Dear PM: G-20 is irrelevant, is that why you're there?

Prime Minister Manmohan Singh has taken the message of economic growth more enthusiastically to the G-20 in St.Petersburg, Russia than to any part of India in the last four years. He has asked his fellow leaders from the G-20 nations, which together produce some 85 percent of the world’s output, to affirm “our collective commitment to work together for the revival of growth, which is the only way of ensuring a sustainable growth in quality jobs.”

It’s really a message he ought to have addressed to his own Congress party and its allies in the UPA three years ago.

Perhaps Singh thinks it more likely that his advice will be taken more seriously abroad than it is taken in India. World leaders have deferred to his extraordinary academic qualifications (a rarity among politicians) and the wisdom of his years, a point Singh made with some conviction while defending his record in Parliament last week. His Cabinet colleagues at home have been less generous.

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[caption id=“attachment_1089995” align=“alignleft” width=“380”]  Manmohan Singh doesn’t mind the dysfunctional G-20. He will just have one more entity to blame for India’s growth woes, never mind that the responsibility for sub 5 percent growth lies mostly on his weak shoulders. AP[/caption]

Unfortunately, Singh’s advice to the G-20 will fall on deaf years. The G-20, which began life as a forum for Finance Ministers and Central Banks Governors to exchange views was upgraded to a Head of Governments level in 2008 just after the global financial crisis crippled economies around the world. Sadly, the upgradation of its formal status did not change its reality: It is an irrelevant talking shop.

The reason is simple. While is it absolutely true that economics is increasingly global - and you don’t have to believe in coupling or decoupling to accept globalisation-politics remains very local. The global financial crisis that followed the collapse of Lehman Brothers was a once-in-a-generation event that forced unity of purpose between nations out of necessity more than choice. Stimulus - whether fiscal or monetary - was the mantra for every Finance Minister and Central Bank Governor. It was always going to be difficult to achieve similar coordination at the time when stimulus would have to be withdrawn.

The advanced economies, led by the US, were always going to keep monetary stimulus running for much longer than emerging economies. Their problem was unemployment. Inflation was non-existent. For emerging economies, with several structural bottlenecks, inflation became a challenge much earlier into stimulus. In India, monetary stimulus was withdrawn quickly but fiscal stimulus carried on too long. The weakened fundamentals of the Indian economy (and some other emerging economies) meant that they would be under-prepared to meet the challenge of the moment the US and other advanced economies began withdrawing their stimulus. The chaos in emerging markets after Ben Bernanke’s cautionary statement on QE 3 in May is evidence of that.

Now, the US is not going to wait for India or any other country to get its house in order before deciding the direction of its own monetary and fiscal policies. Domestic political economy will be the sole determinant of that. Manmohan Singh is asking for the impossible. He should have paid more attention to setting his own house in order rather than assuming that cheap money from the US would fund his Government profligacy forever.

Europe is the perfect example of globalised economics and localised politics. The common currency is in crisis because politics of individual member countries can never transcend the need for cross-border policy cooperation. In Europe’s case, this would mean enabling fiscal transfers from the richer countries to the poorer ones.

But perhaps, after all, Manmohan Singh doesn’t mind the dysfunctional G-20. He will just have one more entity to blame for India’s growth woes, never mind that the responsibility for sub 5 percent growth lies mostly on his weak shoulders.