Chawla: Weighing options

New Delhi, June 21: India will argue for a tighter regulatory mechanism to prevent a repeat of the global financial crisis — as opposed to an EU proposal to tax banks — at the forthcoming G-20 summit beginning Saturday in Toronto, Canada.

“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 today.

With Australia and Canada also opposing the bank tax proposal, which was put forward by the European Union last month and supported by the US and the UK, the G-20 meeting of finance ministers is unlikely to arrive at a consensus on this contentious issue, said industry players.

The differences over the bank tax proposal have cropped up because the fallout of the global turmoil did not impact the financial systems of India, Australia and Canada in the same way as it did the US and some EU countries.

With many of the European economies saddled with huge public debt because of increased public spending during the crisis years of 2008 and 2009, the levy on banks is aimed at sparing taxpayers from chipping in for bailouts in the future.

The 27-nation European Union said in a joint communique last Friday that the EU representatives in the G-20 would seek the support of other nations for “further developing and exploring” possibilities of introducing a financial transaction tax.

Earlier this month, the G-20 finance ministers’ Busan summit had failed to find a consensus.

The crux of the idea is that public money cannot be used to fund future bank bailouts. Instead, banks should be taxed to build a corpus for future bailouts.

However, India’s stand is that instead of a bank tax, regulations for the banking sector should be strengthened. Officials said India had enough regulatory tools to insulate banks from the volatility of cashflows.

Chawla said the government would continue to pursue its agenda to reform global financial institutions such as the World Bank and IMF.