India took the G-20 to task when Prime Minister Manmohan Singh told the Plenary on Tuesday that the agenda of the group “is getting over burdened. We need to refocus on a few goals rather than dissipating energies on too many fronts.”
He announced that India would contribute $10 billion to the International Monetary Fund’s additional firewall of $ 430 billion meant for the eurozone.
“The IMF has a critical supportive role to play in stabilising the eurozone. All members must help the Fund to play this role,” he said.
He emphasised the need to provide liquidity to European banks without neglecting issues of solvency.
“A crisis in the European banking system can choke trade finance quite quickly, and end up choking economic growth not just in the eurozone but in the world in general,” he said.
The G-20, he told the gathered leaders whose countries account for 80 per cent of global GDP, had to send “a strong signal to the markets that the eurozone countries will make every effort to protect the banking systems and the global community will back a credible eurozone effort and response.” But Europe would have to do its bit too, he said.
The Prime Minister, perhaps relishing the reversal of roles in the sermonising by Europe to developing countries, rubbed in the message saying “… liquidity must be provided in parallel with effective adjustment programmes that ensure an early return to debt sustainability.”
But “effective adjustment” also means austerity, which means lower growth. So the Prime Minister said austerity alone would not solve the European sovereign debt problem.
Austerity and growth
“Financial markets normally favour austerity, but even they are beginning to recognise that austerity with no growth will not produce a return to a sustainable debt position,” he said.
In a pointed message to Germany, he said: “Austerity in the debt-ridden members of the eurozone can work only if surplus members are willing to expand to offset contraction elsewhere in the currency area.”
He then told the Plenary that while it was necessary to solve rich country problems “the less developed and developing countries are also facing serious problems because of the negative impact of the global crisis. Infrastructure investment in developing countries assumes special importance in this context.”
For this, he said they need long term capital and that the Multilateral Development Banks could play a major role in this context.
“We now need to take steps to substantially expand the resource base of Multilateral Development Banks so that they have the firepower to help developing countries pursue their development goals.”
Steps to revive investor sentiment
The Prime Minister said: “Like other emerging economies, India too has slowed down. Internal constraints have also affected performance and we are working to correct them… The fundamentals of the Indian economy remain strong…We are taking steps to revive investor sentiment…Like other countries, we too allowed the fiscal deficit to expand after 2008 to impart a stimulus. We are now focussing on reversing the expansion. This will require tough decisions, including on controlling subsidies, which we are determined to take.”