AIR Spotlight: G7-Financial Ministers' Meeting

AIR Spotlight is an insightful program featured daily on the All India Radio News on air. In this program, many eminent panellists discuss issues of importance which can be quite helpful in IAS exam preparation.

This article is about the discussion on: G7-Financial Ministers’ Meeting: Global Economic Challenges and Opportunities.

Participants:

• Dr S.P Sharma: Economic Analyst
• Arjun J Chaudhry: AIR Correspondent

Context – The G7 Finance Ministers and Central Bank Governors met in Niigata, Japan joined by the Heads of the International Monetary Fund (IMF), World Bank Group, Organisation for Economic Cooperation and Development, and Financial Stability Board. The meeting was held in the run-up to the G7 leaders’ summit in Hiroshima from 19 – 21 May 2023.

Introduction –

The G7 is an informal bloc formed in response to the economic woes stemming from the 1973 oil crisis.

•  It started out in 1975 as the Group of Six (G6) by the leaders of France, West Germany, Italy, Japan, the United Kingdom, and the United States. The seventh nation, Canada, joined the following year. 
• Russia joined in 1998, and the group was temporarily renamed the G8 until the country was booted out after it annexed Crimea in 2014.
• The bloc represents the most developed and sophisticated economies in the world. 
•  Since its origin, the G7 has expanded its focus to include a range of topics, such as climate change, international peace and security, and global health.
•  The G7 chair organises a set of meetings throughout the year to discuss these issues, inviting ministers and other delegates from the member-states. The main meeting, however, is the leaders’ summit.
• India is an invitee to G 7 Finance Ministers and Central Bank Governors meeting. India’s Finance Minister Nirmala Sitharaman invited Japanese investors and business leaders to explore investment opportunities in the country. She also highlighted the government’s priority to incentivise and facilitate investments by businesses through the Production Linked Incentive (PLI) scheme, which was initially introduced for 14 sectors and is now being expanded in areas of semiconductors and solar components.

G7 Finance Ministers’ Meeting

In the G7 Finance Ministers’ Meeting, members and Finance Ministers exchange views on recent global economic developments and major challenges to foster robust and sustainable growth, and commit to jointly tackle global economic challenges, fight poverty and achieve strong, sustainable, balanced and inclusive growth. The following challenges are of utmost importance-

• Significant rises in the prices of vital items like food and energy have created a cost of living crisis that has also affected economies like the U.S. and Europe. Inflation has risen close to its highest recorded rate.
• Russia’s invasion of Ukraine has far-reaching consequences in a variety of areas – the situation has turned into a humanitarian crisis, has turned food and energy security volatile, and has raised questions about the architecture of global security.
• The U.S. debt default could have serious global implications. It could lead to an economic and financial catastrophe that would trigger a global economic downturn and risk undermining the country’s ability to provide global leadership.

These challenges must be addressed to move forward and to minimise the impact of such geopolitical developments and global headwinds. At this juncture, it is important to take possible measures which are helpful for the economies to overcome such uncertainties, so that they are able to improve the standards of living of their respective citizens.

Fiscal Deficit Facing the U.S Economy-

The economy of the U.S. and its health is of prime concern to the global economy. The U.S. is the largest economy in the world economic system and ‘Dollar’ is the dominating currency. So, it becomes important to address issues like banking issues, the debt ceiling and the rising fiscal deficit in the economy. The rising inflation has forced the U.S. to increase its interest rates again and again. All these developments are impacting not only the U.S. economy but also the whole world’s economic scenario. There are more than 80% of transitions which are undertaken throughout the world in the dollar currency.

• The U.S. debt to GDP ratio is very high for the last many years, (more than 100%). The U.S. needs to address this problem through measures like expenditure control and reducing fiscal deficit.
• The coronavirus has drastically impacted the whole economic scenario throughout the world and the demand was killed by the coronavirus. The economies of the world are coming out of this pandemic crisis and have recovered significantly but advanced economies like the U.S. are still facing many challenges to come out from the downturns caused by the pandemic and their growth rates are still below the pre-pandemic level.
• At this juncture, the U.S. government needs to restructure its thought process regarding the inflation trajectory and increasing interest rates again and again because such measures have not addressed the macroeconomic challenges the U.S. economy is facing. A new economic thought process needs to be brought in because the traditional parameters and measures are not working to support the economy.
• According to the IMF, America’s economic growth will be 1.6% in the current financial year as against 2.3% last year. In the next year, it is projected at 1%. All these projections are providing a worrying state of the economy and this will be reflected in the world economy which will also not be in a strong trajectory. 

India’s Resilient Banking System

The banking crisis in Europe and America has jolted the financial world. America’s Silicon Valley Bank and Signature Bank collapsed and the Credit Suisse Bank of Europe was struggling when the Swiss government brokered a deal allowing UBS to take over the bank. Since it is an interconnected world, it is difficult to insulate any sector of the economy from the global headwinds.

• As compared with the advanced economies, India’s banking system has proved to be very resilient like during the U.S-China Trade war, pandemic and Russia-Ukraine conflict. Indian banks are capable of safeguarding themselves on the back of strong banking regulations that have been put in place. 
• In terms of capital adequacy and liquidity ratios, Indian lenders have performed well in the past and it worked as a buffer to safeguard from the present crisis.

Conclusion – 

• The main two factors that have changed the global scenario as far as the economy is concerned are the Pandemic and the Russia – Ukraine Conflict, affecting the global supply chain. These have led to global economic slowdown and the devastating effects are beginning to weigh in on leading economies around the world. 
• Despite all the global headwinds, India’s economy is showing resilience and stability. India stands tall and steadfast, emerging as a beacon of resilience in the global economy. India is expected to be a 2 trillion economy by 2030. 
• There are many opportunities for India in the global supply chain, as it is strong in services exports and merchandise exports are also increasing significantly. India’s Agriculture and food processing products, pharmaceuticals and engineering goods are becoming more and more prominent in the global economy with the price competitiveness and quality of products.

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