India should work for a more effective G20

Cooperation with China will ensure that the G20 is more responsive to emerging market concerns

When Group of Twenty (G20) leaders meet in Buenos Aires at the end of November, it will mark a decade since their first meeting in Washington. As the presidency shifts from Argentina to Japan at Buenos Aires (and, following Japan, to Saudi Arabia), it is worth asking why the G20 has survived for this long but also how to make it relevant to a dramatically changed world. In a review, I have just completed for Bruegel, the Brussels think tank, I argue that given their enhanced standing in the global economy, and to serve better their own economic interests, the G20’s emerging market members(1) need to become much more proactive in shaping the agenda of the group.  

The G20 encompasses a much more diverse group of economic actors than the Group of Seven (G7) countries that went before it. While the G20s deliberations have ranged widely, at its heart the G20 exists to guide the global economy. So, has global economic management improved as a result of this greater diversity? The record is mixed. The collective response by G20 members to the 2008 crisis displayed impressive coordination, and saved the world from a second great depression. The enormous stimulus package of China was globally important, an indication of its economic heft even a decade ago. As the crisis started to recede, divisions among the G20’s advanced economies (AEs) — particularly on the role of fiscal policy — became central to shaping the recovery, with the emerging and developing economies (EDEs) participating less prominently even as they remained locomotives for global growth. Today, a decade after the first summit, China and India are the world’s second- and third-largest economies (measured at purchasing power parity). The G20’s EDE members now contribute as much to global output as do their AE peers. 

The deep economic interdependence across all G20 economies produced by globalisation creates a shared interest in steady, sustainable and balanced global growth

I suggest several explanations for this past diffidence of the EDEs. The more populous ones, India and China, in particular, are still very poor countries when compared to their G7 peers. Unsurprisingly, they are wary of accepting the obligations that come with being considered systemically important largely on account of their large populations. Collectively, the habits of cooperation across the EDEs are not as well-honed nor as dense as those within the G7 (which has continued to meet as a leaders’ group in parallel with the G20). To the extent this caution reflects inexperience, it should abate with time.

The deep economic interdependence across all G20 economies produced by globalisation creates a shared interest in steady, sustainable and balanced global growth. As far back as 2005, Ben Bernanke of the US Fed had argued that a ‘savings glut’ in Asia was an important explanation for the widening current account deficit of the US. Yet, in practice, coordinating economic policy across sovereign governments is always difficult — except in times of crisis. In a triumph of hope over experience, and despite these past disappointments, the G20 leaders have repeatedly directed their officials to raise their game. An impressive analytic apparatus has been developed with international organisations supporting peer-reviewed commitments made by G20 countries, but its impact on any member country’s policy choices remains a work in progress.   

The aftermath of the financial crisis seems to have worsened the medium-term growth prospects of the EDEs more than the AEs. Restoring productivity growth is of cardinal importance for the former. This will be more difficult given the structural decline in political support for globalisation across the AEs. The wide gap in financial openness between the AEs and the EDEs also implies different priorities for the financial reform agenda in the years ahead. As an example, the EDEs have a deeper stake in international monetary reform than the AEs. Trade governance is another area where the EDEs have specific interests that might well differ from those of the AEs. The fragmentation within the G7, as well as diverging economic performance within the BRICS group of countries, will likely make it more difficult for the G20 to agree on priorities in the coming years. Meanwhile, the scale of organisational and bureaucratic resources consumed by the G20 and activities surrounding it continues to balloon. Yet at a time when multilateral institutions are themselves under siege, a more focused and efficient G20 may actually have a more important role to play. 

The above considerations lead me to two conclusions. First, there could now be an opportunity for the EDEs to become more focused and assertive as to their specific priorities, within the G20’s collegiate tradition and with the overall goal of sustaining balanced global growth. Among other things, this will require enhanced cooperation and dialogue between China and India on global challenges. Second, reform of the G20’s own processes is required in order to create a better balance between resources consumed and economic impact. The Eminent Persons Group on Global Financial Governance report, presented to the G20 Finance Ministers in Bali last October, makes specific proposals on reform of global finance and on improving the effectiveness of the G20. If the G20 is to thrive over the next decade, the EDEs should use the proposals from this report as an opportunity to demonstrate their cohesion, engagement and leadership. 

(1) As defined by the IMF for its World Economic Outlook, the G20 includes 10 emerging and developing economies. These are the five BRICS countries — Brazil, Russia, India, China and South Africa — plus Argentina, Indonesia, Mexico, Turkey and Saudi Arabia

The writer is a non-resident fellow at Bruegel, an economic think-tank based in Brussels