A renewed multilateralism

India has an opportunity over the next months and years to repair the stressed post-War order

The United Nations General Assembly initiates a series of events and summits that are the highlight of the year in terms of multilateralism. The next month will see the annual meetings of the World Bank and the International Monetary Fund in Washington, the Conference of the Parties on climate change in Egypt; and in November, the Group of 20 nations, or G20 are due to meet in Bali, Indonesia.
 

It is no secret, however, that a multilateralism that was already strained by the rise of China and the weakening of the post-War global order has now been nearly shattered by the twin stresses of the pandemic and the Russian Federation’s invasion of Ukraine. Global markets have whipsawed back and forth; economists have worried first about deflation and then about inflation; and it is not even clear whether the G20 will be able to meet, given the unwillingness of many leaders to be seen socialising with the Russian president at this time.

Furthermore, there is little question that the systems and safety nets of the global order not only failed to prevent the one thing they were most designed to prevent — a land war in Europe — but also failed comprehensively to enforce solidarity on such things as vaccines during the pandemic. The Indian government, as one of the countries that has a good chance of riding out these tumultuous years with minimal internal economic and political disturbances, has an opportunity to lead in restoring at least a modicum of faith in the multilateral system. Indeed, India is due to take over the presidency of the G20 at the end of this year, which makes it doubly necessary to try and identify ways in which multilateralism could be repaired. Yet, it is not immediately clear what the Indian presidency can do to increase energy and food security or to minimise the other effects of the Ukraine crisis.

The broad principle that might be worth considering for the government in this situation is that, even if multilateral institutions have failed in addressing these present crises, that should not prevent it from being strengthened in dealing with issues and problems that have a somewhat longer time horizon. In particular, two major global transitions are currently ongoing that could greatly benefit from more, not less, multilateralism: The digital and the climate transition.

Illustration: Ajay Mohanty

Consider first, the digital transition. This has or will affect all sectors of the global economy, including manufacturing, and will largely determine the future global distribution of taxes, profits, and wages. But it cannot be allowed to devolve into a free-for-all or a zero-sum game as did the pandemic response. Naturally, some countries will seek to retain their technological edge. Just last week it emerged that US senators were examining if and how to restrict Apple sharing microchip technology for the iPhone 14 with Chinese manufacturers, in an attempt to maintain the US lead in that sector. And different jurisdictions will have different approaches to privacy and internet governance. But these cannot lead to an even greater splintering of the internet, or of flows of data, technology and capital, than we have currently. It is vital that the multilateralism of the 21st century focus on preserving the potential of the digital revolution to spread information, know-how, and access more widely. The Indian government’s preferred solution to many problems raised by digitalisation is a third way between the private sector-led US model and the state-dominated model of the People’s Republic of China. To the extent that it can be systematised, the Indian approach is largely to permit domestic digital innovation and profit-making within a structure of electronic public goods that are developed by the state and seek to ensure equitable access and a level-playing field. India arrived at this principle more by accident than by design, as a result of the success of the Aadhaar platform — but that does not invalidate its usefulness. Publicly regulated intermediaries that manage the use of and returns to individuals’ data; platforms that marketplaces and sellers can both plug into that allow for transparent e-commerce; universal and interoperable payment systems; transferable digital certificates and records; and even the CoWIN platform can all be seen to operate within this broad paradigm. It provides for both private profit and innovation, for increasing access, and for the legitimate developmental, fiscal, and security concerns of a state. The next step is to understand how it can be generalised across different political and economic systems, support international trade and investment, and support a global rather than national digital transition.

The climate crisis is another long-term phenomenon that will affect broad swathes of the economy. Here multilateral efforts have focused for too long merely on apportioning blame for the crisis. We know that this blame rests overwhelmingly with the largest historical emitters in the West and the high current per capita emitters, including China. Yet, as with any reparations-based discourse, the “losers” of history have no real power to impose or demand justice of restitution from the winners, and thus are unlikely to receive it. Climate “negotiations” thus are probably doomed to underperform, and indeed may be the incorrect prism through which to examine how the global green transition can be managed.

What is the right one? The answer lies in understanding what sectors, companies, and individuals across the world need in order to prepare for the threats and opportunities associated with the global green transition. The threats — in an age of droughts, floods, and energy insecurity — are obvious. The opportunities are also tantalising, though. India has missed the bus on so many manufacturing sectors — can it perhaps succeed when it comes to renewable energy or electric mobility? Whether India or other emerging economies can benefit from these aspects of the green transition will depend largely on the availability of finance.
 

Yet green projects in developing countries suffer from multiple financing constraints. For one, the overall risk appetite for emerging-world projects is low. Similarly, currency fluctuations have kept hedging costs high, reducing the incentive for capital to flow across borders. These are problems, however, that the multilateral system needs to take up and solve.

Indeed, these are the sorts of development finance problems that the World Bank, for example, was set up to address. Yet, multilateral development banks (MDBs) have been notoriously slow to adapt their lending to this new era. Rather than giving grants to individual governments, MDBs need to start focusing on supporting private investment through de-risking, loan guarantees, and blended finance, or via new hedging mechanisms. This is a soluble problem because all the shareholders —  from the US to China to India — agree on the need for such mechanisms; the only opposition is the bureaucrats and management of the MDBs themselves. A recent report to the Indonesian G20 presidency underlined the need to change MDB operating structures in a timely manner. Pressure is increasing to remove World Bank President David Malpass, unless he acts more effectively on climate-related lending by the institution. The Indian presidency, if it is to ensure that multilateralism is fit for the climate crisis, must not just work to completely change the operating environment and mandate of the MDBs, but also propose the creation of a new, green lending-focused multilateral institution as a basis for future shared development.

The writer is head of the Economy and Growth Programme at the Observer Research Foundation, New Delhi