Structure functions

  • The G20 (Group of 20) is an international forum which includes 19 of the world’s largest economies and the European Union.
  • It came in the aftermath of Asian financial crisis of 1999 and is a forum of governments and central bank governors from 20 major economies.
  • Its purpose is to study, review, and promote high-level discussion of policy issues pertaining to the promotion of international financial stability
  • Aim is to discuss policy pertaining to the promotion of international financial stability
  • The G20 operates without a permanent secretariat or staff.
  • The group’s chair rotates annually among the members and is selected from a different regional grouping of countries.

Objectives of G20

  • Policy coordination among its members in order to achieve global economic stability and sustainable growth;
  • To promote financial regulations that reduce risks and prevent future financial crises;
  • To create a new international financial architecture.
  • Inclusive decision making format that would bring in the largest developing economies as equal partners

Achievements so far

  • reshaping the governance of global finance by implementing macro-prudential policies,
  • Developing strict rules on the “too big to fail” problem
  • Increasing the lending capacity of the International Monetary Fund (IMF)
  • Collecting richer information on the shadow banking system.
  • G20 played a crucial role in strengthening the international financial regulatory system, including better coordination across countries.
  • It is an invaluable forum, allowing leaders of the world’s major economies to work together to lift growth in mutually-supportive ways
  • It helps to reform the global financial system and to prevent future crises by enabling the countries to align their domestic policies to the decisions taken by the group.

India’s role in it

  • India is calling for structural reforms to push economic growth
  • India is pushing for checking tax evasion to fight corruption, choking terror funds, cutting cost of remittances and market access for key drugs.
  • In the Hangzhou Summit,Modi urged G-20 nations to eliminate safe havens for economic offenders, unconditionally extradite money launderers and end excessive banking secrecy.
  • India is expected to play a balancing role in the times of trade wars
  • Base erosion and profit shifting (BEPS) is of utmost significance for India, due to their reliance on corporate tax, particularly from multinational enterprises.

Lacunae in its functioning

  • No permanent secretariat: informal structure of the G20, with a rotating chair and no permanent secretariat, means that agendas are determined each year by the chair and so can swing widely, and formal mechanisms to monitor follow-through on countries’ public commitments are weak
  • Insufficiently legitimate:G20 excludes more than four-fifths of the world’s countries, causing some critics (and excluded countries) to denounce it as unrepresentative and therefore insufficiently legitimate. Including enough of the right actors at the table is a prerequisite for effective global coordination, these same critics contend that this lack of representative legitimacy also undermines the G20’s effectiveness.
  • Bias: The G20 is composed of 20 large and important economies. This creates a situation in which small countries have to follow their big brothers, in order to survive.
  • Failed to live up to the expectations: Finance ministers and heads of state now come to the table with their hands tied, their positions determined in advance by their governments and a formal script that precludes meaningful and creative compromises.
  • less efficient: Meetings have become talk fests and photo opportunities. The willingness to come together in the hostile environment of late 2008 and early 2009 has entirely dissipated. The G20 agenda utterly fails to break with the tired, broken policies of the free market.
  • lack of IMF reforms have been disappointing aspect.
  • differences of opinion in discussions, especially due to different domestic interests.

What needs to be done?

  • Negotiating a short set of principles: A G20 charter would very briefly summarize the scope of the G20 and its main principles of operations.
  • Setting up a secretariat: A secretariat means the inevitable bureaucratization of the process. However, a very light one would bring consistency over the years. In order to avoid excessive inertia, the principle that no one working for the secretariat can stay for a longer term than, say, 4 years, could be adopted.
  • Widening the intervals between summits: The summits give an impulse to the G20 but they also hijack discussions on global issues in favour of more traditional diplomacy and competition for media attention. An idea would be to allow for longer intervals between summits, say two to three years.
  • Keeping summits in a single location: Summits tend to turn into beauty contests between presidencies. One possibility to avoid this is to keep summits in a single location. Given the rise of Asia, it would be logical that this location be in Asia.
  • Providing an architecture based on termed presidents: management of the G20 by the successive presidencies is leading to agenda over stretching. The presidency for a term of 3 years is ideal for a reasonable follow through on various proposals.
  • Accumulated layers of side meetings contribute to the overall bloating of the process. Simplifying the procedure of the forum is an important task.
  • Proliferation of initiatives which are referred to in the official communiqués with little impact need to be rationalized.

Practice question

India hopes to play a constructive role to help build a middle ground consensus among the world’s major economies. Do you think the G20is a viable platform for realising such ambitions? (200 words)