India took the G20 to task today when the Prime Minister, Dr Manmohan Singh, told the Plenary that the G20 agenda “is getting over burdened. We need to refocus on a few goals rather than dissipating energies on too many fronts.”

He also announced that India would contribute $10 billion to the IMF’s additional firewall of $430 billion meant for the Euro Zone.

“The International Monetary Fund has a critical supportive role to play in stabilising the Euro Zone. All members must help the Fund to play this role,” he said.

Dr Singh strongly emphasised the need to provide liquidity to European banks without neglecting issues of solvency.

“A crisis in the European banking system can choke trade finance quite quickly, and end up choking economic growth not just in the Euro Zone but in the world in general,” he said.

The G20, he told the gathered leaders whose countries account for 80 per cent of global GDP, had to send “a strong signal to the markets that the Euro Zone countries will make every effort to protect the banking system and the global community will back a credible Euro Zone effort and response.”

But Europe would have to do its bit, too he said.

The Prime Minister, perhaps relishing the reversal of roles in the sermonising by Europe to developing countries, rubbed in the message saying “… liquidity must be provided in parallel with effective adjustment programmes that ensure an early return to debt sustainability’’.

‘Effective adjustment’

But “effective adjustment” also means austerity, which means lower growth. So the Prime Minister said austerity alone would not solve the European sovereign debt problem.

“Financial markets normally favour austerity, but even they are beginning to recognise that austerity with no growth will not produce a return to a sustainable debt position,” he said.

Then Dr Singh delivered a pointed message to Germany. “Austerity in the debt-ridden members of the Euro Zone can work only if surplus members are willing to expand to offset contraction elsewhere in the currency area.”

He then told the Plenary that while it was necessary to solve rich country problems. “The less developed and developing countries are also facing serious problems because of the negative impact of the global crisis. Infrastructure investment in developing countries assumes special importance in this context.”

For this, he said they need long-term capital and that the multilateral development banks could play a major role in this context.

“We now need to take steps to substantially expand the resource base of multilateral development banks so that they have the firepower to help developing countries pursue their development goals.”

Excerpt from speech

“Like other emerging economies, India too has slowed down. Internal constraints have also affected performance and we are working to correct them… The fundamentals of the Indian economy remain strong…We are taking steps to revive investor sentiment…Like other countries, we too allowed the fiscal deficit to expand after 2008 to impart a stimulus. We are now focussing on reversing the expansion. This will require tough decisions, including on controlling subsidies, which we are determined to take.’’

The World Bank President, Mr Robert Zoellick, is belived to have said at the G20 Summit that, as far conditionalities were concerned, Europe was getting away far more lightly than many developing countries had done. Senior government officials confirmed this.

The general view of BRICS is that the developing countries would have used the money for the creation of real assets than merely reduce the extent of the haircut that European banks need to take.

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