G-20: Origin, Performance Analysis and Relevance

G-20

UPSC GENERAL STUDIES: PAPER II (Important International institutions, agencies and fora- their structure, mandate.)

Table of Content:

Origin of G-20

Performance Analysis

Important Issues that can be Discussed

Utility of G-20

How to ensure better functioning?

Has the G20 lost its way, outlived its usefulness? Would it be more institutionally efficient to revert to other regional groupings that have overlapping conversations on these very subjects? It may well be time to re-examine the G20’s purpose and, if necessary, recast its vision and mission entirely……

Origin of G-20

The G-20, which emerged as a major global economic forum in the wake of the great financial crisis of 2008, was supposed to bring about a coordination of the economic policies of a group of countries whose economies together account for more than four-fifths of world gross domestic product, aimed at promoting global economic growth and guarding against the rise of protectionism.

G 20: Performance Analysis

Distressfully, even after eight years, it has achieved neither of these two aims.

Global economic growth is stuttering.

Rise of protectionism has almost been written off as an inevitable eventuality: As per the WTO, trade restrictions have now reached their highest in the developed market economies of the G-20 since 2008. Why is this happening? The triad economies (i.e. the USA, Western Europe and Japan are bent on preventing any further advance of the Chinese economy based on the engine of low cost exports.)

G-20 Hangzhou Summit, China (2016): Performance Analysis

Comparison of progress in 2008 to that in 2016: Numerous low-key objectives shared by multiple G20 members, such as strengthening enforcement against international tax avoidance and advancing cooperation on Base Erosion and Profit Shifting, certainly got a shot in the arm from this G20 gathering. Yet, there is no comparison between the patchy and vague nature of progress in these smaller goals to the collaboratively evolved financial regulation architecture that emerged from the ashes of the 2008 meltdown and put the brakes on excessive risk-taking by banks. It would have been institutionally efficient to revert to specific and regional groupings that have overlapping conversations on these very subjects.

Forum used by leaders to raise their pet concerns:

Xi Jinping of China argued for consensus on “structural reforms” pertaining to cross-border investment norms.

American counterpart Barack Obama underlined the need for more cooperation within the grouping to tackle issues such as income inequality and tax avoidance.

India’s Prime Minister Narendra Modi called on the member states to fight back terrorism by imposing sanctions on terror-sponsoring countries.

Dichotomy between stated and real agenda of G-20 2016: Though their narratives were framed within the context of resolving “common structural issues”, they did little to actually further this objective. The communiqué issued at the end of the Hangzhou G-20 summit tried to give the impression that the G-20 leaders had committed themselves to “usher(ing) in a new era of global growth,” but clearly, Washington, Brussels and Tokyo were more concerned about cutting China’s steel industry down to size.

Issues that could have been raised

Monetary Policy: The G20 could have made a strong case for central banks to at least acknowledge their international responsibilities instead of only catering to their domestic mandates.

Fiscal Policy: Similarly on fiscal policy, we are still not sure whether a fiscal stimulus initiated by governments (with low aggregate demand) to inject more liquidity necessarily helps in spurring investment or spending. Evidence from most G20 countries (through consumption and investment data) indicates that a fiscal push alone (combined with lower interest rates) may not spur aggregate spending.

Greater coordination on tax avoidance issues: This is one area in which the G20 has already tried to cobble together some form of a consensus, but issues related to the creation of a less disproportionate tax structure require more attention. Rationalising the tax structure will help limit capital movement by tax-avoiding corporations to countries where taxes have been deliberately kept at low levels, allowing for an oligopolisation of sectoral markets globally. A good example here is the European Commission’s recent ruling on Apple Inc, according to which the corporation owes $14.5 billion to Ireland in taxes.

Utility of G-20

G-20 countries account for around four fifth of global GDP. G-20 by virtue of being a smaller group should try and come out with a coherent approach to solving problems faced by the global economy and then take this approach to other foras such as the EU, IMF, WTO and other bodies to take further the process of global coordination on important policies. Unless the G-20 does this, it will not be solving any real purpose except from being a talk-shop for leaders.

How to ensure the functioning of G-20 as per its utility?

Empirical method of setting the agenda of the meeting must be evolved.

Action-taken report should be submitted as to what progress has been made on the agenda discussed in the previous meetings, and what needs to be done going ahead.

Establishment of a permanent office may be considered to ensure that the coherence on policy issues achieved in the annual meeting gets reflected in the working of other specific foras.