Finance Minister Nirmala Sitharaman has cautioned that trade wars and protectionism have generated uncertainties, which will ultimately impact the flow of capital, goods and services.
Sitharaman, who in the US to attend the annual meeting of the International Monetary Fund and World Bank, was speaking at the working lunch session of the ministerial level committee on the global economic outlook on Friday.
The finance minister called for ‘concerted action’ to mitigate the disruption on account of synchronous slowdown and to invoke the spirit of multilateralism for global growth.
“The increased trade integration, geopolitical uncertainties, and high accumulated debt levels necessitate strong global coordination. We need not wait for the slowdown to become a crisis," she added.
IMF chief economist Gita Gopinath on Tuesday said the global economy is in a synchronized slowdown and the fund is downgrading global growth for 2019 to 3%, the slowest pace since the 2008 financial crisis. “Growth continues to be weakened by rising trade barriers and increasing geopolitical tensions. We estimate that the US-China trade tensions will cumulatively reduce the level of global GDP by 0.8% by 2020. Growth is also being weighed down by country-specific factors in several emerging market economies, and structural forces such as low productivity growth and ageing demographics in advanced economies," she said.
The Fund has pared down its growth projection for India to 6.1% for 2019-20 from 7% estimated in July, citing a sharper-than-expected demand slowdown.
During a discussion on developing a consensus solution to tax challenges with the help of digitalization, Sitharaman said a unified approach to the nexus and profit allocation challenges is a promising one that merits serious attention. “A solution that is simple to implement, simple to administer and simple to comply with is needed," she added
Earlier this month, the Organisation for Economic Co-operation and Development (OECD) released a public consultation document outlining a proposal for a “unified approach" to address the tax challenges of digitalisaton of the economy. This may favour India as the OECD proposal supports taxing digital companies in countries where they have significant economic presence. It recognizes that market jurisdictions need to be allocated higher profit, beyond those determined, based on the arm’s length principle. The proposal is intended to facilitate negotiations between countries, with the aim of achieving the objective of a political agreement by the first half of 2020.