Between growth and austerity, the Toronto summit clearly voted for growth for the short term. Uneven global recovery poses risks for continued growth and could widen global current account imbalances, it warned. Unable to reconcile differences, the leaders deferred decisions on most crucial issues to the Seoul Summit in November.
The decade-old grouping of developed and emerging economies which assumed the role of a global steering committee for coordinated economic policy-making at its third summit in Pittsburgh last September has now set a non-binding target for advanced economies to halve their deficits by 2010 and stabilise or reduce debt-GDP ratio by 2016.
Decisions by the G-20 do not impose any obligations on India to do something it wouldnt have otherwise opted for.
An affirmation in the Toronto summit declaration that the forum would encourage continued and full implementation of country-specific strategies to phase out inefficient fossil fuel subsidies in the medium term is perhaps the only G-20 mandate on Indias policymakers.
Even on this issue, however, what India would want is to be sensitive to vulnerable groups while carrying out the necessary reform something G-20 is not averse to either.
India plans to halve its fiscal deficit by 2013-14 and is well on course to achieve that target thanks to its high GDP growth. The summit shot down the idea of a single global bank tax, aggressively lobbied for by the UK which has already imposed such a levy on its banks and Germany, with some support from the US. India would have detested such a levy, as Indias banks are quite strong and have the mandate to continue to support credit availability in tandem with the countrys strategy to spur domestic demand through investment.
On financial sector reforms, the G-20 said it would support reaching an agreement on a new capital framework for banks at the Seoul meet. The new standards will be phased in by end-2012 to enable sustained recovery and minimise market disruption. So, the proposed tougher global rules for bank capital and liquidity, seen as crucial for avoiding further systemic risks and the central pillar of financial sector reforms, would, again, be through phase-in arrangements that would reflect different national starting points and circumstances.
Finance ministers and central bank governors will prepare policy options to reinforce global financial safety nets for G-20 leaders consideration at the Seoul summit. On the reform of international financial institutions which played a central role in the global response to the economic crisis thanks to the huge financing they received, the G-20 said the pending IMF quota realignment for a 5% shift to developing countries would be completed by the Seoul summit. The selection of IMF chief and senior management will be made merit-based and more transparent. At the World Bank, a 5% quota shift to developing and transition countries has already taken place.
The G-20 called for bringing the Doha Development Round to a balanced and ambitious conclusion as soon as possible and reiterated the members commitment not to raise barriers or impose fresh barriers to investment and trade.
Importantly, on the misuse of tax havens, the G-20 appeared to be rather benign. The declaration was also silent on Chinas controversial exchange rate policy, at a time Beijing has allowed the yuans rise against the dollar.
Although the G-20 indeed did a good job in addressing the global economic crisis, analysts are skeptical of its continuance and relevance in a crisis-free era. Even as the crisis is not fully behind us, the fissures are visible. Some observers predict emerging economies in the G-20 eventually forming a counterweight forum to the G-8.
As of now, the G-20, however, wants to remain powerful. We ask the OECD, the ILO, World Bank and the WTO to report on the benefits of trade liberalisation for employment and growth at the Seoul Summit, the G-20 Toronto declaration said.
Its a positive for us: Chawla
The G-20 decision to include development issues like corruption on its agenda is reflective of its ability to deal with matters that are important to developing countries, finance secretary Ashok Chawla said. Speaking to mediapersons after the release of the G-20 summit statement, he also highlighted the forums commitment to complete WTOs Doha Development Round as soon as possible and avoid new protectionist measures as positives for India. The reform of international finance institutions would improve their legitimacy and benefit all countries which are under-represented in their decision-making process including India, he said.
The official also noted that the forums decision to set up a fund for supporting innovation in the SME sector was a step in the right direction that would enable cash-starved SMEs with innovative business models to accomplish their growth objectives. The promise for a 5% shift in IMF quota share in the next five-six months and the proposal for a transparent, merit-based system for selection of its chief and senior management is a very beneficial development, he said. The new process of selection of IMF chief will help all countries including India, he said. Chawla said the slight shift towards growth (from fiscal consolidation) in G-20s position would be helpful to all economies in general, and developing countries in particular. Although each member country might have its economic interest in mind while negotiating, the spirit of coordination continues, he said. The G-20 has indeed succeeded in bringing countries with different economic situations together and allowing heads of governments, finance ministers and experts to devise coordinated strategies for sustainable and balanced global growth, he said.