Thaindian News

Cannes, Nov 3 (IANS) Even as Microsoft founder Bill Gates threw his weight behind a “Robin Hood” tax at the G20 Summit here Thursday, proposing levies on equity and bond trading to fund the poor, India was clearly uncomfortable with the idea.

“Nothing has happened in Indian financial markets or globally that warrants changing the priorities,” Prime Minister Manmohan Singh told the G20 Summit, speaking generally about financial markets regulation.

He said while banking capital needed to be strengthened in India, this was not due to higher risks but because credit was projected to expand at a very fast pace to feed the high real growth that the country expected.

The prime minister did not oppose the principal that the cost of a bailout of a financial system should fall on equity holders rather than taxpayers but said in India the financial sector, especially banking and insurance, was mostly state-owned.

“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.”

Bill Gates, who was asked to present a paper by French President Nicolas Sarkozy at the G20 Summit, believes the member economies can raise an extra $48 billion a year to fight global poverty by levying a small trading tax on shares and bonds.

Also called the Tobin tax, proposed by Nobel Laureate economist James Tobin in 1972, it originally proposed a levy on all spot transactions in the financial market that converted one currency into another.

According to Manmohan Singh, the priorities of emerging markets like India before the crisis, were not regulatory but developmental, to deepen and develop new markets to sustain high rates of growth in the real economy.

“Financial inclusion, provision of long-term funding instruments for infrastructure, development of liquid bond markets to improve monetary policy transmission, among others, were financial sector priorities in India before the crisis.”

He hoped the regulatory reforms globally will not hamper this process.

According to the prime minister, in many developing countries, including India, financial markets have been tightly regulated and that had helped them avoid the financial crises resulting from excessive leverage.

“But it came with a cost, as it increased the cost of intermediation. Emerging markets therefore were engaged in progressive reduction in tight regulations with a view to modernising their financial markets and expanding intermediation.”

(Arvind Padmanabhan can be reached at arvind.p@ians.in)