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India in Transition

Locating the Macro Economy in the G-20

Roshan Kishore
July 31, 2023

The fact that a regular convening of G-20-member countries and a rotational presidency for India has been converted into a carnival by the Narendra Modi government says more about the BJP’s art of politics than the summit’s importance. The hype around the G-20 is in line with the BJP’s messaging portraying the prime minister as a leader of unmatched global stature. Having said this, will the G-20 summit have any macro-economic significance for India? This question cannot be answered without analyzing India’s economic priorities and challenges in line with those of the world, especially other G-20 members.

To begin this discussion, it is useful to briefly review the global economic environment. Three successive shocks—the pandemic, the Russia-Ukraine war, and the inflationary surge in advanced capitalist countries—have unleashed significant chaos in the global economy. Even if one were to brush aside the concerns of increasing inequality and income loss for the poor, the crème de la crème of the global economy remains worried about the impact of aggressive monetary tightening on financial system stability and its medium-term costs for growth. That this situation has come after the de facto death of the multilateral trade regime and a growing sentiment in the Global North for import substitution as a way of generating jobs means that there is very little scope for a forum like the G-20 to have any meaningful dialogue on ensuring a return of the old-school development agenda captured in negotiations like the Doha Round of the World Trade Organization (WTO), where India played a leading role.

To be sure, even India’s interests as the president of the summit are not exactly aligned to pursuing a two-decade old development agenda in a multilateral forum such as the G-20. While a large number of Indians continue to face problems symptomatic of a lower-middle income, perhaps even a low-income country, the macro economy is destined to gain the third spot in the world in dollar terms and boasts a significantly dynamic and deep capitalist base willing to partake in the global economic competition. It is no coincidence that the return of industrial policy and protectionism in the West has been accompanied by a similar pivot in India as well.

Do these facts render the macroeconomic component of the G-20 completely irrelevant? This would have been the case had it not been for an issue which is likely to dominate the international economic cooperation agenda sooner rather than later. There is now enough scientific evidence to show that a business-as-usual scenario in combating climate change will lead the world to the brink of an environmental disaster. The real challenge in dealing with this crisis is not the acceptability of this fact but a disagreement on how to fund the efforts to mitigate the harmful effects of climate change. At the crux of this dispute is an asymmetry between the ability and necessity to fund a green transition, with developed countries refusing to meet what the Global South thinks is their justified contribution to climate finance efforts. While this challenge has existed from day one of climate finance negotiations, there is reason to believe that things will get worse in the future. As populist pressures reorient economic policy toward employment generation via subsidized industrial policy, most experts see an increase in deficits and debt in the advanced economies. This will likely cannibalize the fiscal resources that could have been deployed for meeting climate finance requirements.

It is against this backdrop that the role of multilateral economic institutions—especially the World Bank and the IMF, the two Bretton Woods giants—will become extremely important for the future of a green transition and, by extension, sustainable growth. And it is exactly on this count that India is hoping to get things moving during its G-20 presidency. To be sure, the demands for IMF/World Bank reform are not new and, given the rise in economic clout of countries such as China and India, they are completely justified. However, India seems to be committed to pursuing reform with renewed urgency and vigor, as is obvious from the expert group on strengthening multilateral development banks constituted under the joint convenership of former US treasury secretary Lawrence Summers and former chairman of India’s 15th Finance Commission N. K. Singh. Both men are veterans of the economic policy “deep state” in their respective countries. India is already pushing for including a provision on global public goods as a core goal of multilateral development banks and hoping to get the ball rolling on these issues even if a final conclusion cannot be reached. Global public goods include everything from the environment to health to culture to aspects of the digital domain.

To be sure, there is nothing to suggest, as of now, that the ongoing discussions on these issues will necessarily result in an amenable outcome for India’s or the Global South’s interests. However, they do signify a recognition of the fact that India’s economic and geopolitical heft is best spent on an issue that is widely considered the main battle of the future, namely, climate finance, even as we continue to wage the war on old-school development challenges such as provision of sustainable jobs and quality social services for the masses. The latter is hardly something that can be ignored, as these concerns still play a far bigger role in shaping domestic political outcomes in what continues to be a very contested electoral realm in India. Ironically, an increase in India’s economic might in the global economy (largely a function of its aggregate GDP) has been accompanied by a rise, rather than fall, in growing demands on the fiscal pool to provide greater palliative measures to alleviate the effects of unequal development.

Indeed, the macroeconomic dialogue around the G-20 is likely to be driven by the sober reality that not only is there no low-hanging fruit for the future of international economic cooperation, but domestic political economy considerations and their costs will also increasingly make it difficult for countries to make any ambitious commitments even in the medium term. Last but not least, the fact that a disagreement over the Russia-Ukraine war could derail any unanimity at the G-20 only underlines the grim reality that a resurrection of geopolitical tensions between the world’s largest economies will only render economic cooperation even more difficult to achieve.

Roshan Kishore is the Data and Political Economy Editor at Hindustan Times and was a CASI Spring 2020 Visiting Fellow. The views expressed here are personal and do not represent his employer. 

India in Transition (IiT) is published by the Center for the Advanced Study of India (CASI) of the University of Pennsylvania. All viewpoints, positions, and conclusions expressed in IiT are solely those of the author(s) and not specifically those of CASI.

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