Indian Prime Ministers are probably more used to being lectured to on economic policy than sermonising themselves. It was therefore a surprise to see Dr. Manmohan Singh deliver some home truths to a gathering of Heads of State representing 80 per cent of global GDP at the G-20 summit in Los Cabos on Monday.
To boot, he donned the role of a global philanthropist, pledging $10 billion to the International Monetary Fund (IMF) firewall for the eurozone.
The wheel has indeed turned full circle for a nation that merrily sought assistance from the Bretton Woods twins till as recently as the 1990s. But more on that later.
The speech delivered by Dr Singh must have stunned the audience, especially leaders from the eurozone, as he bluntly told the gathering that Europe was getting it all wrong in its approach to solving the crisis. He also left the gathering in no doubt about his displeasure on the impact of the crisis on the developing countries due to disruption in capital flows.
The Prime Minister was probably reflecting the collective views of the developing countries in general and the BRICS grouping in particular when he said: “An expansion of investment in infrastructure in developing countries is only possible if they can get access to long-term capital to finance such investment. This is difficult at a time when capital flows are disrupted.”
His comment that liquidity must be provided along with an effective “adjustment programme” is also a reflection of the general discontent in the rest of the world with the way eurozone leaders are attacking the sovereign debt crisis. Promising and providing massive funds without a structural adjustment of the economies in the crisis-afflicted countries is not going to solve the problem. Most if not all of the bailout money has been used to rescue banks in the troubled countries.
Dr. Singh also dived into the debate over austerity in the eurozone and the impact that it was having on recovery. Germany has held out strongly in favour of stringent austerity measures in the bailed out countries and those measures are now actually hindering the recovery process. Calling the relationship between austerity and growth “contentious,” Dr. Singh pointed out that “synchronised austerity” across many countries is not the right medicine when the growth impulse is weak.
$10 billion contribution
Germany and its stubborn Chancellor Angela Merkel, therefore, got a piece of sane economic advice from the economist Prime Minister: “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.” Germany, the strongest economy in the eurozone, has to loosen up and even be prepared to face an elevated level of inflation if the crisis-ridden countries are to turnaround. That seems to have been Dr. Singh’s thrust.
Lest his advice be seen as gratuitous, the Prime Minister backed it up with a hefty $10 billion commitment to the $430 billion IMF eurozone fund. This is part of the overall $75 billion — including $43 billion from China — that the BRICS nations have committed to the fund. But it already has raised eyebrows in the country.
Why should India, a developing economy enmeshed in its own economic problems, cough up such a huge sum to the rich Europeans, is the question many are asking. The question is understandable but to agree with it would be taking a narrow view.
First, this is a commitment only and it is not as if hard cash is about to flow out of India into the IMF’s coffers. The commitment will be called upon only if the fund is required to be used. The IMF fund is in itself a comfort scheme for the eurozone aimed at calming the market.
Second, this assistance is part of the overall BRICS portfolio and India has to play its role with the others in the group. Third, this is not philanthropy but enlightened assistance because the eurozone is India’s largest trading partner and the country can ill afford a collapse there. Already the crisis has manifested itself in lower trade volumes with exports slowing down.
India needs a return of stability in the eurozone for its own benefit. It could be argued that $10 billion will hardly make a difference in the overall scheme of things but the answer is that India can only do what is possible within its capacity. The idea is to help a trading partner in distress, no more, no less.
Fourth, though the sum appears big, it is hardly so for a trillion-dollar economy growing at 6.5 per cent. Yes, there are economic problems that India faces and they are serious but to use that as an argument to question the assistance would amount to belittling the role that the country plays in the global scheme of things.
Finally, it must also be remembered that the IMF lends only what it gets from its members. India has used IMF assistance in the past. Now when it is in a position where it can be of help, it needs to play its part. $10 billion is a small sum to pay for being a responsible member of the global club. And don’t forget, it is also a signal of India’s economic strength to all those naysayers, not the least of whom are the ratings agencies.
rags@thehindu.co.in
Keywords: G-20 summit, Manmohan speech, BRICS, India infrastructure investment, IMF eurozone fund, Indian economy,
A very kind and faithful article to the PM. An overstretch to state that somehow India is leading this effort. All BRICS countries provided 10B, CHina pledged 40B. Our PM is not known as someone who wows his audience with any passion or stiring remarks, so here the article tries to portray him as our version of the BOLD and BEAUTIFUL - that he certainly is not. The World expects much from India and is very aware of the potentila of Indians. Though truth be told - India never ceases to disappoint, but as indians we continue to nurture our shattered dreams.
Well done and well said prime minister!...simultaneously thanks Rags
for brilliant and enlightened article.
Great job by Mr. Singh. If only our opposition parties and people like Mamata
understand even a few points from his speech, they would put a stop to their blind-
obstruction strategies in the parliament. If we let Mr. Singh do his job without blackmailing politics, we can easily get back on the 8-9% growth track.
I hope he will aggressively move forward with his reform agenda after his return from the G-20 summit.
First time Dr. Manmohan Singh was looking like a economist.
India's contribution to the IMF to tackle the Eurozone crisis is well justified, as it stands as a proof that we as a nation are willing to reciprocate the generosity that was bestowed on us years back when we needed it. The lecture given by Dr.Manmohan Singh has definitely boosted India's image amongst other countries and projects us as a serious nation committed to growth. Jai Hindh
Prime Minister did excellent as India is 4th largest economy as per PPP.
but can we change habit of Greek people? we can't. This developed nation
don't want to change as we have seen in case of global worming.
They want to be as they are & it did not matter to them that other
(Developing Country) are suffering.
The PM cannot even move half an inch in India on ANY policy matter & still counsels Europe. As they say in Hindi "Sau choohe khaake billi haj ko chali"
Excellent article.viable of spreading India's Economic sense in Global
organisations is made possible by the contribution of Dr Singh's
philanthropist overview. Well done Sir!! Nation is proud of you.
Everyone has been telling Angela Merkel to loosen up on her austerity policy but
that's unlikely to cut any ice. Merkel and most of her German electorate have
obviously forgotten how the Marshall plan pioneered by the US saved them and
other European states after WWII, this in the face of discontent among US
taxpayers at having to save those Europeans who were responsible for their own
misery due to their trigger-happy attitude to war!Anyway, no Western state has any real answers to the crisis, primarily because all major parties in the West are bankrolled by their banks. They can ill-afford to have any bank go bust and so are busy providing money to these instead of injecting it directly into the economy. The banks in turn are busy speculating with the higher liquidity they receive, sowing the ground for future crises. But as all parties are funded heavily by big banks, they will not see sense or act to solve the crisis. The West is history! Let's not waste our efforts on it!
Very good article. It is refreshing to see pro-India and pro-Government
articles like these every once in a while. Our media seems hell bent on
sensationalizing issues and bringing the national morale down by
constantly painting bleak pictures of everything from economy to
governance. It is great to see The Hindu as a pioneer in bringing a
balance to how India is perceived by Indians. Please do publish more
"good" news, it is out there!
People who are commenting agnest the 10B donation to the IMF should read the article properly then comment .it is a excellent article , well researched . I will give 4star to this article
The commitment made by Dr. Singh is a vehement manifestation of India's waxing economic strength even when it is drawing flak from international rating agencies with respect to its credit ratings. But a huge $10 billion support package should be released with caution and after close scrutiny of the impending economic scenario so that national interest is best served.
The gesture of Manmohan Singh in loosening the strings of national purse to spare for IMF,sounds preposterous. Given the sagging economy marked with the spiralling inflation,soaring prices,and the misery of crores in ascendence, one fails to understand such philanthropy.The sermons of sort exposes the bid of the centre just to hog the lime light in international arena, and the lack of its sincerety in addressing the owes of the people. Nothing is so neglected in India as Education, and Health care for the measly allocation of funds flowing from national kitty. Subsidy has turned a word of abhorrance and incentive to corporates is repeatedly prescribed thanks indeed to the globalisation policies.Sad, that the prime minister,s flamboyance takes ascendence to the problems afflicting the home turf.
This six points comprehensive essay on "why India's $10bn assistance to IMF Eurozone fund is justified" is the best and the perfect explanation I came across in last 24 hours. I too share your views. I am sure, had PM not announced the Indian assistance he'd have invited more criticism from inside the country than the foreign nationals. Then the critics and even otherwise indifferent economic analysts would have joined chorus lampooning PM as non-decisive and accusing him of ceding ground to China and other BRICS partners. By resorting to this economic prudence Mr. Singh has once again established the fact that his understanding of world economics is unparalleled. And that is why we saw an Indian Prime minister lecturing the world's most influential leaders at the G-20. If the G-20 representative wants world economy to be back on path they must take on board the advices our Prime Minister has offered them.
Good article.
A good piece for those who might think that when our own nation is embroiled in an economic turmoil, why we are rescuing others. As soon as the problems in Eurozone get resolved, India can get back on its previous rate of growth. And that would ultimately benefit the nation.
I complete agree with the views of this author. I know there are many eyebrows raised due to $10b donation (virtual credit, not cash) but, we once used this option and with this kind of strategic steps, we can one day have a major stakes in decision making in IMF & WB. I remember in early nineties when I started to seriously read newspapers..... I use to hear WB has reject loan of $100m for national highway or IMF has rejected loan of some million $ for an power generation project. I'm proud today we are able to approve credit to other especially the west. Inclusive growth as a developing nations is another important topic which needs to be handled separately & effectively. India needs to act & play strategically like one of the global powers. Jai Hind
Now if only the PM can show as much decisiveness and firmness in tackling fundamental issues of the bottom 50% of this country.... as well the state of the environment, water, pollution....
Impressive article, Kudos to Mr.ManMohan and his team for coming with this plan. It seems to be the strategy of our beloved prime minister, to work his way through the initial phase of his term modestly and when the near comes, rises himself above others by several notches, the Nuclear Deal and now by elevating India's Status Globally in this G-20 summit just when UPA bashers were gearing up for their final blow
I must say a very well written article on a very delicate and eyebrow raising topic.G-20 summit is indeed a global platform for India to show the world that what our country holds in terms of economic strength and its global impact. The 10 billion fund may sound a bit itchy for many in the country,but given the fact that this is for our own future good,most of them will understand its importance. And apart from all this,the most surprising element came out to be our prime minister's bold remarks on eurozone crisis.Back in India many people are taken back from our PMs gesture.In general people has this misconception that he lacks a bold attitude and appeal,but here at the G-20 summit he has stunned(especially those who criticize him) by giving away his views and suggestions to the world. Hoping that we'll see more of his bolder and intellectual side in issues of his own country,because given the present day scenario in India,we really need his expertise of global economy.
European countries individually and through Aid India consortium have time and again bailed us (India) out of crisis. Dr Singh's commitment of $10 Billion is reciprocating the gesture. Well done!
Proud to see India offer a helping hand when developed European economies are having trouble. And thanks to the editor for explaining to us what that means.
It is refreshing to note that the economist Dr. Manmohan Singh is still alert, dynamic and brilliant than our toothless, insipid Prime Minister Dr. Manmohan Singh. He would have been a much respected Finance Minister and Economist if he had never taken up the Prime Ministership where he has been such a disgrace.
Very nice article. For all those who look at our Prime Minister as being a dummy .... We should feel proud of having an economist prime minister in this country. Dr. Singh is indeed a very wise man.
Many civil society members including some in team Anna are raising issues on this donation.They should understand the importance of Eurozone in Indian market.It was collective decision of all BRICS countries.
India was always kept to the last row and made to only listen but now, the rest of the world listens when MMS speaks and he is asked to stand in the front row.It is indeed an achievement. One only wishes that his ideas are also pushed in India so that things can be better in India too.
Dr.Manmohan Singh has touched the right chord by emphasising on measured growth impulse and austerity. Stifling growth opportunities by austere measures would put the clock back by several years. The need of the hour is to harness the productive resources at an optimum level treating the world as one and maximise output to be able to distribute the produce equitably to each according to his need using the Marxian axium which has universal application. Systemic corrections would have to be engineered in a subtle manner without rocking the boat. Dr.Singh's panacea has applications not only for Europe but for the entire world including India. Placing road blocks on the growth impulse by imposing unrealistic duties does not help the economy. Employment opportunities for the educated unemployed have to be generated on a war footing. Freebies to the deprived should not be encouraged which ultimately results in disguised unemployment. The reform process should be set in motion in India.
It is enlightened self interest.The western countries tied up their assistance for specific purposes to gain orders for their industries.The British government offered loan to enable India to buy helicopters from a British company which was struggling due to the helicopters being unable to face competition.Many of them crashed after induction causing loss of lives.We need not do that.We can finance them to buy goods and services in areas where we enjoy cost advantage.
There was time when an Indian prime Minister was not even invited to such Internationa forums. Now, we have come of age and Dr. Singh has established a role for India at the G-20 that allows him to lecture to other leaders. What gives legitimacy to Dr. Singh's views is that he has bailed out India from a catastrophe in 1991 and knows what works i.e stimulus to allow growth, whilst keeping an eye on debt. His point is echoed by other Keynesians that debt:GDP ratio will work against a country that is not growing. His other point that Germany should expand consumption to allow the Debtor nations to sell to, makes huge sense. In India, we will always complain about trivial matters. But,the fact that India matters at such forums, makes the contribution of $ 10 billion very trivial. Paying into the IMF is not like investing in some risky venture but rather a safe insurance fund. Bravo Dr. Singh. You have an enlightened approach that has done India proud.
The speech was brilliantly delivered,one of the rare scenarios were Mr Manmohan Singh spoke like a Prime Minister of India.Kudos!!
Our Prime Minister will play 'the role of a global philanthropist, pledging $10 billion to the International Monetary Fund (IMF) firewall for the eurozone' using the money belonging the people of India, majority of whom are poor, very,very poor by European standards. He will have to explain to the people of this country how what he is proposing to do is in their interest. One would like to see the media pressing the PM to do so.
Well raised by economist Dr. Manmohan Singh.
Indian politicians should stop doing charity for these funds, and start addressing real problems in our country, such as malnutrition, child labor, un-educated youth population, female infanticide, farmer's suicide rate, its an endless list of problems afflicting this country. Why donate billions, just to look good in front of global leaders, first we need to fix the problems in our own country. That's the only way, we can look good, in front of other countries.
Excellent article Rags ! We indeed need to come out of the narrow mindset we're used while we were a net fund acceptor and accept the responsibility a growing economy entails.
Correct assessment!
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