Last year ended with the grand announcement that 2023 would be India’s presidency of the G20 group of countries. The Prime Minister unveiled a new logo for the G20 along with the theme of Vasudhaiva Kutumbakam, an ancient Sanskrit concept that stresses the oneness of all humanity. I remember writing about this concept in one of my blog posts around India’s Independence Day, last year. Little did I realise that it would go on to become the basis for the G20 summit in India! I wrote later about how it cannot be a theme for a conference, which must emerge from the meeting agenda and our strategy for taking G20 discussions and ideas forward.
Now that March 2023 is here, it appears that G20 meetings have already begun. The latest high-level meetings were with G20 countries’ finance ministers and the heads of multilateral institutions, held in Bengaluru. Why, Bengaluru, I wondered, since India’s political capital is Delhi and finance capital happens to be Mumbai. From what little the Indian media has reported, the discussions seem to be around boosting economic growth while controlling inflation, managing debt as well as the Ukraine crisis. It appears that once again, the Ukraine crisis is dominating an international meeting. Where discussions between countries, many of whom have nothing to do with Ukraine or Russia’s attack of it, are being sidetracked, and where little will be achieved.
As it is, the year has not begun on a good and positive note for the government as hosts of the G20 Summit, what with controversies over a BBC documentary on Narendra Modi, and the Adani group of companies in a meltdown. I haven’t seen the documentary, nor am I interested in the Adani meltdown – though it doesn’t augur well for India as an investment destination – since I think it’s the same unprofessional PR agency in India that is behind both. I wouldn’t be surprised if they initiated the documentary by BBC and then also got the Indian government to send the tax authorities to raid and search BBC’s offices in India. Just the kind of circus antics that they have capabilities in. Anyway, the point is that the Indian government’s reaction to both these controversies has been extreme; I think the government has overreacted to both. Their ministers’ statements in media and at international fora have only publicized the issues and the government’s mishandling of it, much more than they ordinarily would have. It also somehow paints India as a terribly autocratic country, when we claim to be a great democracy.
On the other hand, we had great plans of steering G20 discussions this year. Including making our digital financial infrastructure and payments system the showpiece of the summit, from what one heard Amitabh Kant, the G20 Sherpa, say in a television discussion. We think it can be exported to other developing countries in the G20, and indeed, the papers report that UPI-related infrastructure is being exported to UAE, Indonesia and Mauritius, after Singapore. Good luck with that.
The question to ponder over, is whether a G20 summit is meant to be an occasion when the host country tom-toms its achievements to other countries, as if it has been given special bragging rights. Or whether it is meant to be an occasion for serious deliberations on issues of common concern to all G20 member countries, and where we can all look for solutions together. Our government has even planned to take G20 to all the states of India, as if it is a roadshow. This too reeks of PR agency nonsense, as they see opportunities for event management everywhere.
Fortunately, policy is not PR. There are issues of grave economic concern to G20 countries and those need policy prescriptions and solutions. Communication of these is where PR or any other communication discipline ought to enter the picture. As I have written before, and shared my thoughts on LinkedIn as well, I would have thought that issues to do with inequality and taxation, trade and investment as well as climate change and financing green energy transition ought to have been high on the agenda. To my mind, these three issues all have equitable growth as their common thread and the summit theme ought to have revolved around this.
Not only would it have made more sense strategically at the G20 summit, it would have helped India, one of the fastest growing economies, to be seen as a country that is concerned about achieving more equitable growth. With this as the larger framework, ideas like UPI and digital financial infrastructure could have been shared in smaller meetings, as ways to achieve inclusive and equitable financial payments system.
There is also a grouping of business leaders – called the B20 – set up under the CII, working to meet their counterparts from other countries and discuss business, trade and investment. Apparently, it was set up at the 2010 G20 summit, to further discussions on innovation, investment and sustainability among businesses from member countries. If you look at the agenda for the B20 meetings, there are many important subjects slated for discussion, from corporate governance and IPR, to jobs and skilling, jobs for industry 4.0, and sustainability and clean energy. However, some critical subjects such as supply chain diversification and management as well as MSMEs seem to be missing from the agenda, when these are also among the hottest subjects being discussed globally right now. And some of the subjects such as internationalizing of Indian businesses, and a few others would be of local interest only and do not make for engagement at an international or global level.
Speaking of greater cooperation at G20 level, there is a need for coordinated action on central bank rate hikes, as different countries and regions are experiencing inflation of differing kinds and different rates, and in a financially interconnected and globalized world, rate increases in any one country, especially the US, can trigger adverse reactions in other economies, besides also increasing volatility. Maurice Obstfeld had written, warning about this, many months ago for PIIE. Just as coordinated action by central banks in the aftermath of the 2008 Financial Crisis helped countries weather the storm better, this time too similar coordination and discussions are required.
There is also a need to reduce income inequality across all G20 countries. Especially since the 2008 Financial crisis, when a great amount of liquidity was pumped into economies, and again more recently in the wake of the Covid-19 pandemic, much of the easy money has found its way into stock markets and other asset classes, making the rich vastly wealthier and leaving the poor where they were, or worse off. Progressive taxation policies must be adopted, including on short-term capital gains and wealth. In this regard, the temptation to give corporates tax breaks in order to attract investment must be resisted. This policy has not resulted in any significant increase in private sector business investment in my country, India, though it has helped companies pare down their debt and improve their balance sheets. And while on the subject, whatever happened to the minimum alternate tax for MNCs that was first proposed by the US Treasury Secretary, Janet Yellen, and which many countries had agreed to in principle, I wonder. Suddenly, all of media reporting on it seems to have gone quiet.
Equally important is the need to avoid protectionism of any kind at the G20 level. As a grouping of countries that together produce around 75%-80% of world GDP, it is imperative that resorting to tariff or non-tariff barriers is resisted. Unfortunately, the world’s largest economy US has just passed the IRA which not only funds research and incentivizes investment in certain high-tech areas such as high-value semiconductors, AI, EV technology and the like, it imposes a made-in America condition that discriminates against other countries. While its policies are primarily targeted at China, the disadvantaged could include its allies such as Europe and South Korea. At a time of global economic slowdown and possible recession in some parts of the world, world trade is likely to slow down considerably in 2023 and possibly in 2024. With complex, hugely integrated global supply chains at the core of most of manufacturing, we do not need restrictive trade policies to slow things down further. Leaders of all member countries of the G20 must be seized of this reality and ought to bear in mind its importance.
Coming home to India, we just heard news of our Q3 GDP for FY23 a few days ago, and while it was affected by upward revisions for previous quarters in previous years, it also bore signs of the base effect from the post-pandemic highs tapering off. That said, there are also incipient signs of a slowdown, which is bound to take place with inflation still at high levels, unemployment also at elevated levels and a global slowdown to cope with as well. The slowdown is most evident in manufacturing, which contracted for the second consecutive quarter, albeit by a smaller amount at -1.1%, compared to -3.6% in the previous quarter. Public administration, defence and other services also was slow growing at 2%. On the expenditure and consumption side, private final consumption too slowed, growing at 2.1%, and its share of GDP too has reduced at 61.6%, compared to 63% in the same quarter last year. Government final consumption contracted by -0.82% over last year. Only gross fixed capital formation’s share of GDP is higher than last year, at 31.8%, growing by 8.28% over last year.
I usually don’t look at India’s export and import figures that closely, although I am aware that our trade deficit is once again widening, putting pressure on our current account deficit. But I was surprised to learn that India’s exports make up more than a fifth of our GDP, while our imports worryingly, are a quarter of our GDP. While the former is encouraging news – though exports are likely to stay muted this year – the latter is certainly a grave concern.
In other words, we have great economic challenges ahead. And I am not sure government capex alone will suffice to help the economy grow at a good pace. Private investment needs to pick up, and for that consumer demand has to be strong enough. In such a difficult year, therefore, it would be good if India displays more humility and willingness to collaborate with other G20 countries, and less arrogance and jingoistic nationalism.
Post script: After I had written and scheduled this blog post, India also hosted the G20 Foreign Ministers Meeting in Delhi on March 2 and 3, 2023. It was reported that the Ukraine crisis once again dominated discussions and member countries didn’t issue a joint communique as they couldn’t agree on one.