India is likely to hold a series of bilateral meetings to exchange views on further cooperation and rapprochement with the West in the coming years.
From a “library group” of White House finance ministers discussing the collapse of Bretton Woods and the oil shocks to a fast-growing collection of the world’s most advanced economies, the G7 has come a long way. What began as informal exchanges between West Germany, France, the United Kingdom and the United States has turned into a more formal discussion about managing the global economy. They were joined by Italy, Canada and Japan.
The European Union (representing 27 member countries) became a non-numerical member in 1981. Since then, the world’s richest economies have been using the G7 as a platform to coordinate policies on the economy, trade, finance and foreign affairs.
Russia was part of the group for nearly two decades, before being expelled in 2014 over its annexation of Crimea.
Italy’s G7 Presidency
Italy assumes the rotating presidency of the G7 for the seventh time on January 1, 2024, succeeding Japan. During their presidency, Rome will host 21 ministerial meetings ranging from discussions on industry and digital technology, foreign affairs, defence, security in Ukraine and the Middle East, climate and the green transition and international finance and trade.
The annual leaders’ summit is now being held in Puglia from June 13 to 15.
Prime Minister Narendra Modi has been invited to attend the G7 awareness session, his first foreign visit after being re-elected for a third time. Apart from G7 member countries and the European Union, the G7 has in the past few years invited more actors from the developing world and international organisations to make discussions on globally relevant issues more inclusive.
The European world has just held its elections. The European Parliament has succeeded in maintaining a united centrist front that will ensure the continuation of the EU’s broad policies for the next five years. However, the far right has also insisted on its acceptance in no uncertain terms.
India, G7 and BRICS
India, which is not an official member of the G7, has received invitations to attend the summit as an outreach member for nearly two decades. This year’s call should also be seen as a continuation of India’s priorities and commitments on issues related to developing economies that were presented at the G20 last year.
However, India’s participation in the G7 goes far beyond simply leading the “global south”. It points to the growing importance of New Delhi as the world’s soon-to-be third-largest economy, its integration into global supply and production chains, and its significance in coordinating financial policies that have global implications, from climate change to hunger index.
According to the latest IMF data for 2024, China with 4.6 percent and India with 6.8 percent are expected to maintain relatively high growth rates compared to most G7 countries. However, compared to 2023, growth has slowed in both China (0.6 percent) and India (1 percent).
On the other hand, three to four G7 countries are expected to grow faster in 2024. This is especially true for Germany, which is coming back from negative GDP growth of -0.3 percent in 2023. The eurozone also saw a boom. It has escaped recession despite all the economic challenges posed by the war in Ukraine and the trade war with China.
The total GDP of the G7 countries is about $47 trillion, at least $15 trillion more than that of the BRICS countries. China still dominates BRICS GDP, with its share more than double that of the other major economies. This forecast will not change much even after the expected expansion of the pool later this year. Economic coordination between New Delhi and platforms such as the BRICS is limited due to the dominance of Beijing and the Yuan in general.
While the drive among middle powers to engage in various forms of international cooperation suggests that economic multipolarity is here to stay in the world, the influence of the G7 in coordinating economic policies on a range of issues remains significant despite the rise of other groupings.
What makes the G7 important?
The G7’s coordination on key economic policies is often criticised for not being globally representative, and has a direct impact on the rest of the world, especially on the policies of the Organisation for Economic Co-operation and Development (OECD) and the G20.
The total GDP of the G7 countries is around $47 trillion, which is at least $15 trillion more than the BRICS countries. China still dominates the GDP of BRICS countries
For example, one of the recent decisions taken by the G7 was a “historic agreement” on the OECD’s proposal for a global minimum corporate tax of at least 15 percent. The move will significantly reduce tax-based competition among countries and apply a standard minimum tax rate based on a specific amount of corporate income worldwide. After the G7 agreed on the deal, it was approved at the G20 leaders’ summit in Rome in October 2021 and is likely to come into effect from 2024.
These reforms are important for large developing countries like India. Although companies will pay more taxes than the current Indian government cap, a steady flow of investments can still be ensured.
Announced during the G20 summit in New Delhi, the India-Middle East-Europe Corridor (IMEC), which aims to connect diverse geographic regions through multi-modal trade corridors, is rooted in the G7 initiative, Partnership for Global Infrastructure and Investment (PGII).
The initiative aims to develop a multimodal infrastructure by de-risking public and private investments while serving as an alternative to China’s ubiquitous Belt and Road Initiative. The currently ongoing 2024 G7 PGII meeting reaffirmed the commitment to develop connectivity by mobilizing $200 billion by 2027 as part of a broader G7 goal of $600 billion by 2024. None of this can become a reality without regular coordination with other countries in the developed world.
Finally, the G7 countries are responsible for providing a huge amount of humanitarian aid globally as well. In fact, the United States tops the list. G7 deliberations greatly influence the priority and volume of aid flows around the world, which directly impacts vulnerable economies.
The Ukraine Question
Ukraine, which has been at the top of the West’s agenda since 2022, has also been invited to the G7 summit. This year, there has been a notable development in the Western claim of support “as long as it is needed” and much to the consolation of Ukrainian President Volodymyr Zelensky.
The United States and Japan are due to enter into separate ten-year security agreements with Ukraine. In a sign of reconciliation between the positions of the United States and the European Union, G7 leaders reached a consensus on sending $50 billion in profits earned from frozen Russian assets to Kiev. Washington, D.C. had long considered seizing Russian assets outright, while Brussels, which owns more than half of the total frozen assets, preferred to use the profits earned from those assets. Brussels insists on this as a bargaining tool for favorable negotiations later.
Anyhow, this discussion started a new phase of debate about asset seizure in the international economy. The rest of the world will become wary of investing its foreign reserves in the dollar if it can be used as a weapon in case of geopolitical unrest. The West’s current reconciliation against asset seizure will go a long way in maintaining the dollar’s global dominance, which remains largely stable for now.
These decisions came in parallel with new US sanctions on Russia’s major MOEX exchange. The immediate consequences led to the ruble’s value falling from around 90 to 100 rubles per dollar to around 125. This situation forced the buying and selling of rubles to become opaque and arbitrary. Some Russian banks were reportedly buying dollars at 50 rubles and selling them at 200 rubles, even when the official rates were hovering around 90 rubles.
This has a direct impact on India.
The lack of real convertibility has been an unresolved problem that hinders rupee and ruble trading between New Delhi and Moscow. This problem is likely to be exacerbated by new capital controls imposed by the Russian Central Bank to stabilize the value of the ruble after the latest sanctions came into effect from mid-August.
