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India expects a positive outcome from G20 summit

N. Ravi

Optimism on steps to get the world economy moving again, setting the financial system right

London: India expects a positive outcome from the G20 London summit on steps to get the world economy moving again, setting the financial system right and increasing the resources of the International Monetary Fund and other multilateral institutions, according to official sources travelling with Prime Minister Manmohan Singh to the summit.

The preliminary negotiations on the summit issues and on the final declaration to be issued at the conclusion have left the Indian side fairly happy. Deputy Chairman of the Planning Commission Montek Singh Ahluwalia is the “Sherpa” for India during the negotiations.

That the current financial crisis and global slowdown are being discussed at the G20 summit is seen as a reflection of the changing balance of power in the global economy. A little over a decade ago, in 1997, the Asian currency crisis was discussed within the confines of the G7 industrial nations.

By far the most important of the outcomes will be the common understanding and the emphasis on the need to stimulate aggregate demand in a big way. How exactly each country does it would depend on how much room it has fiscally and in terms of monetary policy. The other big debate is expected to be on the type of regulation that the financial sector calls for to prevent a recurrence of the crisis.

On the one side are countries pushing for international standards and a coordinated international oversight and regulation of institutions such as hedge funds and private equity firms as well as of derivatives markets. However, countries that have benefited from the relative freedom allowed in their jurisdictions to develop large financial markets want to confine international arrangements to prescribing criteria for regulation and leaving it to national regulators. There is, however, agreement that systemically important institutions need to be overseen and regulated so that information is available to the regulators.

The Indian position on regulation is somewhere in the middle, with a preference for standards being set internationally. The face that the Financial Stability Forum is set to be expanded with the inclusion of India and some other emerging economies is seen as a positive sign.

The third big debate is expected to be on additional funding for the International Monetary Fund. There are unresolved differences over the method of funding — whether through quota increases or through straight infusion of funds. Again, while the European Union has suggested $250 billion in additional funding, the U.S. is pushing for $500 billion. The Indian stand is that the additional funding has to be sizable and that it ought to be linked to an increase and redistribution of quotas in the Fund.

The Indian expectation is that the differences over tactics on either the stimulus or regulation will not be allowed to come in the way of the overriding common interest in getting the world economy going again. There is an obvious consensus that none of the countries can solve the problem acting singly.

Of great interest to India is the issue of protectionism which the leaders meeting at the Washington summit last November pledged to avoid. Since the summit, there have been several measures of a protectionist nature coming from the participants. However, all the countries claim that their actions are World Trade Organisation compliant. Such specific issues will not be addressed in the summit but will be taken up at the WTO which is a mechanism to settle disputes. The London summit is once again expected to set its face against protectionism in broad terms in its final declaration.

India would also be pushing for a reordering of the international financial institutions to reflect the changed economic strength of different nations since the Bretton Woods institutions were set up. Dr. Singh had brought up the issue of additional Special Drawing Rights in the IMF at the Washington summit. The issue of the reserve currency has been raised by China in the run-up to the summit, but the idea is very new and no major discussion is expected on the suggestion at the summit.

The issue of blacklisting tax havens that refuse to share information with other nations and aid tax evasion is expected to be discussed in the summit. There may be agreement on banking disclosure norms covering money obtained by illegal activities. India has been very active in unearthing secret accounts abroad, and many official agencies are involved in the exercise, according to official sources.

Of great concern to India and other developing economies as well as to multilateral institutions such as the World Bank is the issue of development. In the recent period, much of the growth has come from Asia, from the emerging economies and from Africa. India has been asked by the African Union and by Bangladesh on behalf of the less developed countries to take up at the summit the issue of development.

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