G20 and its Significance – Explained, pointwise

India is set to host the 18th G20 summit in September 2023 at the Bharat Mandapam International Exhibition-Convention Centre (IECC) New Delhi. This is the first G20 summit to be held in India as well as in South Asia.

The 18th G20 Summit in New Delhi will be a culmination of all the G20 processes and meetings held throughout the year among ministers, senior officials, and civil societies. These meetings were held in different cities of India to showcase India’s cultural and regional diversity at a global stage.

Read More- From Magna Carta to Ashtadhyayi: artefacts to grace G-20 corridor

What is G-20?

The G20 or Group of 20 is an intergovernmental forum comprising 19 countries and the European Union (EU). It works to address major issues related to the global economy, such as international financial stability, climate change mitigation and sustainable development.

Members of G-20-The Group of G20 (G20) comprises Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, United Kingdom, the United States and the European Union.

Countries in light blue are represented through the membership of the EU.

In addition to these member countries, the G20 each year invites guest countries and international organisations such as the United Nations, World Bank, IMF, OECD, ASEAN etc. to participate in its meetings.

 Features of G-20-

These members account for around 85% of the world GDP, 75% of the total international trade and two-thirds of the global population.

The G20 is composed of most of the world’s largest economies including both industrialised and developing nations.

Structure of G-20

G-20 does not have a charter or secretariat-The G-20 presidency is supported by the Troika, which includes the previous, current, and incoming presidencies. The G20 Presidency hosts the Summit and directs the agenda for a calendar year.

     Troika of G-20

Objectives of G-20- Following are the objectives of G-20:

(a) Policy coordination between its members in order to achieve global economic stability, sustainable growth

(b) Promote financial regulations that reduce risks and prevent future financial crises

(c) Create a new international financial architecture.   

(d) Develop common vision to tackle challenges like climate change, environment sustainability, corruption and energy crisis.

What is the importance/significance of G-20?

Geopolitical Significance

Greater representation to developing countries-It is a more representative grouping in comparison to groupings like G7 which comprised only industrialized economies and ignored the interests of the global south.

Global balance of power-G20 promotes a more equitable distribution of power among developed and developing countries than the earlier formed blocs such as G-7 and P-5 (UNSC) which helps to maintain a balance of power at the global level.

Opportunity to undertake bilateral meetings-It offers an opportunity to undertake bilateral or trilateral meetings with leaders of 20 countries on the sidelines of G20 summits. E.g., Indonesia G-20 provided meeting for India-China summit.

Bringing adversaries on a common platform- The importance of the G20 lies in its ability to bring together countries with different ideologies, political systems, and economic interests onto a common platform to discuss and address global economic issues. E.g.- India & China, US & Russia.

Economic Significance

More economic heft as a grouping-While the share of G7 countries in the global economy has been falling, G20’s share has been largely consistent. The group carries more economic heft and hence it’s discussions on financial and macro-economic policies influence the decisions of Bretton Woods institutions.

Source: Council on Foreign Relations

Tackling financial crises effecting global economy- G20 has played a critical role in responding to economic crises such as the 2008 global financial crisis, the Eurozone debt crisis, and the COVID-19 pandemic.

Economic relief during recession induced due to COVID– G20 countries agreed to suspend debt payments owed to them by some of the world’s poorest countries providing billions of dollars in relief to countries during COVID-19.

Social Significance

Widening areas of cooperation: The agenda of the G20 has been expanding from a broad macroeconomic policy to more socio-environment area of cooperation.

Addressing climate change: G20 has recognised the threat of climate change and has taken some initiatives to address it in the field of energy efficiency and renewables; adoption of advanced and clean technologies; resilient infrastructure; tackling environmental challenges like biodiversity loss; adoption of the Circular Carbon Economy etc.

Vaccination during COVID-19- G20 leaders pledged to help vaccinate 70% of the world’s population by mid-2022.

 What are the Challenges faced by G-20?

Structural Challenges

Informal structure of G20- G-20 has no permanent secretariat. The agenda changes every year according to the priorities of the presiding nation. According to critics G20 basically is an extension of the G7.

Limited membership-The G20 only includes 19 countries and the European Union which means that other important economies like the African Union (AU) are not included. Expanding the membership could help to ensure that the group is more representative of the global economy.

Non-binding decisions – Member countries are not legally bound to implement the decisions made at G20 meetings. For example, the G20 countries had agreed to a set of guidelines for preventing the financing of terrorism but there is no mechanism to enforce compliance with these guidelines. G20 declarations are not legally binding.

Geopolitical Challenges

Rising Geopolitical Rifts – The world economy is struggling with geopolitical rifts such as the tensions between the US and China the two biggest economies in the world, the decline in trade between the UK and the euro area in the wake of the Brexit decision and sanctions on Russia.

Russia-Ukraine Crisis – This is currently the biggest roadblock impairing functioning as the U.S and its allies are not willing to sit on the same table with Russia and its allies. This may cause a severe stalemate in the grouping’s functioning and impair its progress.

Influences decision-making of smaller countries- The smaller countries have to implement the declarations and commitments agreed by G20 nations for their growth. E.g., the G20 nations agreed to end international financing for coal power plants. So, a small nation cannot get any finance from G20 nations for a new coal power plant and must use its own limited financial resources or phase out coal and look for other alternatives.

Under representation of Africa- None of the African nations is a member of the G20 except for South Africa.

Economic Challenges

Rising Protectionism: G-20 is facing a credibility crisis due to deglobalisation and rising protectionism. Countries around the world are choosing to be ‘G-zero’ over the G7, G20, BRICS, P5 (UNSC Permanent Members) and others.

Slowing down of Major Economies of G-20- China, one of the major engines for global growth, is witnessing a sharp slowdown as it struggles with a real estate crisis. US and UK are also facing recession.

Rising Inflation-In response to high inflation central banks across countries have raised interest rates which in turn have dampened economic activity further.

Read More- Multilateral reforms as a priority in the G-20

What should be the way forward for G-20 group?

Formalization of G20 – The G20 must include objectives, vision and mission statements, a permanent secretariat and staff to oversee commitments and ensure continuity in the agenda.

Make it more representative – G20 must make itself more representative by expanding membership. It must include African Union (AU).

Tax rate rationalisation to avoid protectionism-Rationalizing the direct-indirect tax structure in member nations and ensuring a parity in credit requirements shall ensure a more competitive market structure with easier entry and exit of firms

Bridging powers between the East and West-G-20 can act as bridging powers between the East and West. The global economic disruption caused by Western economic sanctions and the ongoing boycott of Russia in global economic forums need initiatives from the countries like India, Indonesia and South Africa in G-20. This will bridge out the differences.

Focus more on domestic commitments- G20 Nations should phase out domestic coal consumption. This will create a significant impact as G20 nations represent more than 75% of the world’s greenhouse gas emissions

Global Financial Transaction Tax which was a consideration by the G20 in 2011 needs to be revived which can be used to fund green technology projects in Least Developed Countries.

Public health should be made a key agenda especially after the deadly impact of COVID-19.

Read More- The G-20 can be the UN Security Council alternative