India on Monday favoured tighter financial regulations, as opposed to an European Union proposal to tax banks to pay for future crisis, to support the fragile global economic recovery.
“The important thing is that the global economy should fully recover... We support all efforts at raising the benchmark of financial regulations,” Finance Secretary Ashok Chawla told reporters in New Delhi on the agenda of G-20 meeting beginning June 26.
Mr. Chawla will accompany Prime Minister Manmohan Singh to the meeting at Toronto.
Smarting from a sovereign debt crisis in many of its member countries, including Greece and Hungary, the European Union earlier this month proposed creating an emergency crisis fund by taxing banks. The proposed fund would be used to deal with future crisis.
The EU plans to take this proposal to the G-20, a grouping of 20 developed and developing economies.
India’s stand is that instead of a bank tax, regulations for the banking sector should be strengthened. Finance Ministry sources said that since Indian banking regulations were quite prudent, the view was that there was no need for imposing any tax on banks in the country.
The bank tax proposal was dropped from the joint communiqué of G-20 Finance Ministers who met earlier this month in South Korea.
But the G-20 Finance Ministers did talk of contribution from financial sectors to the government’s efforts to spur economies at the time of downturn.
The Eurozone crisis, which has seen the economies of Portugal, Ireland, Italy, Greece, Spain and Hungary face stress, threatens to derail the fragile global economic recovery since the 2008 global financial crisis caused by the failure of bigger U.S. banks.
Sources said by way of clarification that when the G-20 communiqué called for contribution from financial sector, it did not refer only to the bank tax. Tight regulations also imply costs for banking sector, the sources pointed out.
To a query on reforms in the bodies like World Bank and IMF, Mr. Chawla said, “The agenda on international financial institutions reforms continue to be pursued vigorously.”
The G-20 nations welcomed the decision to increase voting power of developing nations in the World Bank and called for similar measures in the IMF so that reforms in the multilateral agency could be completed by November.
The World Bank in April announced shifting of 3 per cent voting power in favour of developing countries, bringing their total stake to 47 per cent in the multi-lateral agency. India became the seventh largest shareholder in the World Bank following this shift.