Brouhaha over recovery

There is a huge brouhaha over the outcome of the G-20 summit in Pittsburgh. In fact, the build up towards this summit and its possible outcome was forcing a raging debate across the world. The unprecedented global financial meltdown sweeping across the entire developed world and affecting the destiny of the teeming millions in the developing countries was jeopardised by the recessionary process. It was becoming apparent that the concentration and unprecedented mobility of footloose international finance capital and their principal occupation with speculation-driven activities cannot be sustainable on the long term. But the manner in which the entire edifice of the global financial system came crashing down was hardly anticipated; and, much less prepared for.

Therefore, some of the issues which came up for discussion at the summit was not unexpected. It had become clear that the global architecture of economy and finance, which was so narrowly premised with the G-7 playing such disproportionately decisive role, cannot possibly go on for much longer. The policy and governance of G-7 economies were not self-limiting and went beyond their respective geographies; their actions and lack of them were affecting large masses of human beings in the rest of the world. At the same time, there were new economic powers which were emerging in the global landscape who were not provided with space proportionate to their potential and contribution in the contemporary context.

As reported in the press, French president Nicholas Sarkozy has described the agreement reached at the summit as ‘revolutionary’. Our own prime minister has been oozing confidence in articulating India’s concerns. He has explained that the outcome of the summit, which has recognised the G-20 as the ‘premier forum’ for deliberating on international economic and financial issues, as an “important development broadening the international governance structure”.

But for sure, what the people of the world will be interested to learn and comprehend is what this revolutionary transformation and broad-basing of the ‘governance structure’ signifies? Whether a reconfiguration of the power structure in the international economic and financial relations will bring succour to the teeming millions of the world? This is important. Because, again the Indian prime minister has put it on record during the summit that the annual GDP growth rate of developing countries had fallen from 6.5 to 1.5 per cent as a result of the global financial crisis and the consequent recessionary process “implying a fall in real per capita income”. The consequence of this fall will result in an estimated 90 million people across the developing world plunging below the poverty line. It is anybody’s guess that lower revenues for the governments  will lead to a decrease in public spending on infrastructure and social sectors.

Stimulus programmes

The summit, importantly, has decided to continue with the ‘stimulus’ programmes by governments all over. But the relevant question is will there be any rethinking on the content and direction of these stimulus programmes? Data shows that despite having injected over $2.3 trillion into the US financial system, its GDP fell by minus 2.6 per cent. Similarly, all the G-8 countries have clocked negative growth rates: Germany -6.2 per cent, France -3 per cent, Italy -5.1 per cent, Japan -6 per cent, UK -2.4 per cent, Canada -2.3 per cent, and Russia -6.5 per cent. Among emerging economies also a similar trend was evident with Brazil registering -1.3 per cent, Mexico -1.3 per cent and ASEAN as a whole -0.3 per cent. Clearly, the stimulus packages have not been able to reverse the slide of the global economy. Though India and China clocked positive GDP growth rates, can such a grim global context justify the confidence of our own authorities about the imminence of a recovery?

While agreeing that the fiscal stimulus packages will continue, the G-20 summit, however, did not examine the efficacy of the packages themselves. The tinkering with voting shares in IMF to give a slightly increased share for the developing economies, the recapitalisation of the World Bank and other regional development banks to increase the fund flow to these economies, common macro regulatory processes are measures, which are intended to tackle the impact of the present crisis. Now, whether this basket can play any significant role in particularly alleviating the livelihood concerns of the teeming millions is doubtful.

This is more so because while our prime minister exuded confidence about having done better than the developed economies in facing the meltdown and the subsequent recession, the reality  reveals an extremely skewed pattern of benefits from such relatively better performance of macroeconomy.

From the last quarter of 2008, while incomes declined for top Indian firms (BSE 200) to the second quarter of 2009, profits went up from -17.6 per cent to 20.7 per cent. The movements in the stock market also clock a similar story. During the last six months, the BSE sensex went up from 8,000 mark to the 16,000 mark. Such rapid movements of the BSE sensex actually signify a faster pace even compared to the period of boom when the sensex touched 20,000.

While the corporates have been ‘shining’ largely due to the nature and direction of the stimulus package, large sections of the Indian people have been ‘suffering’. The most important concerns  of the ‘aam aadmi’ — food and jobs — have been the biggest casualties.

In the coming days, therefore, it is for us to watch whether the new architecture of economic and financial governance that emerged from Pittsburgh can reverse the aftermath of the  crisis — and, perhaps, more importantly reverse it in a manner that the brunt of the crisis does not disproportionately affect the millions of underprivileged and vulnerable global citizens. Here, in India, the people who have mandated a government for the ‘aam aadmi’ will have to remain vigilant to ensure such a course.