What’s The G20 Bounty For India? Systematix Analysis

Systematix Research Report

We hosted Mr. Subhash Garg, Ex-Finance and Economic Affairs Secretary of India for a discussion on the fallouts for India from the recently concluded G20 summit, the prospects of G20 amid the rising East-West divide.

We were interested in getting a perspective on what prospects India can look for from the agreements on the West-South corridor and the Global Bio-Fuel Pact.

Mr. Garg has also been an avid analyst of government finances and he shared his thoughts on it as well. He also answers why the crowding-in effect of large government capex is elusive.

Relevance of G20 amid the changing geopolitics:

The G20 at the Heads of state level was born during the Global Financial Crisis in 2008 to ward off the impact of a financial crisis in the U.S. The commitment towards refraining from trade protectionism along with coordinated fiscal and monetary expansions aided the post-GFC recovery.

Many reforms of the global financial architecture were also undertaken. But the synergy in the G20 group started to fade after two-three years and it gradually got mired in geo-political matters with rising partisanship.

The commitment towards protectionism was the first casualty, epitomised by the U.S.-China trade conflict, and effort towards technology fragmentation. In the post-pandemic era, the assertion of China-Russia as a second pole in the aftermath of the Russia-Ukraine war also created an enduring schism.

These have contributed to making the G20 forum dysfunctional. With the U.S. on the one hand looking to steer its interest toward near-shoring, and friend-shoring and China on the other gravitating towards a stronger role of the extended BRICKs group and RCEP, the G-20 is increasingly veering towards irrelevance.

What’s in store for India in the IMEC project?

The India-Middle East-Europe Economic Corridor, is for promoting 'economic integration between India and Europe' and is seen as cutting transportation costs for India’s trade. The IMEC will comprise an ‘Eastern Corridor connecting India to the Gulf region’ and a ‘Northern Corridor connecting the Gulf region to Europe’.

The Gulf region is west of India and the connecting Corridor is called the Eastern Corridor! Therefore, IMEC will be a mix of railway, ship-rail transit networks, and road transport routes.

Global Biofuel Alliance-India needs a flexible approach:

There are two types of biofuel; ethanol which replaces petrol and biodiesel which replaces diesel. Currently, India manufactures only Ethanol whereas biodiesel is only produced in small quantities.

As biodiesel is produced from edible oil and we run a big shortage for the same leading to higher imports on that front, we only manufacture ethanol domestically.

Diversion of more area towards sugarcane production would be counter-productive:

India currently consumes about 26-27 million tons of sugar and produces about 34-35 million tons on average leading to a surplus. But there have been years where the production has gone below the consumption levels which lead to importing sugar.

So, the possibility of lagging sugar production, leading to imports of sugar is very much a possibility.

Amid this, as water consumption of sugarcane is very high, with the water becoming increasingly scarce the diversion of more area for sugarcane production would be counter productive.

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