If the richer decided to concentrate on the Greek tragedy and let the development agenda take a back seat on the opening day of the G20 summit in Cannes, the Indian government made it clear that any bailout should not reduce developing countries to bystanders and increase their cost of capital through a levy of a tax on the financial sector.
In his address to the summit, Prime Minister Manmohan Singh said although India supported the International Monetary Fund playing its part in restoring stability to Europe, it must also keep in mind the liquidity requirements of developing countries, 'who are not at the centre of the crisis but may nevertheless be adversely affected as innocent bystanders'.
The European Union and IMF had last week announced plans to provide a Euro22 billion ($29.5 billion) safety net to prevent a Greek sovereign default on its bonds next month. Briefing journalists, Montek Singh Ahluwalia, deputy chairman, Planning Commission, and India's sherpa to G20, said the IMF had about $250 billion in resources that were free.
He said the multilateral lending agency should ensure that when it lends to one country, it also has resources for other countries.
That India's concern was different from the top cream, dominated by crisis-ridden Europe, became clear when Singh said that in an integrated world, there should be common standards implemented simultaneously in all jurisdictions, to avoid a
"Otherwise, financial activity will migrate from the tightly regulated sectors to less regulated jurisdictions.
"It is, however, important that the developmental needs of developing countries are kept in mind in these regulatory reforms."
No FTT
India's financial sector faces a developmental rather than a regulatory challenge, since it withstood the financial crisis.
Financial inclusion, provision of long-term funding instruments for infrastructure and development of liquid bond markets to improve monetary policy transmission were financial sector priorities in India before the crisis, Singh affirmed.
"Nothing has happened in Indian financial markets or globally that warrants changing these priorities. We need to be sure that the regulatory reforms being introduced globally will not hamper this process."
He said banking capital needed to be strengthened in India, not on account of higher risks but because credit is projected to expand at a very fast pace to feed the high real growth.
"While the principle that the cost of a bailout falls on equity holders rather than on taxpayers is robust, in India, large segments of the financial sector, especially banking and insurance, is mostly state-owned, and equity holders and taxpayers are mostly one and the same.
"In this environment, it is difficult to see why a financial sector tax, which would only raise the cost of capital even further, would be appropriate."
Image: Prime Minister Manmohan Singh
