India @ the G20

The world’s 20 most influential finance ministers are set to ask Europe to undertake “ambitious reforms”, commit to adequately capitalize banks and take onboard India’s concerns on toning up the tax information sharing mechanism to prevent evaders from stashing wealth in foreign banks. “For the first time, the communique has addressed issues related to the importance of a comprehensive tax information exchange and encourage authorities to continue their work in the global forum to assess and better define the means to improve it,” said economic affairs secretary R Gopalan. India, which already signed Tax Information Exchange Agreements with 16 countries, has found it very cumbersome to get data related to the period before the treaty comes into existence. But several countries are refusing to share data citing legal differences between tax evasion, tax frauds and avoidance which are seen to be frustrating efforts to book evaders despite the G20 pushing for it. Facing pressure on cracking down on black money, over the last two days, finance minister Pranab Mukherjee has repeatedly raised the issue although he has not so far succeeded in getting a commitment from foreign countries to assist in recovery of wealth parked overseas. While Gopalan did not elaborate on the issue of adequate capitalization of banks, the communique will force the government to ensure that it provides equity to public sector lenders that account for nearly three quarters of the Indian banking industry. After providing nearly Rs 15,000 crore to state-controlled lenders in the aftermath of the 2008 financial crisis, the government has tightened its purse strings citing fiscal constraints. State Bank of India which has been seeking to raise Rs 20,000 crore through a rights issue has been waiting in the wings for over two years as the government, which holds a 59% stake, has been unwilling to provide its share of Rs 12,000 crore. Following opposition from the United States, the G20 has also deferred an immediate decision on the $350 billion for the International Monetary Fund, although the communique is going to talk of enhanced support to the World Bank. So far, however, there is no agreement on a mandatory financial transaction tax, something similar to the securities transaction tax, that India is opposing on the grounds that it will put further pressure on local financial institutions. The G20 finance ministers and central bank governors, who have been huddled in meetings since Saturday morning, will issue a communique late on Saturday night that will lay the roadmap for a meeting of EU leaders in Brussels. The general expectation is that even after the Brussels meeting of the European Council on October 23, the final word would be said in November when the G20 leaders meet at Cannes. While focus will be on the eurozone crisis, the fear is that there is a possible danger of a contagion that needs to be prevented immediately.