G20 : Economic Cooperation ahead

Expanding the G7

Note4Students

From UPSC perspective, the following things are important :

Prelims level : G7 countries

Mains level : Paper 2- Should India join expanded G7 if invited to join as a member?

There has been a call for expansion of G7 by the U.S. President. Against this backdrop, this article examines the historical background in which the group emerged. But a lot has changed since. So, it would be appropriate for G7 to adjust to the new reality. But what would be the focus of a new mechanism? What are the areas in which India would be interested? All such questions are answered in this article.

Call for expansion of G7 and China’s objection

  • Recently, the U.S. President proposed the expansion of G7 to G10 or G11,  with the inclusion of India, South Korea, Australia and possibly Russia.
  • Elaborating this logic, the White House Director of Strategic Communications said the U.S. President wanted to include other countries, including the Five Eyes countries.
  • Five Eye is an intelligence alliance comprising Australia, Canada, New Zealand, the United Kingdom and the United States.
  • The U.S. also stressed said the expanded group should talk about the future of China.
  • A Chinese Ministry of Foreign Affairs official immediately reacted, labelling it as “seeking a clique targeting China”.

Should India care about China’s objection if invited to join?

  • China’s objection to an expanded G7 is no reason for India to stay away from it, if invited to join.
  • India has attended several G7 summits earlier too, as a special invitee for its outreach sessions.
  • India’s Prime Minister was guest invited to Biarritz, France to the G7 summit last year, along with other heads of government.

The historical background of G7

  • The G7 emerged as a restricted club of the rich democracies in the early 1970s.
  • The quadrupling of oil prices just after the 1973 Arab-Israeli War, when  OPEC imposed an embargo against Canada, Japan, the Netherlands, and the United States, shocked their economies.
  • Although the French were spared the embargo, the chill winds of the OPEC action reverberated around the world.
  • So, French President invited the Finance Ministers of five of the most developed members of the Organisation for Economic Cooperation and Development, the United States, Germany, Japan, Italy, and the United Kingdom, for an informal discussion on global issues.
  • This transformed into a G7 Summit of the heads of government from the following year with the inclusion of Canada in 1976.
  • And the European Commission/Community (later Union) joined as a non-enumerated member, a year later.
  • On the initiative of U.S. President Bill Clinton and British Prime Minister Tony Blair, the G7 became the G8, with the Russian Federation joining the club in 1998.
  • This ended with Russia’s expulsion following the annexation of Crimea in 2014.

Declining share G7 and rising of E7 in world GDP

  • When constituted, the G7 countries accounted for close to two-thirds of global GDP.
  • According to the 2017 report of the accountancy firm, PwC, “The World in 2050”, they now account for less than a third of global GDP on a purchasing power parity (PPP) basis.
  • And less than half on market exchange rates (MER) basis.
  • The seven largest emerging economies (E7, or “Emerging 7”), comprising Brazil, China, India, Indonesia, Mexico, Russia and Turkey, account for over a third of global GDP on purchasing power parity (PPP) terms.
  • And over a quarter on MER basis.

Predictions for India

  • India’s economy is already the third largest in the world in PPP terms, even if way behind that of the U.S. and China.
  • By 2050, the PwC Report predicts, six of the seven of the world’s best performing economies will be China, India, the United States, Indonesia, Brazil, and Russia.
  • Two other E7 countries, Mexico and Turkey, also improve their position.
  • It projects that India’s GDP will increase to $17 trillion in 2030 and $42 trillion in 2050 in PPP terms, in second place after China, just ahead of the United States.
  • This is predicated on India overcoming the challenge of COVID-19, sustaining its reform process and ensuring adequate investments in infrastructure, institutions, governance, education and health.

Limitations of G7

  • The success or otherwise of multilateral institutions are judged by the standard of whether or not they have successfully addressed the core global or regional challenges of the time.
  • The G7 failed to head off the economic downturn of 2007-08.
  • This failure led to the rise of the G20.
  • In the short span of its existence, the G20 has provided a degree of confidence, by promoting open markets, and stimulus, preventing a collapse of the global financial system.
  • The G7 also failed to address the contemporary issues, such as the COVID-19 pandemic, climate change, the challenge of the Daesh, and the crisis of state collapse in West Asia.
  • It had announced its members would phase out all fossil fuels and subsidies, but has not so far announced any plan of action to do so.
  • And their coal fired plants emit “twice more CO2 than those of the entire African continent”.

Turmoil in West Asia and failure of Europe to act

  • Three of the G7 countries, France, Germany, and the U.K., were among the top 10 countries contributing volunteers to the ISIS.
  • West Asia is in a greater state of turmoil than at any point of time since the fall of the Ottoman Empire.
  • This turmoil has led to a migrants crisis.
  • Migrant crisis persuaded many countries in Europe to renege on their western liberal values, making the Mediterranean Sea a death trap for people fleeing against fear of persecution and threat to their lives.

So, to deal with the unprecedented challenge, we need new institution

  • The global economy has stalled and COVID-19 will inevitably create widespread distress.
  • Nations need dexterity and resilience to cope with the current flux, as also a revival of multilateralism, for they have been seeking national solutions for problems that are unresolvable internally.
  • Existing international institutions have proven themselves unequal to these tasks.
  • A new mechanism might help in attenuating them.
  • It would be ideal to include in it the seven future leading economies, plus Germany, Japan, the U.K., France, Mexico, Turkey, South Korea, and Australia.
  •  The 2005 ad hoc experiment by Prime Minister Tony Blair in bringing together the G7 and the BRICS countries was a one-off.

What should be the focus of this new institution?

  • A new international mechanism will have value only if it focuses on key global issues.
  • A related aspect is how to push for observing international law and preventing the retreat from liberal values on which public goods are predicated.
  • Global public health and the revival of growth and trade in a sustainable way -that also reduces the inequalities among and within nations- would pose a huge challenge.

What should be India’s priority in new institution?

  • India would be vitally interested in three: 1) international trade, 2) climate change, 3) the COVID-19 crisis.
  • Second order priorities for India would be cross-cutting issues such as counter-terrorism and counter-proliferation.
  • An immediate concern is to ensure effective implementation of the 1975 Biological Weapons Convention .
  • And the prevention of any possible cheating by its state parties by the possible creation of new microorganisms or viruses by using recombinant technologies.
  • On regional issues, establishing a modus vivendi with Iran would be important to ensure that it does not acquire nuclear weapons and is able to contribute to peace and stability in Afghanistan, the Gulf and West Asia.
  • The end state in Afghanistan would also be of interest to India.
  • And also the reduction of tensions in the Korean Peninsula and the South China Sea.

Consider the question “There has been a clamour for expanding G7 and India is being considered as one of the prospective candidates in the expanded group. In light of this examine the challenges and opportunities for India if it gets entry into the expanded group.”

Conclusion

The decaying influence in geopolitics and declining share in the world GDP calls for the formation of the new institution. IF and when that institution comes into being India should try to address its immediate concern with the help of new mechanism based on values.

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