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India to make global case for Tobin tax

P Vaidyanathan Iyer

The government is considering a Tobin tax to counter the resource crunch that development projects face. India is, in fact, planning to evolve a strategy for mobilising opinion among like-minded nations to push the case in international forums.

Tobin tax is a tax on international portfolio investments. A debate is currently on regarding the merits, implementation and management of such a tax regime.

Government officials told Business Standard the country was ready to take the plunge and would make the right noises for the introduction of an innovative funding mechanism.

"Besides Tobin tax, we are also lobbying for user fees on global natural resources," an official said. This will ensure the developed world pays for the use of natural resources.

Officials said there was no explicit rejection of the Tobin tax proposal in the recently concluded International Conference on Financing for Development in Monterey, Mexico.

"On the contrary, we sensed a silent majority among various countries," an official said. While the US was in favour of such a tax, some member-countries of the Organisation for Economic Co-operation and Development and European nations were resisting it, he added.

According to officials, the tax can stabilise the global financial markets and also fund specified development projects. After the east-Asian experience, where foreign institutional investors pulled out leading to a crisis, the need for such a tax had been further accentuated, they said.

Finance Minister Yashwant Sinha, too, they pointed out, had been calling for a global financial architecture to ensure greater stability in international fund flows.

They said the developed world was being increasingly severe on specifying pre-conditions for disbursing aid. "The pre-conditions are in governance-related areas like rule of law and government procurement. We have our reservations here," said an official.

The idea gained ground in Montterey since resources to address the problems of global public goods like eradication of AIDS and trans-boundary pollution, are becoming difficult to find.

"Increasing development assistance to developing countries is in the interest of the developed world," an official said.

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