The G20 outlook

The G20 heads of state and government meet in India today, but the hopes of bilateral talks by Western leaders with President Xi of China have been dashed despite considerable diplomatic efforts.

| 6 min read

The G20 will not have the same interest without a fully participating President Xi. Attention will be on President Biden as he seeks to improve US links with India and Vietnam and reassures the anti-China arc of countries in Asia of US support. Russia’s President Putin will also be absent from the proceedings. Instead, and as with the BRICS conference, Russia will be represented by its Foreign Secretary. With Russia and China represented at the meeting there is unlikely to be agreement on the Ukraine war or on the trade issues that divide the Chinese bloc from the US-led grouping.

The leaders of Bangladesh, Egypt, Mauritius, the Netherlands, Nigeria, Oman, Singapore, Spain and the UAE are also invited, along with both the President of the Council and the President of the Commission from the EU.

President Biden will arrive on the 7th and have a bilateral meeting with Indian Prime Minister Modi on the 8th. Under a slogan of “One earth, one family, one future”, the leaders will try to lay aside their differences and agree a common message. India seeks “just and equitable growth for all in the world, as we navigate through these turbulent times in a sustainable, holistic, responsible and inclusive manner “. The theme stresses the value of all life on the planet and its interconnections. India wants to see significant decisions influencing the world economy and climate change.

India is seeking inclusive growth, digital innovation, climate resilience and equitable health access. Mr Modi launched Startup 20 during his Presidency of the group to stimulate start-ups and growth in smaller companies. India has developed the environmental agenda, pledging to arrest land degradation, accelerating ecosystem restoration and enriching biodiversity. Mr Modi wishes to move from depending on Western advice and technology to demonstrating Indian capabilities in important fields. Brazil will take on the Presidency for next year and will probably wish to strengthen the workstreams on equality, development, and investment in the emerging world.

China sends an unwelcome message on borders

Meanwhile, China has released a map showing Arunachal Pradesh as being within China’s borders which India disputes. Declared an Indian state in 1987 it was contested when called the North-East Frontier Agency from 1954 and lay behind the 1962 Sino-Indian war. The map also laid claim to disputed parts of the South China Sea extending the nine-dash line around various islands including Taiwan. The Spratly and Paracel Islands remain in dispute. This was clearly a deliberate provocation to India, Malaysia, the Philippines and Vietnam as well as to Taiwan. China wants the world to be talking about its expansion plans ahead of the G20. There is even a jab at Russia on the map in a dispute over an island in the Amur River. China has cooled on her close partnership with Russia given the problems posed by the Ukraine war, where China urges a negotiated settlement.

India will use the platform to project its ambitions

Mr Modi is ambitious for his country. He has remained popular, has presided over substantial economic growth, and will enjoy hosting the G20 meeting of heads of state and government from countries accounting for 85% of world output and two thirds of the world’s population. His recent successes include the well-publicised landing of an Indian spaceship on the moon and helping to craft a deal over new members for the BRICS club of developing economies. India is an emerging nation which can be an alternative to investing in China for portfolios that can take the risks. Those looking for exposure to faster-growing big economies with plenty of scope to build large profitable companies will consider it and its valuation. With the Sensex index of Indian shares at 24 times the earnings of quoted Indian companies it is not cheap, but it has commanded a premium for some time in anticipation of superior growth. India does not come with the same problematic governance issues an autocratic China poses to those taking the wider moral issues in investing seriously.

India’s economy is forecast by its Central Bank to grow 6.5% this financial year and 6.6% next. Second Quarter 2023 growth was an annualised 7.8%. The economy is now the fifth largest in the world, measured at $3.385 trillion last year. Given the size of the population at 1.4 bn it is well placed to make further advances, in due course challenging the economic size of Germany and Japan. Inflation rose swiftly to 7.44% in July reflecting a surge in food prices. Food is 45% of the Consumer Price Index and was affected by variable rainfall levels around the country and a surge in prices of some homegrown products. The Central Bank expects inflation to average 5.4% in the current year, just within its target range of 2-6%. It has hiked interest rates from 4% in April 2022 to 6.5% today to signal the need to restrain price rises. India has a fast-growing middle class, rising standards of educational achievement and substantial investment in infrastructure and industry.

Mr Modi retains high personal poll ratings ahead of the April to May 2024 general election.

World markets have got used to Mr Modi’s approach to government which is sufficiently pro-investment and business to avoid major tensions. Billed as a reformer he has found it difficult to change quickly given India’s bureaucracy and entrenched interests. He has imposed a new India-wide sales tax to streamline a complex system of state-by-state taxation, has driven through infrastructure improvements, liberalised some sectors for inward investment and increased the use of bank accounts by reforming the cash-based system.

At home, Mr Modi retains high personal poll ratings ahead of the April to May 2024 general election. His core Hindu nationalist supporters remain enthusiastic and are keen to rename their country Bharat to distance it more from its past under the Raj. The alliance of opposition parties calling themselves India as a contrast to the Hindu nationalist position are still well behind Modi’s party in the opinion polls.

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The G20 outlook

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