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വായന

10 September, 2013

Balancing act at G20

BRP Bhaskar
Gulf Today

India’s economic woes were uppermost in Prime Minister Manmohan Singh’s mind when he went to St Petersburg, Russia, for the G20 meet last week. His plea to the developed countries for calibration of their monetary policies to avoid adverse impact on the economies of the developing countries received support from many countries.

Heeding their voice, the United States and other advanced economies agreed in the summit declaration to carefully manage winding down of the monetary stimulus, brought in to deal with the situation created by the global economic slowdown.

At the root of the worry articulated by Manmohan Singh was the depreciation of the currencies of some developing countries as global investors started pulling out following reports that the US Federal Reserve may taper off its monthly $85 billion bonds purchase.

While committing itself to moderate the Fed’s quantitative easing programme, the US argued that the difficulties of the developing countries were the result of lack of economic reforms. This viewpoint, too, found expression in the declaration which said “sound macroeconomic policies, structural reforms and strong prudential frameworks will help address an increase in volatility”.

As was to be expected, the declaration represents a balancing act. The G20 nations undertook to co-operate to ensure that the policies they implemented to support domestic growth also supported global growth and financial stability and to manage their spillovers on other countries.

US officials claimed later that while China, India and Brazil raised the issue of quantitative easing, most G20 members agreed that what was good for the US was good for the global economy.

The G20 nations reiterated their commitment to free trade. At the same time, the target date for ending the moratorium on any new protectionist measures was moved from 2014 to 2016.

There was a consensus in favour of adoption of an action plan which focuses on economic growth and job creation. However, the details remain to be worked out. The member states have been asked to outline their respective positions on the subject at next year’s summit, to be held in Brisbane, Australia.

Another positive outcome of the summit was the agreement to create an international framework to fight cross-border tax evasion by 2015. The proposal requires financial institutions to ascertain the residential status of their customers for tax purposes and pass on the information to the authorities concerned.

The US and Britain were among the key promoters of the proposal. Apple, America’s most profitable technology company, is said to have avoided billions in taxes in the US as well as other countries by creating a web of subsidiaries. Another American company, Starbucks, which runs a global coffee house chain, had sales of nearly $630 million in Britain last year but paid no taxes. It has, however, offered to pay taxes from this year.

Curiously, the proposal to check tax evasion did not receive much attention in India though the country stands to benefit from the proposed international framework. Global Financial Integrity, a non-profit research organisation, had reported last year that Indians were holding an estimated $500 billion in secret accounts in foreign banks.

Manmohan Singh can derive some satisfaction from the fact that he could persuade the developed nations to take note of the adverse implications of the high volatility of financial flows and exchange rates for India’s economic stability. However, he obtained more tangible results from the discussions he had with some of the summit participants outside the conference hall.

In talks held on the sidelines of the summit, Japan agreed to raise the ceiling on the currency swap agreement with India from $15 billion to $50 billion. This will strengthen India’s effort to arrest the decline of the rupee.

The BRICS deliberations at St Petersburg resulted in agreement on the contributions members of the group must make towards the reserves of the 100-billion dollar development bank which they are to set up. China will provide $41 billion, Brazil, Russia and India $18 billion each and South Africa $5 billion.

The BRICS bank is designed to help finance infrastructure and development projects in the member nations. It will also pool foreign currencies to help meet any financial crisis in the future. Some see it as an alternative to the International Monetary Fund, where the US is in a position to veto any proposal.-- Gulf Today, Sharjah, September 10, 2013.

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