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| G-20 Summit: Major implications for India in new financial architecture |
| A K Bhattacharya / PITTSBURGH Sep 26, 2009, 19:40 IST |
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Agenda for new financial architecture; Major implications for India; Five per cent more IMF quota for developing countries; India spared from cutting fossil fuel subsidies if targeted at poor; India’s climate change concerns partially addressed
Leaders of Group of 20 countries, who concluded their Summit here on Friday, have agreed to a major overhaul of the global financial architecture that they believe will help lay the foundation for strong, sustainable and balanced growth.
In their final declaration, the leaders have designated G-20 to be the premier forum for international economic co-operation. This will effectively dilute the role other such forums like G-8 have been enjoying so far and at the same time assign a greater role to the Financial Stability Board (FSB) that was set up by them early this year to co-ordinate and monitor progress in strengthening financial regulation.
They also agreed to launch a Framework for Strong, Sustainable and Balanced Growth by November. The Framework will commit G-20 countries to work with the International Monetary Fund (IMF) and the World Bank to ensure that their fiscal, monetary, trade and structural policies were collectively consistent with more sustainable and balanced trajectories of growth. There is also a provision for peer review, which would envisage economic strategies of member countries to be jointly evaluated by IMF and multilateral funding bodies.
More significantly, they have agreed to shift five per cent quota share of developed countries in the IMF to dynamic emerging markets and developing countries. The exercise, to be completed by January 2011, will mean an increased quota share for countries like India and China, at the expense of developed countries of Europe, in particular, which are at present over-represented in the IMF. The modalities for the quota adjustments will be worked out at the finance ministers’ meeting in November.
This is seen as a victory for the developing world, which had lobbied hard for a seven per cent shift of the IMF quota to the developing economies. However, after negotiations prior to the Summit, they settled for a compromise formula of five per cent additional quota. Earlier at the Summit, the G-20 countries delivered on their promise to contribute over $500 billion to IMF for its renewed and expanded new arrangement to borrow.
The World Bank, too, according to the declaration, will allocate three per cent more voting power to developing and transition countries, while ensuring that over-represented countries increase their contribution to the multilateral institution and the smallest poor countries can protect their voting power.
For India, specifically, the final declaration has five major implications. One, the G-20 leaders agreed to phase out and rationalise over the medium-term inefficient fossil fuel subsidies. India and other developing countries appear to have got a reprieve with an important condition in the declaration that such rationalisation of subsidies will not be at the expense of any dilution to the countries’ commitment to provide targeted support for the poorest through cash transfers and other appropriate mechanisms. However, subsidies on fuels that are at present benefitting the affluent sections of society will come under the G-20 scrutiny and may force a review of India’s current energy pricing policy, which subsidises many petroleum products consumed not always and necessarily by the poor.
Two, the declaration partially addresses the concerns of developing countries like India, which were opposed to negotiating or discussing any issues related to climate change and had argued that the forum for such negotiations was the United Nations Framework Convention on Climate Change (UNFCCC). The declaration restricts the leaders’ commitment only to doing their best to reach an agreement in Copenhagen through UNFCCC, talks about member countries’ differentiated responsibilities and makes no mention of any absolute cut in emission levels.
However, it includes several provisions that bind developing countries like India to promote green energy and increase efficiency in energy use. For instance, the idea of phasing out and rationalising subsidies on fossil fuels has been linked to the need for dealing with the threat to climate change. The G-20 leaders have also promised to stimulate investment in clean energy, renewable energy sources and energy efficiency, in addition to providing financial and technical support for such projects.
Three, the G-20 leaders agreed to India’s proposal that the time was not ripe for any withdrawal of stimulus measures. The declaration asked the G-20 finance ministers to use inputs from the IMF and FSB and deliberate at their meeting in November on how they could sequence the process of withdrawing stimulus measures in different countries or regions and then work out credible exit strategies to “anchor expectations and reinforce confidence.”
Four, the declaration is conscious of the need to increase access to food, fuel and finance among the world’s poorest. The G-20 leaders, therefore, called on the World Bank to develop a new trust fund to support the new food security initiative for low-income countries, announced last year. The funding for programmes to bring clean affordable energy to the poorest will also be increased. There is also a commitment to create labour markets that are more inclusive, active labour market policies and quality education and training programmes. The labour market and food security issues will have a special bearing for the India’s labour and food policies.
Five, the G-20 leaders acknowledged the Indian government’s initiative in expediting the resumption of the Doha round of trade talks and renewed their commitment to fight protectionism and to bring the Doha round to a successful conclusion in 2010.
The G-20 leaders drew satisfaction over their efforts so far in arresting the global downturn, but issued a warning against complacency. They agreed to hold their next meeting in Canada in June 2010 and in South Korea in November 2010.Ends
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