Prime Minister Manmohan Singh hit the nail on the head when he expressed concern about creeping protectionist tendencies in the global economy. He said this just before he left for the Group of Twenty (G-20) summit at Pittsburgh on Wednesday.
Two themes are likely to resonate through the Pittsburgh summit: “rebalancing” of the global economy and financial regulation and stability. It is the manner in which they are being articulated that is pointing to the divisions between the US and the UK, on the one hand, and emerging economies, on the other.
Illustration: Jayachandran / Mint
The US emphasis is on what it calls the “rebalancing” of the global economy: It wants to reorder global consumption and savings in a way that it saves more and China consumes more. This is a concern of a recent vintage and to many nations (Brazil and China for sure) it is an attempt to smuggle into the G-20 what is essentially a US trade imbalance/structural problem concern. Most emerging economies would like the focus to remain on what led to the crisis: weak or non-existent regulation in US financial markets. These concerns have continental Europe’s backing. In the eyes of these nations, the issue of a new global financial architecture, such as the guidelines of the Financial Stability Board, the adjunct of the financial coordination wing of the G-20, on linking executive compensation with efforts to prevent risky strategies, is more important.
Either way, it is important that India take a coherent position. If the rebalancing overshadows regulation, then we need to be prepared to deal with protectionism that surely will be the result of any major reordering of consumption and savings on a global scale. While rebalancing is a US-China spat, India needs to be prepared as almost 50% of our gross domestic product is linked to trade in one way or the other.
While the Prime Minister has been very clear that India needs to participate wholeheartedly at this forum, he seems to have received mixed support at home. There have been voices that countries such as the US and the UK could “steal” the G-20 agenda, leaving India high and dry. That is a negative attitude. All the concerns mentioned above require India to create a coherent long-term strategy, something that it lacks at the moment. For example, the question of the dollar as an international reserve currency is implicit in the rebalancing problem. Has India thought about this emerging situation? We should be bold in seeking opportunities. The G-20 is one forum where we can find them.
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