On the face of it, the G20 meeting at Toronto managed to reach a consensus on the two key issues of coordinating fiscal policies and framing global regulatory rules for the financial sector. The summit declaration was so worded that all sides could claim victory. On reining in fiscal deficits and reducing government indebtedness, it merely committed all countries to follow “growth-friendly fiscal consolidation plans,” halving their deficits by 2013 and stabilising the ratio of debt to gross domestic product by 2016. However, there would be no sanctions on countries not adhering to this guideline. No major policy changes are likely to follow either: almost all G20 countries are on course to hit the target by the stipulated time. The public message was that all countries, while shoring up domestic demand in the short run, would move towards fiscal consolidation, but at a pace to be decided by the country itself. The declaration reflected the dilemma faced by policy makers: synchronised fiscal adjustment across major economies would adversely impact the recovery but failure to consolidate where necessary would undermine confidence and growth. Prime Minister Manmohan Singh's point that global recovery was still fragile and hence needed to be nurtured through continued public spending in the advanced countries was endorsed by other big emerging economies and the United States.

Some strange economic logic was apparently behind the papering over of differences related to fiscal policies. Countries with the lowest growth rates are the strongest advocates of fiscal cutbacks, while those with robust growth rates, such as India, are more relaxed about public spending. Dr. Singh's point that deflation was a greater risk than inflation is particularly valid for a country like Japan, while for India inflation has become a serious threat to growth. As for the United Kingdom, its new government has unveiled one of the toughest budgets in decades aimed specifically at correcting the structure of public finance. With so much of divergence over the issue, the G20 was hardly in a position to agree on anything tangible to guide the global economy. On the financial sector reform front also, it is unlikely that the world's biggest banks will come under new regulations anytime soon. The onus is on the Seoul summit scheduled for November to carry forward some of these key items on the agenda.

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