G-7 reform needs India. Indian reform needs G-7
Dogged by questions about its relevance and effectiveness, the Group of Seven global economic heavyweights has been trying to reform: it began to engage Russia in the late 1990s but that was more for political than for economic reasons; it began engaging China last year, only after concerns over the Yuan’s dollar peg risked some permanently raised eyebrows. Its latest attempt is by far the most ambitious — inviting India, Brazil, South Africa and China to have breakfast and more with the G-7 finance ministers. It also wants to build an ‘institutional bridge’ (whatever that may be) with a larger Group of Twenty rich and not-so-rich countries.
The G-7 is powerful because it acts outside the boundaries of international organisations like the World Bank and the IMF; it has the ability to influence economic policies of the member countries, their trading partners and multilateral agencies like the Bank and the IMF. But the most important economies of 2005 are not quite the same ones as those of 1975; hence, the need for reform. Inviting India at this time is a good move. Regardless of the dissing of the Vajpayee government’s India Shining campaign, the Indian economy is brimming with confidence (via Inside Outside). It will be a key player for years to come — growing between 5-6% if the government does nothing and perhaps much more if the government actually decides to do something useful.
Getting India involved in the global economic policy circles also gives the Indian government a greater incentive to push its own economic reform agenda. The G-7 does not have the negative connotations associated with ‘IMF recipes’, nor does it have the deeply entrenched politics of the WTO. In fact the ‘sherpas’ who do the ground work before G-7 meetings work in a much less antagonistic, even collegial, manner. This will make it difficult for the neurotics on both sides of India’s political spectrum to try and make political capital from defensive negotiating stances.
China is the biggest concern for the G-7 nations: its currency peg, foreign exchange reserves and trade-surpluses remain sources of eyebrow elevation. It has been suggested that getting China to revalue its currency to reflect its true value would help India by making its costs even more competitive. Given that India has already leaped to the third most favoured destination for foreign direct investment — after China and the United States — any advantage it gains against China will be all the more desirable.
India being India, there are naturally voices that argue against joining the G-7 because that will mean losing the developing country status and all its attendent advantages. For some people at least crutches are the hardest things to get rid off.
Tailpiece. (via Rajan) The United States has raised trade barriers to seafood imports from India, that too just two weeks after the tsunami destroyed the livelihoods of thousands of fishermen in southern India. The Europeans have done something similar to Thailand. As the French say, c’est la vie— politically unseemly as it may be, that’s normal behaviour. India will find it easier to press its case against rich-country protectionism as it has no official debts of gratitude to pay.