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PM’s Remarks at the G-20 Meeting at Pittsburgh:
Plenary Session
25/09/2009
Mr. President,
Let me begin by thanking you for the excellent arrangements made for
this Summit and for your warm hospitality.
2. We have discussed the complex challenges posed by the need to revive
the global economy. I would like to focus on what this implies for the
developing countries.
3. We all know that these countries were in no way responsible for the
crisis, but in many ways, they are the hardest hit. In the seven years
before the crisis, the GDP of the developing countries grew at an
average of 6.5 per cent per year. In 2009 it will grow by only 1.5 per
cent, implying a fall in real per capita income.
4. Of course, experience varies across countries. Countries in Asia have
generally fared much better. Countries in sub-Saharan Africa and in many
other regions have been very badly hit.
5. India too has been affected but, in common with other Asian
countries, we have weathered the crisis relatively well given the
circumstances. After growing at 9 per cent per year for four years our
economy slowed down to 6.7 per cent in 2008-09. In 2009, despite a
drought, which will affect agricultural production, we expect to grow by
around 6.3 per cent in 2009-10 and then recover to 7 to 7.5 percent
growth next year. This relatively strong performance is partly due to
the strong stimulus measures introduced in the second half of 2008-09,
which have been continued in the current financial year.
6. However, the fact that some of us have fared relatively well does not
mean that the crisis has not affected the developing world
significantly. The fact that the growth of developing countries as a
group will fall to 1.5 per cent indicates the extent of the impact.
7. An estimated 90 million people in the developing world are likely to
be pushed below the poverty line. Lower revenues will also lead to lower
levels of expenditure on rural infrastructure, health and education.
This will not only hurt future growth, but also delay achievement of the
Millennium Development Goals. Social and political tensions could
increase, undermining the national consensus in support of much needed
structural reforms and adjustment.
8. The prospects of convergence, which seemed bright before the crisis,
have receded. We must take steps to counter these developments and
restore the momentum of growth in the developing world.
9. First, the problem must be tackled at its root by ensuring the
quickest possible return to normalcy in the global economy. This
requires a commitment that we will not undertake any premature
withdrawal of stimulus. We must certainly plan for an orderly “exit”
when the time is right, but that time is not now. The global economy may
be bottoming out, but it is not expected to reach 3% growth until the
end of 2010.
10. The depressed state of the global economy translates into a
considerable loss of export demand for the developing countries. Exports
of non-oil developing countries are expected to decline by about $900
billion in 2009, compared to the previous year. They will remain well
below the trajectory earlier projected for several years. This is bound
to reduce production, incomes and employment in the developing
countries.
11. The measures taken by the G-20 to increase the flow of assistance
will help, and they certainly represent an important achievement in
international cooperation. However, the scale of the transfers we have
planned will only help the developing countries to manage their balance
of payments at depressed levels of economic activity. They cannot
counter the effect of the loss of exports.
12. To resuscitate growth in the developing countries, we have to
replace lost export demand by expanding other components of domestic
demand. The best option is to expand investment. An obvious area where
additional investment is needed in developing countries is
infrastructure, including energy, transport and other infrastructure for
public services. These investments can be made ahead of requirements and
therefore are an ideal form of countercyclical activity.
13. The World Bank and the other regional development banks can play a
major role by financing such investment. They should expand lending for
infrastructure development to emerging market countries which have
relied on capital markets in more normal times, but will need support in
the medium run, till capital markets recover. The poorer, low-income
countries had very little access to capital markets. For them, financing
on suitable terms may have to be made available for an even longer
period.
14. A strategy of expanding investment demand in developing countries to
replace lost export demand will not only help growth in developing
countries, it will also contribute to a broader global revival. This is
because the import content of investment is typically higher than of
exports, which means a significant percentage of the initial increase in
demand will spill over into the global economy.
15. The World Bank has announced that the volume of IBRD lending would
be increased to $100 billion over the next three years. This is
commendable. However, if the capital base of the IBRD is not expanded,
they will have to compress lending at the end of the three year period
to less than the pre-crisis level. This is surely not acceptable.
16. There is, therefore, an overwhelming case for doubling the capital
of the IBRD. Similar increases in capital are needed for the other
regional development banks also.
17. I realize there may be hesitation in committing additional public
resources for recapitalization. However, we must keep in mind that what
is needed for these institutions is small compared to the massive scale
of public money used to stabilize the private financial system in
industrialized countries. Some additional effort is surely justified to
help the developing countries to cope with the spillover effects of a
crisis for which they were not responsible.
18. Finally, Mr. President, a word on trade. The collapse in export
markets makes it all the more important that the market access of
developing countries is not constrained by protectionism. I recognize
that when growth is low, and unemployment is high, it is inevitable that
protectionist pressures will arise. It will be a test of the collective
political leadership of this Group, whether we are able to resist these
pressures in our countries. I am happy to note that the Delhi
Ministerial succeeded in reviving momentum for the Doha Round
negotiations. I venture to suggest that this is an area where the
industrial countries can give a lead to achieve a successful outcome.
19. We have done a great deal on finance and what remains is easily
doable. We need to address the difficult tasks on the trade front which
are now more important for the medium term.
Thank you.
Pittsburgh
September 25, 2009
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