IMFs G-20 appraisal to bring in clarity on sovereignty: PM

Written by KG Narendranath | On-board PM?s special aircraft | Updated: Jun 30 2010, 08:39am hrs
The International Monetary Funds (IMF) ongoing assessment of the financial imperatives of the G-20 countries would provide more clarity on how far each of them is willing to subordinate their national sovereignty to the needs of managing an increasingly inter-dependent world, Prime Minister Manmohan Singh said.

He said the IMF has out forth some categories of countries, which, because of their structural similarities, could take similar approaches in tacking macro-economic problems, but added it was, however, too early to predict the outcome of the process.

Addressing a press conference on board the PMs aircraft in the journey back from Toronto, he said in the need was now for a much greater degree of macro policy coordination that what had been feasible in the past. The Prime Ministers comment allays the fears that because of internal dissensions and the multitude of issues on the G-20 table, the forum was showing early signs of non-compactness if not disintegration.

Singh said it has been agreed by the leaders that the G-20 would be the premier forum for discussing international economic issues. On the role of G-20 vis--vis the G8 grouping of advanced economies, he said the latter would now probably deal with security issues much more vigorously that in the past as the G-20 focus on macro-economic policy coordination. Singh said the Canadian Prime Minister Stephen Harper had told him about such change in the role of G8.

On the possible expansion of the BRIC bloc, he said the four countries would like to discuss all issues which had a bearing on global economic management and the expansion of membership would have to discussed among these countries. There have been reports about expanding the Brazil, Russia, India and China (BRIC) union with the inclusion countries like South Africa and Indonesia.

He said the Toronto meeting was in some ways the preparation for Seoul meeting in November. I think the (Toronto) summit has helped in charting out the agenda and action points for the (Seoul summit). Stating that the immediate concern of G-20 was the situation in the Euro zone, especially the condition of some of the European banks balance sheets, he said there was an agreement among the leaders that global economic recovery over the last year was rather fragile.

When asked if there was any major headway in the Toronto summit when it comes to rebalancing and strengthening the global growth, he said, What is needed is calibrated attempt at fiscal consolidation, rather than a one-size-fits-for-all sort of action. In that way, there (was) progress. Growth is the immediate need. Even those countries which want to go ahead with fiscal consolidation reckon that they must do it in a growth-friendly manner. Even those European countries which have come out with targets for fiscal consolidation were proceeding with due caution. So, he said, the summit had played a useful role in clarifying what was the scope of fiscal consolidation and in what manner the process of consolidation should be found.

As far as India is concerned, our banking system remains well-managed and our economy is growing at a rate of 8.5% per annum. Our fiscal position is a cause for concern, but when we compare our fiscal deficit or the debt-to-GDP ratio with those of major developed countries, I think we have come out much better, Singh said.

On India-US relations and the planned visit of President Barack Obama to India in November, the Prime Minister said: Our relations with the US are very good. As discussed with President Obama (on Sunday), the preparations were on for the visit. We have a really ambitious agenda.

Singh said Obamas national security advisor would visit India in the second week of July and chalk out the agenda along with his Indian counterpart Shiv Shankar Menon for the Presidents visit. We look forward to a very successful visit of President Obama and so does the President, Singh said.

No need to impose Tobin tax now, says Manmohan

Capital flows into India have not reached stage that they are a problem, Prime Minister Manmohan Singh said.

I think capital flows into our country both direct investment and portfolio inflows have been at reasonable levels. We dont face a situation of the kind which we would require imposition of Tobin tax to curb them, he said. Indias capital account had a surplus of $48.5 billion or 3.7% of GDP in 2009-19.

The Tobin tax is a penalty on short-term financial round-trip excursions into another currency. It is basically a currency transaction tax, although there are different variants under discussion.

Tobin tax has merit in certain situations but as far as India is concerned, we havent reached a stage where capital flows are a problem, he said. Brazil had in October last year imposed a 2% tax on foreign purchases of fixed-income securities and stocks, in a bid to curb gains in the real, which had strengthened the most among major global currencies last year.