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Transcript of Media Briefing by Foreign Secretary and Secretary, Department of Economic Affairs in St. Petersburg on G20 Leaders’ Summit Outcome and Bilaterals

September 06, 2013

Official Spokesperson (Shri Syed Akbaruddin):Good afternoon friends. We have here with us Secretary, Department of Economic Affairs, Mr. Arvind Mayaram, and Foreign Secretary Mrs. Sujatha Singh.

I will request first Secretary DEA, to give you a round-up of the outcome of the G20. Subsequently Foreign Secretary will brief you on the bilaterals. And then we will take questions at the end. I will ask Secretary DEA to first make his remarks about the outcome of the G20.

Secretary, Department of Economic Affairs (Shri Arvind Mayaram):Good evening everyone.

Broadly the discussions went around the major themes of the conference. The general consensus that was reached was around achieving a strong recovery while ensuring fiscal sustainability.

There was also a discussion on unemployment and underemployment and there was an emphasis in creating employment opportunities. And, therefore, investment was linked with employment where the investment had to be of a nature where employment will be generated. So, for that purposes importance of long-term financing for investment, which included for infrastructure and SMEs, to boost economic growth and development was also emphasised.

There was some discussion on free and rules-based trade. Then there was a major understanding on cross-border tax evasion and avoidance which undermines the public finances. There was a broad consensus that more work should be done to create standards for automatic exchange of information between nations.

There was a general consensus around financial reforms that needed to be effected, especially for building more resilient financial institutions. There was also a discussion on developing cleaner energy.

As far as India is concerned, we agreed with the broad analysis that the main challenges to global economy continue to be weak growth and persistently high unemployment. There is also a problem of slower growth in some emerging market economies reflecting in some cases the effect of volatile capital flows, tighter financial conditions, and commodity price volatility. In our case oil has been one of the areas of major concern.

There was also a discussion in terms of creating a much better format for long-term financing, especially on infrastructure. Our emphasis on infrastructure was accepted. There was also some detailed discussion on the manner in which joint action can be undertaken to create a favourable environment for capital flows for long-term investment from the global capital markets and also through private investments in infrastructure.

There is a growing concern, which we reiterated from our point of view, on the base erosion and profit shifting, especially in the case of multinational corporations. This is a matter of satisfaction for India that whereas in the past there has been a lot of concern expressed by developed countries on our taxation and the manner in which we ask the MNCs to pay their taxes. But it only now fully justifies our stand on recovering taxes which are due to the country as now other countries including OECD countries are having a great concern on this issue of tax erosion and non tax compliance.

On quota formula, once again we reiterated our position that the voice in the IMF must reflect the changed realities of the world. The emphasis that the 15thGeneral Quota Review should be completed by January, 2014 was broadly accepted by all the members of the G20.

There is one interesting new area of discussion which is coming, which is on financial inclusion and also on food security. This is an area where the experience of India has been of great value to the participants. This was especially in terms of the financial inclusion. The Prime Minister did speak of the Direct Benefit Transfer Scheme that we are undertaking and also the food security that we are now going in for to provide this security for the vulnerable sections of the society.

There is a general acceptance that food security is important not only from the point of view of ensuring that there are no sections of the society which are left out from this cover but also on account of malnutrition which continues to be one of the major problems in the world.

This is basically broadly the understanding which has come in and our concerns were fully reflected in the discussions that took place.

Foreign Secretary (Shrimati Sujatha Singh):Let me give you a sense of the bilaterals that the Prime Minister had.

Yesterday he had brief pull-asides with Nursultan Nazarbayev of Kazakhstan, Stephen Harper of Canada, before that Shinzo Abe of Japan. Today he met President Putin briefly. President Cristina Kirchner of Argentina met Prime Minister. As a matter of fact, it was here in this very room. Both of them had a good discussion on how to intensify bilateral economic relations.

As you are aware, President Kirchner visited India in October 2009 and both sides had agreed to develop a comprehensive dialogue towards a strategic partnership. We have various agreements in place relating to space, geological survey, science and technology, sports, trade promotion, hydrocarbons and civil nuclear energy. There is good investment from India in Argentina of about 800 million dollars in agrochemicals and pharmaceuticals; and we also cooperate in Antarctic cooperation and space sectors.

After that Deputy Prime Minister Taro Aso came and they discussed increasing the swap from 15 to 50 billion dollars. We expressed our happiness at the forthcoming visit of Emperor Akihito and Empress Michiko, and the increasing involvement of Japan in our infrastructure including the Delhi-Mumbai Industrial Corridor.

This in short were the bilaterals.

Official Spokesperson: Any questions? Maybe we could have first for Secretary DEA and then for Foreign Secretary.

Question:Prime Minister in his statement yesterday asked for a coordinated action from developed world on the monetary policy. The declaration which has been released today mentions about spillover effects but it is silent on any coordinated action on the monetary policy front. Can you just tell us a little bit about it?…(Inaudible)…

Secretary, Department of Economic Affairs: I think it is not correct. In fact, the declaration very clearly says that there should be calibrated effort and coordination between the nations should take place on these issues. It is there.

Question:The question really has to do with clause 14. If you read the first line it says very pointedly that monetary policy action will be determined by central banks with regard to their domestic situation. Further on the same para at the end clarifies on the unintended spillover effects. This is being read widely as a clear hint and this is obviously of particular concern to us that central banks all across the world will continue to do what is in their best domestic interest.

Secretary, Department of Economic Affairs: Actually if you see, the last line of para 14 says: "Our central banks have committed that future changes to monetary policy settings” - which obviously refers to for instance withdrawal of quantitative easing is a monetary policy setting - "will continue to be carefully calibrated and clearly communicated”. They will calibrate means, they will calibrate amongst themselves the policies in a manner and communicate it in a manner that there is no uncertainty in the market.

Question:Sir, do you expect the United States, therefore, - and the crucial dates of 17thand 18th September that are coming up - that position to be at all influenced by the G20 outcome?

Secretary, Department of Economic Affairs: I do not believe any country would change its policy which will not be in its domestic interest. There is no question of that. I do not think we should even expect it. It is in fact unrealistic to expect. For instance, will India change any policy of its own if it was not in its own interest? Obviously not. But the question here is different.

The question is, when you say it is calibrated it means that you create a certain certainty in that issue. For instance a kind of a roadmap should be known how you will do it. Certainly the roadmap will be determined by their self interest. Any country’s self interest determines what the roadmap should be. But that roadmap should be seen and known and understood so that the markets do not speculate, their speculation is reduced to the minimum. To that extent I do certainly believe that there is a general understanding that this is how it should move. And in our discourse with the officials from the US side, they have assured that they have no intention of allowing a kind of a volatility which comes from speculation or uncertainty. So, we do believe that it is going to move in a calibrated manner.

Question:Sir, on the way here you said that if there is a strong statement from G20 on the need to calibrate the taper, it will have a soothing impact on the markets. Now that it has found a mention in the statement, what kind of impact do you reckon this will have on the markets?Per seon the Rupee do you think this will have an impact?

Secretary, Department of Economic Affairs: I do not know whether this will have an effect or not but certainly the policies of Government of India are having a good soothing effect on the Rupee because today it has ended very sharply I think at 65 or something. It is not a single statement which makes a difference. It has to be overall how the domestic policies and how the international environment is working on this. So, I would think that there should be less volatility.

Of course, let us see. There are other effects also. There are other developments that can take place. There are geopolitical developments that take place which can have an impact adversely. So, we do not know. But to the extent of the uncertainty relating to quantitative easing, I certainly believe that a much greater comfort will be there than it was before this statement.

Question:Behind the scenes, was there conflict on the need to include this? Which countries supported the inclusion of this particular spillover clause and which countries were opposed to it?

Secretary, Department of Economic Affairs: There is no conflict. You talk on wordings, what wordings should come in or not come in, whether it should be calibrated or it should be some other word. Those are the discussions which happen. I do not think there is any conflict in these matters. Therefore, at the end of the day the consensus that emerges is more important.

Question:Do you believe that the consensus in the declaration takes note of India’s concern and, therefore, could be seen as some kind of an affirmation or commitment that will help India in terms of ...?

Secretary, Department of Economic Affairs: I certainly believe so.

Question:On taxation, there is a clear para in the reference, in the declaration that profits should be taxed only in the country where the activity takes place and, therefore, in case of transfer pricing involving let us say software operations happening in India, do you think it really removes the ambiguity so that India gains on taxation? Is there any imperative or implications that you want to mention?

Secretary, Department of Economic Affairs: I would suggest let us not look at it in a very specific manner because obviously international discussions do not happen on specific clauses like transfer pricing. That is not how they operate. The principle that countries have a right to tax profits where they are made, that principle is being accepted. And, therefore, it only validates our position when we say that we are going to tax profits that are made in India and it is a valid aspiration of any country to do so. I think that has been accepted and that I think is an important landmark for a global understanding on this.

Question:You talked about financial inclusion, about the DBT and the Food Security Bill. Did Prime Minister hard sell these ideas to other countries or what exactly were you attempting, factoring was included in the statement itself?

Secretary, Department of Economic Affairs: One, I never mentioned Bill. I spoke of food security. Food security has not come out of our statement. Food security is something which has come out of the general understanding in the global community that food security is a very important aspect now which cuts across all the countries of the world. Therefore, what I mentioned to you was that the statement which we are making is basically speaking of these issues which are now concerning the world. We are already addressing them to that extent. We mentioned that we are using DBT for financial inclusion of the people, and we also have a programme for food security.

Question:Basically you all are taking the lead there in telling the rest of the world that they should follow.

Secretary, Department of Economic Affairs: I would also not claim that lofty a position. We are only stating that we are doing it and many countries actually came up after the Prime Minister’s statement to find out and ask ...

Question:Or in a more humble way is it possible to say that any subsidy bill that India incurs on the ground of food security will be looked upon more benignly in the context of fiscal adjustment?

Secretary, Department of Economic Affairs: I think we will just leave it at this that food security is an issue which is now globally recognised and we are addressing it effectively.

Question:Sorry, you were saying that world leaders came across to the Prime Minister and asking.

Secretary, Department of Economic Affairs: I did not say world leaders, I said many leaders from the countries were talking in the meeting, came to us. Not just to the Prime Minister they also talked to us about our experience on this issue. So, there is an interest in what we are doing. That is the point I was making.

Question:On Japan, on the swap apart from what has been agreed before, apart from the change in the amount, is there any other detail you can give us in terms of what are the terms, timeline or anything more than that change in amount?

Secretary, Department of Economic Affairs: The broad principle of enhancing from 15 to 50 billion was agreed today. The details would be worked out separately. But because we already have a swap arrangement which is 15 billion dollars now, it is not going to be very much different from what we already have in place. Some minor details may be worked out but broadly it is on the same principles as before.

Question:But how does this swap work? Say, if India needs 20 billion dollars, will you borrow from Japan that 20 billion at a certain interest rate returnable over a period of time? Is that how it works?

Secretary, Department of Economic Affairs: What happens is that the swap arrangement works in this manner. This facility is available to both countries. So, if Japan wants it India will have to provide the same. If we need it they will provide the same.

Question:But Japan is hugely current account surplus. They do not need it.

Secretary, Department of Economic Affairs: I was just explaining what swap arrangement is. I do not even believe we will need it. But it is just an arrangement between the two countries. It is a reciprocal arrangement where any country which requires foreign exchange can call for this support and there is an interest rate which is predetermined, which is a concessional interest rate, which has to be paid for the period for which it is taken. It is like a programme. You take that money in a programmatic manner and then you return it in a particular manner. That is how broadly it functions.

Question:One related question. Montek in the morning was saying that this swap arrangement, you sort of resort to it only in times of need, a really dire need or something. He was suggesting that it is just a kind of comfort. It is out there. But in the context of Japan, you have so many infrastructure projects which Japanese are funding. So, do you think you might sort of use it to drive long-term infrastructure projects which is also a part of the long-term means for infrastructure etc., part of the understanding in the ...

Secretary, Department of Economic Affairs: Actually swap is never used in that manner. The instrument is not for that. The instrument is basically to take care of your balance of payment problem. It is specific for that. It is not a line of credit in that sense that you could use it for anything. For the projects the lines of credits are different. So, JICA gives a separate line of credit.

Question:If both India and Japan do not need it, where is the need for…(Inaudible)…

Secretary, Department of Economic Affairs: It is a very good question. The problem today is not simply of reality but of perception, and markets behave on perception. Because of a huge amount of uncertainty, because of asymmetry of information, because it is difficult to predict what is in the future, if there is a negative sentiment which builds up in the market, it begins to speculate on the negatives. Therefore, as we have seen in the past 15, 20 days Rupee has come under pressure, etc., for the simple reason that they believe current account deficit is very large, the capital flows are not coming in, there is going to be a reverse flow of capital and, therefore, there is a speculation in the market.

We are confident, as the Finance Minister said earlier, that we can fully finance the current account deficit; that current account deficit would be at 3.7 per cent and no more. We have done our math correctly and we know that this is going to happen. There is no question on that. But the market continues to have a kind of a fear of the unknown. When you have arrangements of this nature, it shores up the sentiment. It provides a sense that there is a wall which is available should there be a need in the most unprecedented circumstances.

So, as I mentioned earlier, we will never use it. We do not need to use it. We are fully equipped to deal with our balance of payment requirements. However, for the purposes of shoring up the sentiment it is a good instrument. And because Japan is a very friendly country, we have very longstanding economic relations with them, we believe that this also creates a much greater confidence amongst each other, between the investors of each country. And now that there is a greater interest on the Japanese investors, as was just mentioned by you, the Japanese investors also feel a little greater comfort when there is a strong economic relation between the two countries. So, we believe this also creates a better format for Japanese long-term investments to flow into projects in India. From that perspective I think it is a very good agreement that has been reached today.

Question:Madam, did the Prime Minister discuss Syria in any of the bilaterals with any other world leader?

Foreign Secretary: It was discussed with Argentina. As a matter of fact, President Christina raised it and both leaders agreed that a political solution was what we should all be trying for.

Question:In the morning they said that the UN should find out evidence ...

Foreign Secretary: That we should await the report of the inspectors and await their determination and thereafter think of a collective response. But the emphasis is on finding a political solution because the region is already troubled and we do not want to aggravate the situation there, or all the fault lines that cut across Syria, whether sectarian, ethnic. So, our attempt is to find a political solution.

Question:You say political solution. Yesterday Prime Minister when he intervened said we are not aimed at any regime change.

Foreign Secretary: Correct.

Question:He was quite focused that it should be done through the UN and we must wait for the UN inspectors, etc.

Foreign Secretary: Correct.

Question:If you want a political solution, it means it is long-term. It is not immediate because you know the Americans are rushing. They were of course outnumbered yesterday but the fact is that they believe that action should be taken.

Foreign Secretary: We would like the Geneva-2 process to start. We believe that all the parties should come to the negotiating table and there should be a political solution.

Official Spokesperson: Thank you very much.


St. Petersberg

September 6, 2013


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