Visits Visits

Transcript of briefing by Deputy-Chairman, Planning Commission on PM’s visit to Cannes for G20 Summit

October 29, 2011

Official Spokesperson (Shri Vishnu Prakash): A very good afternoon to all of you. Welcome.

You are aware that the Sixth G20 Summit would take place at Cannes, France on the 3rd and 4th of November. Prime Minister of India would be heading the Indian delegation and would be leaving for Cannes on the 2nd. He would be assisted by Deputy-Chairman, Planning Commission, Dr. Montek Singh Ahluwalia who is also India's Sherpa to the G20 process.

We are most grateful that Deputy-Chairman has so kindly agreed to talk to you about India's approach, outlook, and give you a sense of how we view the G20 process. I would request Deputy-Chairman to make his opening remarks and thereafter he will be happy to take your questions.

Deputy-Chairman, Planning Commission (Dr. Montek Singh Ahluwalia): Thank you all. Actually, I might as well take questions because it is not an issue which is very India-focused. Obviously this is an annual event and it will get dominated by the issues related to management of the world economy and I guess the Eurozone crisis.

You have just had a European Summit which has given some indication, and I am sure that the leaders will be looking at what the prospects are for overcoming the Eurozone difficulties and moving on to sustainable, more robust, global growth path.

The issues connected with bringing robustness to the global economy were on the agenda. The framework for strong and sustainable growth was an exercise that was being done by the G20 countries. It was supposed to lead to something called a Mutual Assessment Process (MAP). I think India and China co-chair this. The Finance Deputies are currently working on that. Of course the idea was what we can say about the policy initiatives needed in the major G20 countries which would basically set the framework for the global economy to move ahead rapidly. All that was got over and taken by the Eurozone crisis, and obviously resolving the Eurozone crisis became an essential first step.

Now we have seen there has not been any discussion in the G20 thus far specifically on Eurozone issues.

But obviously we had a European Summit, they have taken some steps. I am sure it is an occasion for the G20 to express a view on the importance of these attempts, what we expect out of them and given that these things have already been done, what more needs to be done particularly in the context of the Mutual Assessment Process. The Mutual Assessment Process includes four Eurozone countries – Germany, Italy, France, Spain – and of course it includes the other countries including of course China and India. So, the Mutual Assessment Process will come forth with a set of what it would regard as the policy priorities in each of these countries which will create the global conditions for a revival of global good.

Clearly the short-term growth prospects in the global economy are not very good and the main growth rates have been revised downwards. We will be getting from the IMF their assessment of what will happen on the Business As Usual basis, what would happen if more supportive policies are taken, etc. But I think we have to see that analysis before I can comment on it. There are many other issues on the agenda which have been there for some time, and of course the leaders will review those also.

In the Seoul Summit they had put development on the agenda and a couple of things were done in pursuit of that. A high-level panel was set up to look at the work programme of the multilateral development banks and to see whether that work programme was contributing adequately to development priorities. President Sarkozy had also invited Bill Gates to submit some report on sort of innovative ways of addressing development challenges, and that report also will be looked at by the Group.

Question: What is your initial reaction to the Eurozone plan that has been announced and agreed so far? Secondly, as part of that Europeans are looking to countries like China and Brazil and possibly India to put in funds for the stabilization of the Euro. Is it not something that India is potentially willing to contribute to?

Deputy-Chairman, Planning Commission: On the reaction to the Euro Summit, I think most people's reaction and our reaction also is positive. It makes some very important statements. It clearly says something very specific about Greece. Greece has been a problem that has been building up and it did need to be addressed, and we actually welcomed the realism that is built into the parameters that have been laid down for Greece. Of course, it involves a very large voluntary debt reduction. The details of this have not been worked out but they are hoping it will be done by December. The debt reduction is not enough. Greece will also need an EU-cum-IMF support package. That will have to be negotiated. We welcome the effort to stabilize Greece and we have to wait till the end of the year to see what specific proposals come out of it.

On the issue of contributing more generally for Europe, certainly no specific requests have been made to India. I have seen newspaper accounts that people have been talking. Our view by the way is that although this is a Eurozone problem, it is also a global problem with potential spillover effects. So, I think it is important that the international community provides the Eurozone whatever support is needed as part of a credible restoration of stability. Different things have been talked about. The Eurozone Summit actually gives a very sketchy account of that. Obviously the EFSF is going to be used.

The EFSF is going to be leveraged which is innovative departure from traditional practice. The IMF could be used, and then there is a separate idea that there may be other sources of support. That is not unusual when countries are handling crisis management and you have swap arrangements and all kinds of things. But I am not aware of what specifically is being proposed. However, in general I think the principal agency that is responsible for bringing about international stability is the International Monetary Fund. We will certainly support the International Monetary Fund providing resource support to Europe.

This will raise an issue if the IMF's own resources are not enough, how does it get other resources? There are well-established mechanisms for doing that like the new arrangements to borrow etc. None of this has actually come to a level at which one can give a governmental reaction. But I think it has to be the view of the global community that stabilsing the Eurozone is an important thing not just for the Eurozone but for the global economy. And we would support any reasonable multilateral effort in that direction.

Question: On the question of support from emerging economies for a possible bailout of Euro, is a coordinated BRICS/Emerging Economies position possible on that because people have been approaching in fact China? The second question is on the issue of European Union per se. There has been talk that …(Unclear)… possibly have fiscal coordination, there will be a supranational authority to supplement what is essentially a monitoring agency. What is the status of that?

Deputy-Chairman, Planning Commission: On the BRICS issue, I have been also reading newspapers but we are currently not engaged in any discussion of specific types of support, at least not India. But clearly the possibility of bilateral support always exists. The mechanics of bilateral support may vary. If it is a straight swap arrangement, then it does not create too many problems. If it is supporting a new vehicle, which is what some people are talking about, that is between the countries concerned. If it is support from the IMF, then you have to make a judgment what is the scale of resources that the IMF has and what is it that is needed. And to do that you have to take into account the leveraging that they have already built in into the EFSF.

There are a lot details. Just generally what I am saying is that we should be supportive of any reasonable multilateral effort to provide Europe with the support needed to stabilize. We have not received any bilateral request or anything so far. So, I do not have any comment on that.

The second point was about the fiscal authority. I think it is well-known that one of the basic fault lines in the Eurozone is that you have a single currency but not a single fiscal authority. Originally the fiscal discipline that is meant to accompany this sort of arrangement was supposed to come in from various Maastricht Rules etc., which obviously did not work and were in fact broken by what are not crisis countries today. I think from what I read the European Summit statement, there is a sort of recognition that you need to have mechanisms for fiscal discipline. What they have I think proposed is, it does not surrender any fiscal sovereignty but it introduces a system of fairly intrusive peer examination and pressure but with no penalties.

So, if you are in difficulties you will be looked at, suggestions will be made. If you have to pass some proposals, they will get commented on by various Eurozone observers, independent observers, etc. But there is no actual loss of fiscal sovereignty, there is no actual penalty for not doing whatever is said. So, I think it is a move in the right direction because it is generally agreed that you run too much of a danger if you surrender the flexibility that your own currency gives you and you do not put in place the sort of fiscal corrective needed to ensure stabilization. I think that is moving in the right direction. How far this move will go and whether it will be effective is to be worked out.

Question: What role is India expected to play as a member of the Mutual Assistance Process? Any specific suggestion from your side?

Deputy-Chairman, Planning Commission: First of all, this is a mutual process and Canada and India co-chair the process. So, we are basically talking to all the countries. Essentially the mechanism is that the International Monetary Fund makes a sort of technical assessment and says, this country should do this and the other country should do that and all the rest of it. And this becomes an input into the MAP process. So, theoretically all the participants of the MAP process, which is all the G20 countries, collectively come to a view as to what is the consensus on the policies that different countries should follow.

We are playing a very active role in that by definition almost by being a co-chair. We are obviously concerned about what it does say. We are playing an active role in responding to what the MAP process says about India. We are also playing an active role in judging whether the overall outcome, first of all whether the IMF's analysis is right or not right; and secondly if different people disagree with it, and they usually do, then have we come up with an alternative which is credible. But we are not playing any bigger role than anyone else. I mean the whole difference between this process and the normal surveillance process is, in the normal surveillance the IMF takes a view and goes to the Board. The Board may or may not agree with it but there is an IMF view. Here the IMF is only giving us inputs. So, actually what will go to the leaders is not the IMF view but what has come out of the framework working group which Canada and India co-chair.

Question: How is this Summit going to change the lives of common people all over these countries? There is a perception that in these meetings most of the decisions are on the affluent sections of the society. With the Wall Street protest in the background and the high rate of inflation in India, how is it going to discuss all these issues which affect the common people?

Deputy-Chairman, Planning Commission: No government takes macro policy decisions without focusing on the implications for the common people. So, the view of the Government of India is that clearly bringing inflation under control is very important for the common man. But at the same time, we want a global economy that will support rapid growth for India. And internally we are working to make sure that our growth is inclusive. That is our objective. Now, we are not telling other countries what to do to make their growth inclusive. But their governments are doing that.

I think the principal concern in the summit is to create a global environment that is fair and which is conducive to rapid growth. Each country has its view on what that global environment should be. We certainly have ours and we would express that. I should also mention that there are many items on the agenda which are kind of more directly focused on developmental type issues. For example, agriculture is one of the issues. There is a lot of concern that why are food prices in the world rising? Is that due to demand-supply imbalances in which case you have to address them in a certain way? Or is it due to just too much liquidity fuelling speculation which has to be addressed in a different way? There are discussions on things like employment.

How do we make sure that the growth process is also going to generate employment? In the industrialized countries there has been a huge change in the level of unemployment in the last two or three years. So, that is something they are very concerned about. But we are also concerned about having a growth process that supports employment in India – open markets, access for our exports and that kind of thing. So, all of these things put together would be covered. Of course there is a traditional development agenda, development assistance, how to finance infrastructure in emerging market countries. So, all of these things will come up.

Question: My question is very close to the earlier question. The world leaders have worked out, have been working out how to revive the economy, but we are having crisis after crisis. The revival process is not in the correct direction it seems because or else the revival could have already taken place. Wherever there were green shoots rising, the green shoots are fading away and a winter of the global economic crisis is far from over. In this context, people are looking at India and China where the growth process is taking place. But the real thing is, growth process is taking place in India, I do admit, India has become the home of, it has a large number of …

Official Spokesperson: Can you please come to the question?

Question: I will come to the question. At the same time India is the home of billionaires. Do you not feel that the revival process is not in the correct direction and this present capitalist system cannot deliver the goods, and capitalism has within it the seeds of its own destruction and hence socialism, rather democratic socialism is inevitable?

Deputy-Chairman, Planning Commission: That is rather lot of questions to answer for a G20 briefing. Definitely relevant questions but I think they are more relevant if you are asking the question for India. I cannot answer for other countries. Actually this is not the forum to ask those questions. My own view is that given the shock that the global economy got in 2008, the G20 did a pretty good job in arresting the decline. There was negative growth in the world in 2008 and a somewhat surprisingly positive growth in 2010. 2011 was never expected to be the same as 2010, it was expected to be lower. But now it is going to be worse. And that is because it got overtaken by a second crisis which is the sovereign debt crisis emerging in Europe. We have to give the G20 a chance to tackle that crisis.

On the issue of whether this involved some fundamental weakness in the system, that is something on which I am sure people can continue to disagree and we should encourage that. I think it will be a very interesting subject, but I doubt if I can add anything in this press conference on that issue.

Question: Are there going to be any bilateral meetings between our Prime Minister and President Obama for one, and President Hu Jintao?

Deputy-Chairman, Planning Commission: I honestly do not know. The Prime Minister's Office probably has a more up-to-date account of it. These gentlemen are going to be in a very tightly packed schedule for a day and a half and there are periods when they interact. So, I am sure they will get a chance to talk to each other. But whether there are formal pullout bilaterals, I just do not have the answer to that. They are all going to be meeting again a little bit later in East Asia. It is a different kind of scene.

Question: As far as the Indian contribution is concerned, is India emphasizing more on World Bank than IMF as the clientele …(Unclear)…?

Deputy-Chairman, Planning Commission: We do not go there docketed. Right now we have a major Eurozone crisis. The World Bank has no role whatsoever to play in the Eurozone crisis. The World Bank has a very important role to play in the development process and we will make that point, we often do. But right now the biggest thing before them is, is it economic management within Europe leading towards an early resolution of Greece, and is it containing contagion to other European periphery countries? In this process the World Bank has no role at all.

I am sure they have analytical inputs but it is really the G20. The World Bank also says things about what is going to be the implication of the Eurozone crisis on the global economy. So, in that sense there is an input. But in the solution to the Eurozone crisis, I do not think the World Bank has any role at all. There is an agenda item which is development, and in that is development financing. It is certainly our view that the long-term development financing role of the World Bank remains important for emerging market countries like India. I think we have frequently said that the volume of lending of the World Bank, unless something is done, is likely to shrink very sharply next year which is not a desirable thing. It is not the biggest issue before the Summit right now.

Question: It is a non-G20 question. Would you like to react to Union Minister K.V. Thomas's reported remark that affluence of Indians is responsible for the food inflation going up?

Deputy-Chairman, Planning Commission: I think very carefully in responding to remarks made by Ministers after I am sure that I know exactly what they have said. But if I start responding to remarks attributed to them by someone in the press, that is not a good thing. So, I will not in fact respond. I do not know what exactly he said really.

Official Spokesperson: I would like to make a request. Deputy-Chairman has another maximum ten minutes. So, let us restrict ourselves to the questions related to the visit. Deputy-Chairman, Planning Commission: I have to go to Rashtrapati Bhavan for the Governors' Conference. So, it is not just time but protocol, etc. Ten minutes is fine. Question: A question related to the G20. Sir, you said that situation in Europe will figure prominently in the Summit. What about the situation in the US? Will that also be discussed?

Deputy-Chairman, Planning Commission: Of course, certainly. There is no question about it. The US has not produced any sudden surprises. It remains the case that growth in the US is a little bit weak but actually most people say that it is sentiment that is weak. The economy is not doing so badly. The real problem in the US is, unemployment does not seem to be coming down. Given the size of the US, any Mutual Assessment Process has to address the question how the US calibrates its own policies. Now, if you take a very narrow view and say, look the US has too high a public debt so it should just shrink its fiscal deficit, then you will be actually recommending a very contractionary set of policies for the US which will have spillover effects in the rest of the world. And even within the US there are very sharp differences of view on this.

Many people would say what US should do is to take steps that will increase the confidence that over time the US deficit will come down without necessarily doing a sharp contraction now. So, I mean the US would also ask about what signals the other countries are giving, who is going to expand demand. And that is part of the whole Mutual Assessment Process. There is no question that the policy signals for the US would be a very important part of the MAP process.

Question: Sir, the way things are panning out, it seems the G20 and the global leaders are stumbling from one crisis to another whereas the agenda after the 2008 crisis was to address the global imbalance and create an architecture that does not encourage this kind of crisis again. Do not you think that is getting lost in this firefighting that is happening and what is India doing to put this back on the agenda?

Deputy-Chairman, Planning Commission: The fact that there is a crisis means that the G20 is struggling with a shifting set of circumstances. I do not think our view on this is different from anybody else's. What you have in this particular case is a crisis that has been precipitated not by lending to the private sector as was the case in Europe but due to uncontrolled sovereign debt. So, in one sense it is a similar kind of crisis but in another sense it is caused by somewhat different factors. I think one of the reasons why it has happened is that the Eurozone financial system did not actually read the signals right in the sense that when you get rid of currency differences, you get rid of what is called currency risk. So, to the extent to which your interest rate reflects currency risk, that is an advantage.

And you should have a lower interest rate. But you do not get rid of country risk or credit risk. So, it does not mean that if you keep running as big a deficit as you like, then your interest rate will still remain low. I think in retrospect it is very clear that European banks lent or rather bought bonds of sovereigns under some sort of an assumption that there would be no debt servicing problems. So, now this is bearing the cost of that. As these things emerge, corrective steps do get taken. We have to see how effective they are.

Question: You have said that to create an environment for the global economy will be the focus of the Summit. I just wanted to have your opinion on how representative G20 is so far as the world economy is concerned, especially in the context of the disparity the world over when 20 richest countries corner more than 80 per cent resources of the whole world.

In that context, how representative is G20 so far as the whole world is concerned? After all we have the United Nations and then other smaller groups from G8 to G20 to make it more representative. How do you assess its representativeness so far as the whole world is concerned?

Deputy-Chairman, Planning Commission: It is a very good question. I think you have rightly put it. It is a democratization of the G8, but a democratization by adding some of the larger countries. It is certainly not representative. It is not a formal organization, unlike the UN or even the IMF and the World Bank which are formal international organizations. In the UN each country has one vote. In the IMF each country votes whatever its share is and there are huge differences. But there is a sense in which everybody is represented. The G20 is just 20 plus five countries who get invited.

So, it is obviously not formally representative. The strength of the system simply is that the countries that are included in the G20 account for 80 per cent of global GDP. So, the fact of the matter is that if this Group of countries agrees on something, then you have got 80 per cent of global GDP more or less agreeing on something. And hopefully since they keep doing outreach with their other colleagues, they are in touch with other organizations - it is not as if these countries have opted out of the formal international representative structure - it becomes a way of reaching a common agreement which then gets when it needs to be endorsed by some formal international organization, it has to go and do that. But the probability that that will happen goes up. That is exactly what the G7 used to do. They would fix the deal themselves and then go and get it voted by the IMF Board or whatever Boards.

So, now 20 of them hopefully will do the same thing. I think it would be a mistake to denigrate this on the grounds that it is not representative. It is not very useful to have a G192. So, that is what it does. It is not a substitute. Incidentally we and other developing countries like China constantly say that what needs to be done in a multilateral framework should be done in a multilateral framework. But we can consult about what our positions are going to be. So, that gives a greater chance of reaching an international agreement. I think Prime Minister Cameron is supposed to present a paper on global governance and the G20 at the Cannes Summit. So, that should be quite interesting because I am sure he will be addressing some of these issues.

Question: Sir, given the ongoing global crisis, there has been a dip in the FDI flows. Will you be taking this option to send out a message of the robustness of India's investment climate to keep the capital flows in, and also allay whatever concerns they might be having on the investment front given the governance issues?

Deputy-Chairman, Planning Commission: You do not allay concerns of investors by talking to their governments. You allay concerns of investors by talking to investors. This is not going to focus on those kinds of issues. I think the world is going to look at the G20 Summit and ask themselves the question, are they actually giving a sense of collective responsibility in managing the global economy in a sensible way or not? And are there any changes of signals such as the one my friend here was talking about? Are they issuing an obituary for capitalism or something? Those are the things that they will be watching for.

I think out of that will come some assessment of what does the G20 think makes for a well functioning global economy. Then I think investors will make up their own mind about whether they agree with the G20 on this or not. It is a bit of a subtle process. But I think it is useful. No doubt about it.

Question: Sir, you said that it has a potential of spillover. Dr. Singh also said this a little while ago. With what suggestions, what advice, what instructions are we going to the G20? What will be India's approach? Can you throw some light on that? Secondly, do you think that the time is right now to change the Bretton Woods formula and is India going to pitch for it this time?

Deputy-Chairman, Planning Commission: What do you mean by the Bretton Woods formula?

Question: It is basically the institutions like the IMF, the World Bank, the change in them, more representation. ?

Deputy-Chairman, Planning Commission: On the representation issue, it has been our consistent view that we need these international institutions. So, we are not in favour of abolishing them. But they need to become more representative reflecting the changes that have taken place in the global economy. And what that translates into is more voting rights and associated obligations for the developing countries. The G20 did succeed in moving it a little bit a year ago. So, it is a move in the right direction. By no means in our view commensurate with the change that is needed. But it is a move in the right direction.

On the issue of what are we going to do, the whole point I think of a Mutual Assessment Process is that each country does not go off and makes his list of demands. Right now or maybe by tomorrow, the Economic Affairs Secretary and his colleagues in the other Finance Ministries will be looking at what the G20 MAP process says. I think out of the G20 MAP process will come a set of recommendations which would say, for the US this is what they should do, for Italy this is what they should do, for India this is what they should do.

And clearly we hope that each of these countries or the collectivity of these countries, as far as we are concerned, will certainly endorse that we are on the right path. From the point of view of the global economy we are on the right path because we are not running a big surplus, we are not having a fixed exchange rate. The fact that our current account deficit is high means that we are contributing to global demand. And of course they will say, like we are saying ourselves, that we should reduce our fiscal deficit because really globally you need to do that all the time. But how much other countries will agree to, we have to wait and see.

Question: Sir, if the Eurozone crisis is not resolved within a certain period, how will it impact India?

Deputy-Chairman, Planning Commission: I do not think the Eurozone will impact on India any differently from the way it will impact on the whole world. I do not want to sound negative but it is more like an academic exercise. What does it mean that the Eurozone crisis is not resolved? It could mean that for example uncertainty about Eurozone debt is not resolved. This means that interest rates for many of the countries in the periphery remain high. This means that basically value of holdings of sovereign debts by banks will fall.

Banks will be under stress. Basically European growth will slow down dramatically. Credit in Europe will become constrained. You could have a liquidity problem. Some of this is perceptional and some of this is real. This will have an impact on the rest of the world. If you disrupt the smooth functioning of a financial system by throwing a lot of uncertainty into it, basically everybody stops deciding, and we will be as impacted as anyone else. We are not exclusively dependent on Europe. So, from that point of view obviously countries that have 100 per cent of their trade with Europe will be much more affected than countries that have 30 per cent of their trade with Europe. And our trade is actually quite diversified, which means that whoever has a problem we have some impact but it is not such a huge impact.

But let us not underestimate it. I do think that the world is in a fragile situation barely recovering from 2008. And it does not need another crisis with a signal that governments are not capable of handling these crises. If all you are saying is what happens if Greece defaults but everybody else is fine, the answer would be very different. Very sad for Greece, but I do not think it will matter for the rest of the world. But I think if you have a Eurozone crisis, that is big news. And we do not want that.

Question: I just want to come back to my original question. Initially there have been voices from India saying we are a poor country, why should we step in to help out the rich Eurozone world? But it sounds like what you are saying is that although there has been no formal request made and there is no clear path forward, India is receptive to, I just want to try and understand, calls to step up to help out stabilize the Eurozone. Is that correct?

Deputy-Chairman, Planning Commission: What I said was that I think as members of the G20 we should be willing to do our bit to play whatever supportive role is necessary for the international economy to support the Eurozone. Now, issues of choice come in here. For example, a lot could be done by Europe itself and they have done that through the EFSF, leveraging, and all this. Now if it turns out that what Europe does itself is not enough, my personal view - this is a Finance Ministry matter really - is that the logical thing to do is to bring in the International Monetary Fund. That is why we have it. We are members of the Fund.

If it turns out that the Fund were to say that look, we do not have enough resources and we need support to mobilize more resources, I would be in favour of India saying that we should support the Fund in doing that. We did do that last time around by contributing about 10 billion dollars or whatever it is to the NAB. On the other, very often countries may not want to go to the IMF. But then they have to do whatever bilateral deal they want to do themselves. Nobody has asked us for anything. So, I am not in a position to say. Institutionally it seems to me that we have constantly said that the International Monetary Fund should be an organization that is both strengthened and made more even-handed. Frankly the best way to make it more even-handed is that when rich countries need support they go to the Fund because the rules that the Fund then applies will be the rules that the Fund will apply subsequently.

I am not at all in favour - this is again a purely personal view, I have no idea what the Government's view is - of saying that the IMF is only there for poor countries and everybody else will sort out things on their own. That is not the spirit of any of the communiqués of the G20.

New Delhi

29 October 2011


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