, particularly on development aspect.
There has not been any concrete decision on currency issues.
In fact, that was least debated.
The third outcome was that a number of reports and studies that were conducted under the initiative of the G20 finance ministers from the last Paris meeting are now available. As for the problem of Euro zone, the agreement was that 'let them determine the solvencies'.
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Sharing tax info: India expresses concern
There should be a credible assessment of the extent of liabilities of the sovereign debt and how they are going to fund it.
There was an effort to put a brake to the role of new arrangements to borrow.
The finance ministers have not agreed to this.
Their recommendation is that the process of rollback of NAB and the quota reforms by the IMF should be completed within the mandated period of 2012.
Now the Europeans have to find a solution to resolve their sovereign debt crisis.
For that, they will be meeting on October 23.
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Sharing tax info: India expresses concern
What has been decided on increasing financial support to International Monetary Fund?
In respect of augmenting the resources of financial institutions, it was suggested that IMF should enter into various modes of resource mobilisation.
Simultaneously we should take efforts to augment resources of World Bank.
As IMF requires additional resources to strengthen the balanced development, the World Bank also needs additional resources to make investment, particularly in the developing countries.
Otherwise a situation will arise where the net lending of the Bank would be less compared to the previous year -- all these are their mandated areas of activity.
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Sharing tax info: India expresses concern
India has managed to highlight the issue of information exchange at the summit. . .
From India's point of view, one important achievement is that it has found a place in the communique.
There should be comprehensive exchange of information in respect of banks and tax.
Now our efforts would be to strengthen it further and to recommend it to the leaders so that there is a strong articulation of that issue to spontaneously get the exchange of banking information and tax information.
On this issue, I got very positive response in my bilateral with the US, France and Australia.
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Sharing tax info: India expresses concern
The communique also talks about adequately recapitalising banks. Are you going to infuse more capital in our banks in India?
As far as capitalisation of our banks is concerned, we have already decided to inject fresh capital into the State Bank of India so that its tier 1 is least 8 per cent.
This is a continuing process. Last year too, we injected fresh resources for capital expansion.
This year, we had such a budgetary proposal. I'm going to provide additional capital to SBI and regional rural banks.
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Sharing tax info: India expresses concern
How much would that be? State Bank wants about Rs 12,000 crore (Rs 120 billion) from the government.
That is over a period of years. Not in one year. And we will be ready to provide it.
What about other banks?
As per their requirements, we have already budgeted Rs 6,000 crore (Rs 60 billion).
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Sharing tax info: India expresses concern
There was also the issue of financial transaction tax. In India, we already have a securities transaction tax. What are we going to do about that?
That has not been mentioned in the communique itself. There were strong reservations against the transaction tax.
There will be some studies, and it will spread over to the Mexican summit.
What kind of impact have the problems in Europe had on our economy?
One point you have to understand is that there is a difference between the Depression of 1930 and the current situation.
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Sharing tax info: India expresses concern
In 1930, you shut your eyes and got the world recovered. Most of the advanced countries had huge colonies which provided them raw material.
Demand, as such, was not created in the less advanced countries.
The demand was generated by their colonial masters and they consumed the finished product.
But today, despite the two full years of the fragile recovery of Europe, the US and Japan, the world economy has not collapsed.
It is because these countries have experienced some sort of industrial revolution.
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Sharing tax info: India expresses concern
They have evolved economic models suitable to their respective countries.
Some sort of regulation and regulatory mechanism are in place to address the issues relating to monetary and fiscal policy.
Therefore, it is not right to have the fear that there will be another great depression.
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Sharing tax info: India expresses concern
Is it time for us to take some measures, given the happenings in the US, Europe and Japan?
What preventive steps can you take if your neighbour goes on borrowing, recklessly indulging in fiscal profligacy?
It will affect your exports, foreign direct investment and commodity prices.
It may affect your foreign institutional investors also.
Our ECB is mandated and we are not permitting short-term borrowing.
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Sharing tax info: India expresses concern
Yes, there will be certain areas of problems.
India is a net importer of industrial raw material, intermediate products and technology. Naturally, there it will be affected.
But it will not collapse.
Our stimulus between December 2008 and February 2009 generated demand in the rural sector.
That's why it has helped us in the quick recovery of the GDP.
