India may claim victory in G20, but reality is different

The G20 did lend an ear to India and other emerging market economies facing currency volatility, but warned these countries must also put their house in order

Don’t start squeezing liquidity from the market without telling us: This was the message India sent to the group of 20 powerful economies at St Petersburg last week, even as it was grappling with the spillover effects of monetary stimulus rollback plans by the Federal Reserve.

The G20 did lend an ear to India and other emerging economies facing currency volatility, but warned these  must also put their house in order. India considered it a victory and conceded there were problems at the domestic front being addressed.

Apparently, this was one of the most successful summits for India. The country not only partially managed to get its voice heard in the Leaders’ Declaration on the issue of monetary policy, its stand on taxation of multinationals also got backing.

The declaration says future changes to monetary policy would be calibrated and communicated. The government might call it a victory, but since the G20 communiqué is not binding on its members, the ground realities might be different.

The declaration says monetary policy would continue to be directed towards domestic-price stability and supporting the economic recovery according to the mandates of central banks. So, the predictability India is looking to from the Fed might not be much more than it has indicated, a reduction in bond buying from this month.

There are indications that Fed Chairman Ben Bernake could announce tapering of its $85 billion-a-month bond buying programme in a meeting on September 17-18. The Fed had first hinted in May that it could start withdrawal of quantitative easing.

On tax base erosion and profit shifting, India said an OECD (Organisation for Economic Cooperation and Development) project echoed its position on the need to have new standards to keep pace with the larger economic integration across borders and ensure the countries do not lose on tax due to them.

The G20 fully endorsed the OECD proposal for a truly global model for multilateral and bilateral automatic exchange of information. India, slammed by multinationals for transfer pricing orders, believes its stand has been recognised globally.  

India also raised the issue of international labour mobility in high end skills and urged the leaders to avoid new restrictive measures in this area. It expressed concerns on efforts by some of countries to roll back trade-related agreements with regard to the movement of labour. However, the G20 declaration did not specifically comment on this issue.    

India pressed for promoting investment in infrastructure in emerging markets by the World Bank, International Finance Corporation and Asian Development Bank and expressed hope the G20 could signal that it was willing to provide the capital. There was no such confirmation in the declaration but at a broader level, India’s emphasis on long-term infrastructure financing was accepted. On quota reforms at the International Monetary Fund, the G20 endorsed India’s view, but summits have passed and not much progress has been seen on this front.

INDIA AND THE G20

* India: G20 policy co-ordination process needs to pay more attention to monetary policy

* G20: Future changes to monetary policy will be calibrated and communicated, but stronger policy frameworks in emerging markets will allow the latter to better deal with challenges

* India: Commit to working together for revival of growth for sustainable growth in quality jobs

* G20: Creating more productive and better-quality jobs aimed at achieving strong sustainable and balanced growth, poverty reduction and increasing social cohesion

* India: Need to develop a framework that can overcome the ‘too big to fail’ problem

* G20: Building more resilient financial institutions, making substantial progress towards ending the ‘too big to fail’ phenomenon, increasing transparency and market integrity, filling regulatory gaps

* India: Quota reforms at the International Monetary Fund (IMF) to improve the voting share of developing countries

* G20: Completing ongoing reforms of IMF governance indispensable for enhancing the Fund’s credibility, legitimacy and effectiveness. Ratification of the 2010 Quota Reform urgently needed

* India: Need for having new standards to ensure countries do not lose on tax

* G20: In a context of severe fiscal consolidation in many countries, ensuring that all taxpayers pay their fair share of taxes is more than ever a priority