In the world of global finance, economics and politics, the ongoing economic crisis — the biggest since the Great Depression — has been as painful as it has been complex. It has been as much a threat to free markets and free flow of finance that has enabled high per capital incomes in the developed economies as it has been an opportunity to include emerging economies like India and rebuild (or let's say rename) institutions, particularly the Group of 20 (or G20).
Though we are nowhere near it, this crisis — that finally erupted on September 15, 2008 with the fall of the Lehman Brothers, following which global finance fell over the cliff — will enable the movement of power politics behind finance towards a more equal, more inclusive world.
And for a change, with the momentum of very high economic growth firmly behind it, India has taken an intellectual lead in the creation of new world order.
It had taken the 1997 Asian Financial Crisis to create the G20 two years later as an institution that promotes financial stability through the annual meetings of finance ministers of 19 countries and EU. The current crisis that went aflame as Lehman Brothers sank brought leaders of the G20 together and raise the stakes by hosting summits led by Prime Ministers and Presidents --- the Washington Summit just two months later in November 2008; the London Summit in April 2009; the Pittsburgh Summit in September 2009 and the Toronto Summit in June 2010. Coming up next: the Seoul Summit in November 2010.
I was cynical about how leaders from different countries (some wealthy, others getting there) with different priorities (Europe wanted strong regulation, the US didn't) would deliver solutions on global finance.
The noise-mongering — by French President Nicolas Sarkozy and German Chancellor Angela Merkel during the London Summit, for instance — had me flummoxed as I accompanied Prime Minister Manmohan Singh for the second time to report on the crisis.
Five days day before the Summit, Brazilian President Luiz Inácio Lula da Silva played a racist card. "This crisis was caused by no black man or woman or by no indigenous person or by no poor person," he said. "This crisis was fostered and boosted by irrational behaviour of some people that are white, blue-eyed." Two days before the Summit, Sarkozy was ready to walk with Merkel sending similar signals.
Nothing of the sort happened and the London Summit sailed through. This is not to celebrate the "economics" of the G20 leaders, but their "politics". During all these Summits, Manmohan Singh, backed by then Finance Minister P. Chidambaram and Deputy Chairman of the Planning Commission Montek Singh Ahluwalia, provided policy (prevent the ugly head of protectionism from rising again, reform multilateral institutions such as IMF, push stronger regulation, they said) and humane (provide finance for the least developed countries) inputs.
The debate then was overpoweringly skewed towards spending through stimulus. To me, the stimulus packages that were being thrown around were alright as long as they were in the developed economies of the US and EU — they created the crisis, it's their banks that were going under, their citizens were suffering. I knew the recovery, if any, would be jobless (it still is) and consumers would not benefit (despite a new agency, the jury is still out on that).
For India to give a fiscal stimulus was unjustified, given that the economic growth would only slow down to 5-6 per cent — something the developed world sees as an aspiration even today — and it would be unlikely that the benefits of the stimulus would trickle down in the form of more jobs or lower prices. The US, through its mouthpiece the IMF, was demanding an across-the-board stimulus of 2 per cent of GDP.
But sometimes, we have to go with the flow. And if in the creation of new global institutions, we have to accede some space, it is fine — even becoming and expected — of an emerging leader in the economic as well as intellectual spheres. I believe, India played its cards rather well. And rightly, was among the first countries in G20 to withdraw the stimulus.
So, as India joins the club of 19 biggest economies that together decide the course of the world's financial and economic pipelines, it has turned a crisis — the worst we've seen in recent times — into an opportunity. The good news is that in this "win", nobody has lost. The economic interdependence of nation states over one another has been underlined and has led to the creation of a whole new respectability, negotiation and equality in a new world order.
The story is still developing — and so is the G20.