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Economic diplomacy: Mantra for new govt

June 10, 2009 12:06 IST
With the widely anticipated re-appointment of Montek Ahluwalia as Deputy Chairman of the Planning Commission this past weekend, the newgovernments economic team is now fully in place.

The term economic team is widely used in the presidential systems of Latin America. I am, of course, deeply aware of the very different institutional setting of all parliamentary systems, especially our own. As the case of the UK these days demonstrates so graphically, in any parliamentary system ministers are simultaneously policy colleagues and political rivals of the Prime Minister.

The current Indian setting is even more complex, characterised as it is by the separation of political and policy leadership between the Prime Minister and the Congress President.

An additional complication is the challenge of holding a coalition of small regional parties together in ways not really envisaged by the Constitution. These complications have in turn inspired several institutional innovations to supplement the rather beleaguered doctrine of Cabinet responsibility, notably the device of Groups of Ministers and Committees of Secretaries.

Numerous considerations shape the assignment of ministerial portfolios. While these are ultimately driven by the primordial goal of re-election, in reviewing the recent ministerial appointments, one does get the sensethat India is poised to engage more seriously and forcefully on a broadrange of international and regional economic issues.

Ministerial appointments in the finance ministry, the commerce ministry and the ministry of environment and forests, to take some of the salient cases, are characterised by a combination of professionalism and awareness of the political imperatives and opportunities facing the Congress party.

These political imperatives have traditionally been seen as constraints. The considerable challenge facing this Group of Ministers is to help reshape the domestic political discourse so that constructive engagement in international fora is not seen as a sell-out of Indias fundamental interests, but rather as a sign of Indias growing stature in what the Prime Minister is fond of calling the comity of nations.

The three most obvious and prominent global arenas for intensified engagement are the G-20 Leaders meetings; the resumption of the Doha development round in the World Trade Organisation; and the Copenhagen negotiations on climate change at the end of the year.

The G-20 Leaders process is gathering momentum, despite the somewhat unwieldy, arbitrary and unrepresentative composition of the group. Given the scale, spread and depth of the crisis, it is perhaps not surprising that the agenda emerging from the initial meetings of the group (in Washington last November and in London in April) has been rather amorphous and dispersed.

Broadly speaking, though, the mandated work programme has been coalescing around the areas of coordinated economic stimulus; reform of the international financial and regulatory architecture; and monitoring and containing protection.

In previous columns I had argued that India was in fact rather well-placed to make a contribution to these deliberations. Unlike China we have not been a major contributor to global imbalances; even today, by virtue ofrunning a current account deficit, we are helping in a modest way toreflate the global economy at a time of deficient demand.

India's financial regulation is widely, if somewhat uncritically, admired for having protected the banking system from some of the wilder excesses of global banking. Yet, despite these advantages, there is a pervasive sense in international press commentary that, among the BRIC group of countries, Indias voice has so far been disappointingly muted.

Why might this be so? And should it now change? Part of the wariness might well have been because of the election itself, an unwillingness to deflect attention from the main electoral message of inclusive growth. It could also reflect uncertainty as to the nature of commitments that India might be expected to make in exchange for a seat at the top table.

Yet I havebeen surprised by the number of times in the past few weeks that I have been told that the global community needs the views and voice of India to be more engaged in pursuit of a constructive global agenda. Arguably, the fault lies more outside government than within it, in that there has been little serious engagement by the intellectual community on issues of the global financial and regulatory architecture. In these areas our officials have been ahead of our intellectuals.

In my personal view we have both an important stake and can make an important contribution to the reshaping of the global financial and monetary system. Indias domestic financial system needs to continue to integrate with global finance, but can only do so if there is a reasonable assurance that the external order strikes an appropriate balance between innovation and safety.

India also has strong potential comparative advantage in the provision of global financial services, and the Indian financial services industry stands to gain from the retreat of the major global players. The political challenge is to relate this engagement to the domestic imperatives of growth and poverty alleviation.

The challenges in the arenas of trade and environment are more familiar and better understood, but here too there is an urgent need to reshape our domestic and international rhetoric from one of suspicious scepticism to one of active negotiation, even while being clear-eyed on the limitations and agendas of the other major actors.

In all three arenas the difficult conceptual shift will be from the current mindset of entitlement (special and differentiated treatment) to the sense that through active negotiation we stand a better chance of shaping the world that is emerging.

Ultimately China is what will concentrate our minds. In trade, in environment and in the international financial architecture China is now a major player. The choice facing us will increasingly be: do we let acondominium of the US and China (the oft-cited G-2) shape the new world order, or do we ally with shifting coalitions of other states to achieve what we see as being our core interests? That will require us to define and sell this view of our core interests to our domestic populations; this is the immense task that falls to the Prime Minister and his team.

For the future place of India in the world we must pray for their success.

The author is Director-General, National Council of Applied Economic
Research. Views expressed are personal.


Suman Bery
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