Economic Highlights

New Delhi, 9 April 2009

G8 Warns Of Food Crisis

WHAT INDIA DIDN’T DO AT G20

By Shivaji Sarkar

Even as G20 London summit ends on a note of “bonhomie”, the G-8 laments the permanent food crisis and instability staring the world unless nations act to double agricultural production.

Regrettably, the crucial issue did not figure in the G20. Even poor India did not press for it despite being hit by high food prices, a concern surprisingly of the world’s richest that G-8 represents. Prime Minister Manmohan Singh did not speak a word for the country’s over five million farmers. Sadly, his reaction was too routine. He said “The G20 leaders Summit has shown a way forward. Given the goodwill and the meeting of minds among leaders that was possible in London over the last two days, the world has a basis to begin solving the crisis. The international community can and must work together to do so”.

The WTO Director General Pascal Lamy considered it a victory-- of trade. He said, “The important thing is that there is convergence and unanimity on the view that in order to respond to this crisis, trade must remain open”. Thus, the G20 has primarily been a meet for trade, basically securing businesses of the richest and ensuring packages for multilateral banks. The banks were rewarded for their profligacy—they were assured a subsidy of $ 100 billion! A number of them, starting from Lehman Brothers to Scottish Bank and AIG have lost billions of dollars because of promoting untrustworthy people and investing in instruments, which had no strength.

The US has already given almost a trillion-dollar package to its financial sector. It is no wonder that it now asks the poor countries of the world also to pay for its follies. India surprisingly meekly submitted to the machinations of the US and the UK without virtually taking a commitment for stronger regulatory mechanism in countries which had mismanaged the world economy. India also did not raise a voice on the New York stock exchange fraud by Bernard Madoff, which led to the global financial crisis.

Agreeing to the trebling of resources available to the IMF to $ 750 billion looks good. But India has least benefitted from these funds. The IMF today is more a tool of the powerful US and resorts to arm-twisting the poor nations instead of helping them.  

The G20’s commitment on trade is also being seen as only on paper. It does not say a word about the contentious word--protectionism, i.e. it would not be resorted to by the rich. Undoubtedly, the US and Europe are bound to turn protectionist for the populist cause of their home population. Backroom diplomacy by US Secretary of State Hillary Clinton has silenced China for the present. It had demanded the replacement of the dollar as an international currency. China with US $ 2 trillion worth reserve is in a position to demand and even create a sort of an upheaval if not a tsunami for the US currency and its economy.

India cannot do a China. It has no such strength. It has neither financial nor other physical capability to act as an international catalyst. Diplomatically too it is in a far weaker position than it was during the Nehruvian era. However, it should have spoken strongly on regulations for the financial sector and taken a firm commitment. The G20 statement on regulation is wishy-washy. It makes a mention but does not assure a roadmap.

Manmohan Singh should have spoken on delinking the financial and banking institutions from the stock market – a first for making regulation effective. Global financial institutions have lost trillions of dollars at the stock market. More importantly, India could have spoken for the farm sector. It should have urged if not given a call for increasing subsidy for the farmers of poor developing countries like ours, something that the WTO stops.  

A World Bank report released last month, a week before the G20 summit, mentions that countries, including Russia and China have effected 78 trade restrictions. Other rich countries do it in a different way. They raise subsidies for domestic companies and agriculture. The US has given $ 17.4 billion to its auto industry. Canada, France, Germany, Sweden and Britain have also announced grants-in-aid to their companies. In total, worldwide governments are providing $ 48 billion in direct subsidies to car makers.

The US has given agricultural subsidies of $ 1.8 billion to keep food prices low. All these measures affect India in more than one way. It affects its access to global markets as Indian companies are forced to cut on their basic price. This is an issue which Manmohan Singh should have spoken about forcefully. Why he chose to remain silent on a crucial issue like this only policymakers could explain.

What the G8 is demanding too doesn’t look plausible. It calls for doubling world food production by 2050 to avoid the kind of shortage the world had seen during the past two years. The report says that further food crises will have “serious consequences, not merely on business relations but equally on social and international relations, which in turn will impact directly on the security and stability of world politics”.

It is truly sad that what G8 realises India does not even consider. The present global crisis follows a period of steep global food prices partly if not wholly owing to US’ motivated WTO policies. Domestic prices in many developing countries such as Africa and India remained very high. Therefore, at least India should have raised the issue for ushering a pro-poor global economic regime.

Besides, if agricultural subsidies in developing countries like India are not raised, it is bound to have catastrophic effects. As it is the farm sector is being exploited and has little motivation in producing foodgrain. The farmers in India, Bangladesh and Haiti are committing suicide because it no longer is a remunerative profession. In fact, they don’t even get back their investment.

What the G8 is aiming at can never be achieved without active participation of the poor nations. But India does not figure in the G8 and can not voice its concern.  The G20 was the right forum to rake it up. It can be argued that the G20 was to decide a $ 1-trillion package to put fiscal and monetary policy in order. New Delhi knows well, through its budgetary exercises that agriculture remains the backbone for stability of any such policy. It should have clinched the issue by forcing the nations to commit at least $ 100 billion for world agriculture. India missed a great opportunity. ---INFA

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