G20 for faster exit of stimulus, but with clarity

By Arvind Padmanabhan, St. Petersburg, Sep 6 : In what is both a give and a take for India, the G20 Summit ended here Friday with a declaration that while countries will not prolong the exit of fiscal stimulus, it will be done in a calibrated way and clearly communicated in a bid to prevent volatility in currency markets.

"We remain mindful of the risks and unintended negative side effects of extended periods of monetary easing," said the 27-page declaration, adding that central banks will continue to direct their monetary policies towards what their domestic constituency demands.

This can be seen as a major dampener for emerging markets like India that blame the unconventional monetary policy interventions of rich nations, such as the fiscal stimulus and the threats of their abrupt withdrawal, for the volatility in their currency markets.

But there were some concessions as well.

"Our central banks have committed that future changes to monetary policy settings will continue to be carefully calibrated and clearly communicated," the declaration said and added a commitment that the central banks will desist from some policies that can clearly promote volatility.

"We commit to cooperate to ensure that policies implemented to support domestic growth also support global growth and financial stability and to manage their spillovers on other countries."

This, along with the need for careful calibration of quantitative easing (or withdrawal of fiscal stimulus, or excessive spending, which rich countries had instituted to overcome the economic crisis that surfaced in 2008, were among the points raised by Prime Minister Manmohan Singh at the two-day summit.

Briefing journalists later, India's Department of Economic Affairs Secretary Arvind Mayaram also sought to highlight these points as positive outcomes for India, rather than the express intent not to prolong the stimulus exit and leave central banks to deal with their domestic constituents.

"I don't think any country will change its monetary policy that doesn't suit its domestic interest. We shouldn't even expect it," Mayaram said, adding: "But the question is when you say calibrated, it means that you create a certain certainty in that issue. A road map should be seen, known and understood."

This way, he said, speculation will be reduced to the minimum, adding that the delegates from the US in particular had assured that this is the manner in which they will act.

India has been concerned over the unconventional monetary policies, especially in the US, as it has held threats of their abrupt withdrawal the main reason behind the depreciation of the rupee by almost 20 percent against the US dollar since the beginning of the current financial year.

The currency had recently hit a record low of near 69 against a dollar.

In the G20 declaration, leaders also reiterated that the immediate focus will be on creating conditions to increase growth and employment with timely actions.

The idea, it said, was to build on the signs of a recovery in advanced economies to make it durable to the benefit of the whole global economy.

Another issue on which India can derive comfort from the declaration is on the leaders' stand that profits of multinational companies should be taxed where it is earned. The declaration said steps would be taken to tackle tax-avoidance rules and aggressive tax planning.

"Profits should be taxed where economic activities deriving the profits are performed and where value is created," said the declaration.

Mayaram said this affirmed India's stand that a country has the right to tax profits made in its territory.

"It validates our position -- companies need to pay taxes where they earn their profits," he said.

(Arvind Padmanabhan can be reached at

--IANS (Posted on 07-09-2013)

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