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12 November 2015,

Takeaways from the T20

At India’s first T20 consultation, hosted by Gateway House in Mumbai on October 19, the four working sessions were titled: ‘G20 and new inclusive business models’; ‘Trade, investment, and development’; ‘Financing sustainable infrastructure’; and ‘Technology, services, and skills’. We present an overview of these discussions, arranged in three categories for each session: Why is the issue important for the G20? What are India's concerns on the subject? What were the key issues discussed at this meeting?

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India’s first Think20 (T20) regional consultation was organised by Gateway House on October 19, 2015. Titled ‘Turkey, India and the G20,’ it brought together researchers and  experts from think tanks in Turkey, China, India, and Australia, representatives from academia and non-profit groups, as well as business leaders from India and diplomatic representatives from some of the G20 countries.

The discussions centred on a wide range of issues concerning the G20. The observations and recommendations from the meeting will be officially sent to the 2015 Turkish G20 presidency. A summary of the discussions of the consultation’s four working sessions follows:

 Working session 1: G20 and new, inclusive business models

Chair: Rajni Bakshi, Senior Gandhi Peace Fellow, Gateway House

  1. Why is the issue important for the G20?

Promoting sustainable business models is now an imperative that must contend with some grim realities: [1] Asset and income inequality are growing globally—1% of the world’s population owns half the total  global assets; [2]  By 2050, the earth’s stressed natural systems will have to cope with a human population of 9.3 billion, [3] with the demographic balance in most countries shifting towards the elderly; Rapidly depleting natural systems and climate change are likely to cause severe food scarcity.

Many G20 countries are still operating within an old model of industrial development, which relied on exports by mid-size or large businesses. This model fails on many counts: it is not ecologically sustainable, it has not managed to eliminate poverty, and it has not dispersed the accumulation of assets.

The G20 was born as a response to financial crises, but it must now become a platform for identifying long-term paradigm shifts. This requires new standards on how to measure economies: gross development product (GDP) should not be the definitive measure. Instead, holistic measures must evolve, that take into account actual social well-being and environmental regeneration or degradation.

For instance, it is not tenable to expect that economic growth will necessarily reduce inequality.  It is more important to identify what types and forms of growth will lead to dispersed accumulation of assets, accompanied by a low ecological footprint. This requires a more nuanced understanding of the challenges faced by village-level and regional-level economies, as well as the problems arising from the need for sub-national autonomy. The informal economy must be better integrated with the corporate sector and small and medium enterprises (SMEs), through interlinked economic development agencies at the state and municipal levels.

  1. What are India’s concerns on the subject?

Inclusive economic growth has been a major concern for successive Indian governments over the past two decades. Much has been done to foster financial inclusion, including India’s leading role in developing diverse models of micro finance.  India therefore has a lot to contribute to the G20 discourse on new inclusive business models, as well as a keen interest in learning from the experience of other G20 nations on instruments of financial inclusion, and the promotion of SMEs.

  1. What were the key issues discussed at this meeting?

Small is beautiful: G20 nations need to share insights and details on how markets can be made to work for the poor. For example, insights about producer-owned companies such as Fabindia and cooperatives like Amul in India. Such enterprises give greater bargaining power to those at the bottom of the pyramid, unlike large corporations.

The government has to be a facilitator by providing a higher quality of public goods, which are crucial for all private enterprise, particularly for small producers and service providers.

Companies need not perpetually stay small and should view the SME phase as part of an overall growth trajectory.  The growth impetus in a firm’s life-cycle should not be seen solely as a finance challenge. Incubators supported by the G20 can be designed to make them mutually beneficial to its members, thus creating new jobs. Firms in the developed world can benefit if the incubators provide them fresh sources from which they can generate inputs.

A global, institutional mechanism is required to link successful SMEs in the developing world to the major capital markets of the world. The G20 has the resources to put such a mechanism in place.

Traditionally, SMEs have been under-represented in the B20 because they lack the requisite resources and awareness. But under the Turkish G20 presidency, the B20 has established the SMEs and entrepreneurship taskforce. As a part of this initiative, the Turkish Union of Chambers of Commerce (this year’s B20 host) and the International Chambers of Commerce inaugurated the World SME Forum (WSF) in May. The WSF’s mission is to improve the overall growth and impact of SMEs globally.

For SMEs to grow they must gain sustainable access to global value chains. Therefore, the WSF must accelerate its plans to initiate a certification programme to provide reliable information about SMEs in host countries.  This will also help improve the data environment, which too is necessary for improving credit flows to SMEs. Additionally, the WSF should expedite work on creating an SME-tailored credit rating programme.

Identity and gender: The G20 must address issues of migration and growing intolerance, which lead to discrimination and violence against minorities. It is necessary to monitor whether ethnic/religious minorities and women are included in all sectors of the economy. Similarly, it is important to take measures to ensure more participation of women at all levels of the workforce, at equal pay.

Trade-related concerns: Poor, sub-national regions within many emerging economies should be entitled to the WTO-sanctioned trade concessions that are available to Least Developed Countries (LDCs). This includes duty-free access to developed country markets. While the emerging economies may have a higher per capita income on an average when compared to LDCs, these sub-national regions should be treated on a par with LDCs for access to developed country markets.

Working session 2: Trade, investment, and development

Chair: K. N. Vaidyanathan, Adjunct Senior Geoeconomics Fellow, Gateway House; Chief Risk Officer, Mahindra Group; former Executive Director, SEBI.

  1. Why is the issue important for the G20?

In a world plagued by low growth and lower job creation, trade is an important lever to boost economic growth and meet the G20 commitment of creating jobs. The initiatives of the past must be revived because continuity is necessary to create a conducive economic environment. For example, there has been push to revive the Doha Round and the ratification of the Bali Trade Facilitation Agreement; G20 countries must work to remove non-tariff barriers and other regulatory hurdles in order to ensure a seamless movement of goods.

  1. What are India’s concerns on the subject?

From India’s perspective, while the trade in goods is important, trade in services is even more important since India’s core competence is in services. But India seems to be facing significant headwinds here. The movement of professionals under the World Trade Organisation’s (WTO) Mode-4 is on the backburner. Two of the three major plurilateral trade agreements—the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership (TTIP)—do not include India. In the third—the Regional Comprehensive Economic Partnership (RCEP)—India is working with China to further its interests.

Trade constitutes 40% of India’s GDP [4]; and it is therefore an integral part of the economy. As a net recipient of capital from overseas in the form of both foreign direct and portfolio investments, India needs stability in global capital and foreign exchange markets.

  1. What were the key issues discussed at this meeting?

Investments: A coordinated fiscal push is necessary to increase global demand, somewhat like the coordinated crisis management exercise of 2008-09. A beginning can be made with a push to sort out the infrastructure deficit. For example, the western economies can raise money through bonds, with interest rates ruling at historical lows, to fund their infrastructure needs.

The funding that is available from multilateral institutions such as the World Bank is inadequate to meet the infrastructure financing needs of emerging countries. The launch of two new multilateral development banks—the New Development Bank (NDB) and the Asian Infrastructure Investment Bank (AIIB)—is therefore welcome.

A key impediment to structuring infrastructure financing deals is the current credit rating mechanism. It does not provide a model for long-term patient capital, only for short-term capital. Reforms are required here.

The global impasse over the Investor State Dispute Settlement (ISDS) system in bilateral investment treaties must be resolved to improve the climate for cross-country foreign direct investments (FDI). FDI investors with superior redress opportunities, as compared to domestic investors, create an imbalance that results in differentiated rights. The question of sovereignty also needs to be addressed. In conclusion, there should be a balance between the  rights of the investor and the rights of the state.

Trade: India and many other emerging economies have to be prepared for mega regional trade treaties, such the U.S.-driven TPP. India should use these mega regionals to hasten domestic reforms.

The purpose of trade treaties is to stimulate trade, which has a direct impact on industrial activity, industrial investment, employment growth, and therefore on economic growth. In industrialised countries, industrial production and employment growth are directly related. In contrast, in developing countries investment growth does not always lead to employment growth.

A country’s success in trade relations lies in how well it can utilise existing trade treaties. In India, many companies do not know how to use trade agreements. India’s Ministry of Commerce should host regular meetings with companies (or representative of the corporate sector, such as industry lobbies) to discuss the future of trade and investment issues.

The G20 must consider starting a trade working group that can include trade and investor dispute resolution.

Just as foreign policy cannot be isolated from economic and financial issues, the same holds true for security. The G20 needs to reform and add a national security and foreign policy track, a second layer over and above the traditional finance ministers meeting. This is necessary because increasingly security considerations determine the course of economic and finance issues.

Working session 3: Financing sustainable infrastructure

Chair: Luis Miranda, Advisor, Gateway House; Senior Advisor, Morgan Stanley

  1. Why is the issue important for the G20?

The G20 recently set up the Global Infrastructure Hub in Sydney, and the World Bank’s Global Infrastructure Facility was set up as a partnership.

  1. What are India’s concerns on the subject?

 India has a widening infrastructure deficit which has been a constraint on fresh investment in manufacturing and services. This has a direct bearing on employment and economic growth. The Planning Commission had estimated in 2012 that India required $1 trillion in infrastructure financing till 2017. [5]

  1. What were the key issues discussed at this meeting?

Financing from multilateral institutions: Existing multilateral institutions, such as the World Bank, the International Monetary Fund (IMF), and the Organisation for Economic Cooperation and Development (OECD, now a part of the G20 process), have failed to adequately respond to the global financial crisis or to adapt to the changing global economic order.

The Bretton Woods institutions were not set up to help developing countries grow, but to deal with a post-World War II world order and to help finance reconstruction in the developed economies. This reflects in how these institutions have discharged their responsibilities. For instance, a bulk of the IMF’s resources have been committed to Europe for the past few years, to the detriment of other crisis-ridden emerging economies. Similarly, the World Bank was tasked with setting up a global infrastructure facility five years ago, but has done nothing about that.

The emerging economies will therefore have to explore alternative financing sources. However, financing for the new multilateral institutions (NDB or AIIB) as well as for infrastructure projects is still regulated by the western credit rating mechanism, which has proven to be deeply flawed. The time may be appropriate for a new credit rating grammar, as well as a multilateral credit rating agency. It might even make sense for BRICS to set up a rating agency.

Financing business models: The institutional obsession with large projects around the world results in many unnecessary projects. The insistence on lowest cost is also not ensuring the most efficient projects. At its heart, these two are outcomes of the structural flaws in the public-private partnership (PPP) model.

Financing regulations: It is critical to consider an alternative to the economic orthodoxy of implementing an austerity programme in the face of an economic crisis. Whenever the globe faces a crisis, the answer financially is to restrict or prohibit spending money. But government expenditure is the key to economic revival in any economic crisis which witnesses a sharp drop in aggregate demand.

The Indian government’s focus on infrastructure has been limited to transport, energy, and urban infrastructure. Two other key sectors—rural and agricultural infrastructure—must also be included.

The current global challenge is constructing infrastructure financing models that can yield a steady return. In India, many of infrastructure projects are built by the government, which do not yield any viable financial returns. Consequently, the borrowing for investment in infrastructure soon turns into a debt burden, thereby inhibiting future investments. The solution lies in a three-point model involving a global infrastructure fund, a local infrastructure fund, and a viable PPP model.

Many countries have built up record levels of reserves to insure themselves against crises. This has generated enormous liquidity in the global economy, thereby adversely impacting the preference for illiquid assets such as infrastructure assets. Therefore, the globe needs a framework for reducing the demand for reserves.

Working session 4: Technology, services, and skills

Chair: Rajrishi Singhal, Senior Fellow, Geoeconomic Studies, Gateway House

  1. Why is the issue important for the G20?

After the 2008 global financial crisis, the G20’s primary focus has been to identify a catalytic process that can revive economic growth. Successive G20 summits have pinpointed one thing or another as a probable driver of economic growth—Brisbane, for instance, selected infrastructure.

But one key economic variable has remained constant and has acquired urgency as a key determinant of the growth process—employment. Creating jobs, and creating quality jobs, has been a constant refrain of the past two-three G20 presidencies, including the Turkish presidency.

The Labour and Employment Ministerial Declaration [6] of Ankara on September 2015 has further sharpened the debate on unemployment by dividing the task into three broad categories: (i) Creating quality jobs for all (promoting quality of earnings, reducing labour market insecurity, and promoting good working conditions and healthy work places); (ii) Investing in skills (strengthening the link between education and employment); (iii) Reducing inequalities to promote inclusive and robust growth.

These categories give rise to some inescapable conclusions, which will hopefully be deliberated by the G20, T20, and L20 in the coming weeks and months.

The emphasis on labour and employment is appropriate and timely. The misdeeds of a few have impacted labour across all sectors, and across all geographies, leading to a loss of livelihoods and of sources of livelihood. This repeated emphasis on job-creation is indeed necessary. But we hope it is not a partial agenda that will result in a partial increase only in some categories of jobs, or help a developed country’s central bank fulfil its inflation target. What the global economy requires at this juncture are measures that will help achieve higher and secular employment-generation across all sectors and all countries. The T20 and G20, we hope, will identify some measures.

A background note [7] prepared by the ILO, the World Bank, the OECD and the IMF for the Ankara ministerial, has empirically found employment elasticity low in G20 countries over the past 25 years, irrespective of high or low growth conditions. While it does buttress the debate on “jobless growth,” it could also be misleading because the overall G20 data masks two important factors: one, it lumps together both advanced and emerging economies where the relationship between growth and employment varies; two, it also doesn’t show up the quality of employment nor the extent of the shift to lower quality/productivity jobs.

Two questions arise here: what kind of economic growth should India focus on, and how do we create quality jobs?

  1. What are India’s concerns on the subject?

The G20 has also been addressing the issue of skills deficit and, to that end, has released a ‘Skills Strategy’. This is clearly significant because the Ankara declaration places a great deal of accent on investment in human resources, “…a powerful driver of productivity, economic growth, higher individual earnings, and greater social cohesion.”

The challenge is all the more daunting in India because of the wide gaps in education standards and basic employability requirements. This presents a clear and distinct challenge: how fast can India retool its workforce so that it is not only employable for basic, low productivity work but also for transitioning to higher productivity jobs to meet the technology and innovation changes sweeping through workplaces?

  1. What were the key issues discussed at this meeting?

A ‘Global Skills Accelerator’ (GSA) is a key suggestion of the Turkish presidency [8]. The proposal is still on the design board and is structured as a funded endeavour. A funded initiative to finance transition to higher skills is necessary in a rapidly altering industrial landscape. But it also requires some safeguards, because funded initiatives inevitably lead to political jostling. Specifically, a GSA design has to take into account that its patronage is not limited to only skills transition to a technology that is antithetical to traditional skills and can lead to a loss of traditional knowledge that is key to maintaining the balance between economic growth and sustainable development.

The march of technology and innovation in the manufacturing landscape is inevitable. But shifts in technology, or accelerated speeds of automation, always lead to higher levels of inequality in society. While it is essential to create an institutionalised skills development framework, it must also be remembered that capacity building always operates with a lag. What happens to the labour force in the interim when technologies get overhauled is often not considered. Social protection schemes have a role here; in fact, the presence of such schemes for jobs affected by technology upheavals also helps dispel the reluctance to invest in innovation and in technology upgrades.

Although the Ankara declaration’s labour and employment agenda includes “inequality” and sources of inequality, references to employment, skills, or technology in the entire discourse are focused on the traditional manufacturing sector. There should be a special focus on the development of agricultural skills, because a majority of India’s population directly or indirectly depends on agriculture for a living. This is important for other developing countries as well—in many African countries for example, over 50% of the population is agri-dependent. The issue is urgent because agricultural labour is fast deskilling from conventional techniques and is being re-skilled in either globally homogenous agricultural practices with no relevance to local conditions, or in skills completely removed from current occupations.

This is true for even the micro, small, and medium enterprises (MSME) sector, which is a large employer but needs access to labour with varied skill levels.

The skills development framework presumes a working knowledge of technology and tools of connectivity at a basic level. However, the debate rarely includes issues relating to the quality of the plumbing: access to information and the internet is crucial for skilling, employment, and the dissemination of information. Digital democracy and equal access come at a cost and various business models are already involved in providing that access.

The G20 must discuss the state of communication infrastructure not only because is it central to the task of employment and re-skilling, but also because it is the iron framework for developing an innovation and technology eco-system. Key to the discussion is the role of the government as a market-maker, as an enabler, and as a provider of public goods, rather than as market administrator.

This article was exclusively written for Gateway House: Indian Council on Global Relations. You can read more exclusive content here.

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[1] “G20 Labour Markets in 2015: Strengthening the Link between Growth and Employment.” Summit of G20 Finance and Labour and Employment Ministers:. September 4, 2015. Accessed November 12, 2015.–en/index.htm.

[2] “Richest 1% Will Own More than All the Rest by 2016.” Oxfam International. January 19, 2015. Accessed November 12, 2015.

[3] “How to Handle 9.3 Billion People.” Global Public Square RSS. August 17, 2011. Accessed November 12, 2015.

[4] “Merchandise Trade (% of GDP).” Merchandise Trade (% of GDP). Accessed November 12, 2015.

[5] “Infrastructure Funding Requirements and Its Sources over the Implementation Period of the Twelfth Five Year Plan (2012- 2017).” Accessed November 12, 2015.

[6] “G20 Labour and Employment Ministerial Declaration.” Accessed November 12, 2015.

[7] “G20 Labour Markets in 2015: Strengthening the Link between Growth and Employment.” Summit of G20 Finance and Labour and Employment Ministers:. September 4, 2015. Accessed November 12, 2015.–en/index.htm.

[8] “A Proposal for a Global Skills Accelerator.” May 1, 2015. Accessed November 12, 2015. Proposal for a Global Skills Accelerator.pdf.