Reforming global financial governance: G20 and India

g20s-summitThe G20 had played a key role in responding to the global financial crisis of 2008-09. During and after the global financial crisis of 2008, while advanced economies experienced dwindling growth, India was one of the countries that continued to grow. Also, India has not been a contributor to the global imbalances. By virtue of these, India has emerged as an important member of G20 to be able to influence and contribute towards the reshaping of the world economic and financial order. Thus, it is of utmost importance that India must bring to the table its own assessment of the G20 agenda in the light of the global developments and offer considered views on global cooperation without compromising on its own interests.

India’s position on three of the key issues facing the G20 can be said to be the following.

Global imbalances & mechanisms 

Even though India did not contribute to the generation or transmission of global imbalances, it believes it is important that the G20 keeps a watch on changes in composition, nature and distribution of global imbalances and their implications, and to steer work towards their underlying causes. India, along with other emerging economies, are agitated by two points – first, that in as much as volatile capital flows are a spillover from the quantitative easing of advanced economies, the burden of adjustment has to be shared. Second, the capital controls should be understood as legitimate and acceptable defence against speculative capital flows. There is a need to create an effective framework for the adjustment process, as emerging (deficit) economies are first to feel the pinch when global stability is threatened.

Reforming the global financial architecture

The global financial architecture has undergone fundamental changes in the past decade and a half, but these changes have not been reflected appropriately in the international financial architecture. While agreement has been reached in the G20 for effecting major reforms, the implementation so far has been disappointing. The agreement for IMF quota and governance reforms in 2010 has not yet been implemented.

India’s major concern is that the member countries of the G20 though have missed the deadline of completing the IMF quota reforms by January 2013 they should close it out at the earliest possible so that it serves as the basis for the 15th General Review of Quotas to be completed no later than January 2014. India strongly feels that the G20 has played a crucial role in steering discussions on the quota formula in the past and it will be unfortunate if this aspect is diluted going forward. Global institutions can only be legitimate and credible if their vote share and governance structure reflects members’ share in the world economy.

Global reserve currency

Concerns about the robustness of the international monetary system with dollar as an international reserve currency has become a significant issue. The financial crisis showed that having a single reserve currency poses many risks for the stability of the system.

According to the Reserve Bank of India, to address the problems arising from the use of a single reserve currency, one has to have a menu of alternative reserve currencies. A possible solution is to expand the SDR basket by including the currencies of the countries that are increasingly important economically and politically. By integrating emerging markets into the international monetary system, would increase their incentive to manage their policy conduct towards contributing to the stability of the system. India’s position on the global reserve currency is that the world would be better served by increasing the number of reserve currencies and to be able to employ suitable safety-nets to protect them against the vulnerabilities of the global currency system.

G20 St. Petersburg summit 

The agenda of the G20 summit is generally set by the country holding the Chair. Russia being the Chair of the G20 is no exception and has set its own agenda for the forthcoming G20 Summit in St. Petersburg. However, it would make sense for the global leaders to focus on the most pressing issues affecting the global economy.

It is evident that the recovery path appears to be gloomy as the advanced economies lack momentum with high sovereign debt crisis and the emerging economies facing inflationary problems. Structural reforms are necessary for the fiscal consolidation in the long-term. For India, which is also experiencing declining growth rates in the last couple of years, the priority at the forthcoming summit would be issues including the spillover of the global slowdown on emerging economies as well as quota reforms of the International Monetary Fund.

(The writer is a Senior Fellow at Observer Research Foundation, Delhi)

Courtesy ORF; The article can also be seen at: G20 and India


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