The Chartered Accountant

EDITORIAL
The G-20 summit, called to ponder over the worst financial
crisis in over 70 years, had many takers for India’s
three point emphasis— on the need for a ‘global
oversight’ and greater say for developing countries in the
global financial system; need to ensure that prospects
of emerging economies do not suffer; and the need to
avoid the protectionist tendencies. The six-point action
plan mooted at the G-20 summit also reflected the
spirit of Indian stand on tackling the crisis, particularly
the concern voiced by Prime Minister Dr. Manmohan
Singh that the financial meltdown had exploded into
a systemic crisis requiring a coordinated approach by
world leaders. The broad plan included short-term action
such as fiscal stimulus to boost domestic demand,
restarting world trade talks, and expanding financial stability
forum to emerging economies. It also agreed to
long-term steps such as reforming the International
Monetary Fund.
Leaders of the G-20 made all the right
noises on the need for greater transparency,
regulation and international
cooperation despite inevitable gaps
in perception between major players—
the US, Europe and developing
countries. But those who looked
upon G-20 summit as the ‘next Bretton
Woods’– The Historic talks after
World War II that led to a dollar-led
new world economic order, are of course
disappointed at its rather innocuous and nonconcrete
conclusion. It is now obvious that the West
will not countenance a new power structure beyond the
G-7, whose heads still don’t seem to see anything wrong
in the BRIC group not having legitimate say in global
economic affairs.
Prime Minister Dr. Manmohan Singh was forthright in
campaigning for ‘inclusivity’ and greater say for developing
countries, particularly India, in the global financial
system. India, as a $1 trillion economy, has indeed a
vital stake in the stability of the international economic
and financial system. The prevailing global crisis has
reinforced the need to have a new and more inclusive
order of global oversight. India’s viewpoint that such a
global oversight is a must to put in place an ‘early warning
mechanism’ should be taken and acted upon seriously
by the world leaders, particularly since the World
Bank and IMF have virtually failed to provide such a
mechanism. As a common regulation framework on
global scale is too ambitious, India has rightly pitched
for common prudential and regulatory standards for
all financial institutions in the world and a convergence
G-20 Summit and India
of accounting standards to prevent collapse of global
financial institution. Of course there should not be
overregulation, but there must be some way by which
countries can have global oversight with commonly accepted
regulatory and prudential standards overseen by
national regulators. It is welcome that the G-20 summit
supported an action plan to reform the multilateral financial
institutions and agreed to establish supervisory
colleges for major cross-border financial institutions but
what remains a matter of concern is that it fell short of
announcing major regulatory breakthroughs.
The second point of India’s stress at the G-20 meeting
had been that the developing countries that are able to
drive economic growth, particularly BRIC, should not
suffer in the period in which the world grapples with the
economic crisis. This meant that resources should
be made available to such countries so that
they can continue to grow and drive economic
growth. It is good that the G-20
has agreed to help shore up liquidity in
developing world.
Thirdly, as has been rightly pointed out
by Finance Minister P Chidambaram,
the crisis should not be an excuse for
the countries to go into a protectionist
cocoon. Without the free flow of goods,
services and capital, the world cannot recover
and get back to the path of growth. It was
indeed heartening to note the G-20 unity on the need to
desist from trade protectionism and complete the Doha
Round of talks.
In the current scenario, global markets needed their political
leaders to send out a signal of confidence and
the G-20 summit probably has done enough to assuage
fears. But the point of concern is that no mechanism
exists to oversee the economic action plan agreed by
world leaders at the summit. It is also not quite clear
yet as to whether the incoming US administration was
wholly on board with what the George W. Bush's team
agreed at the meeting. As such, perhaps the more critical
meeting will be the one scheduled for April 30, 2009—
that’s were the fine print will be discussed. India should
aim to be an influential voice of emerging economies at
that meeting.
— Editorial Board
ICAI- Partner in Nation Building
THE CHARTERED ACCOUNTANT 943 DECEMBER 2008