India has expressed hope that the G20 summit would send the right signals by agreeing on a stimulus package to restore major economies back to normalcy so that the situation arising out of a global downturn does not deteriorate further.
It also feels that the first meeting of the G-20 leaders at the summit level would agree on the need for reforming the Brettonwoods institutions – World Bank and the IMF – and evolving a new financial architecture to take care of the needs of the developing and poor countries.
The action should be taken to mitigate the effects of the downturn and there should be no resort to protectionist policies as a panacea, it argues.
After a dinner hosted by US President George W Bush for the world leaders in Washington on the eve of the summit attended among others by Prime Minister Manmohan Singh, Deputy Chairman of the Planning Commission Montek Singh Ahluwalia said the idea of a stimulus package was before the leaders and if a coordinated fiscal stimulus package is arrived at the summit then that would be a substantial gain.
US President-elect Barack Obama, who is not attending the summit, may not be averse to it and it would not be a problem for the new Administration, he said.
He was replying to a query whether decisions that would come out of the meeting convened by a lame-duck President would be binding on the new government.
Ahluwalia, who is 'sherpa' of the Prime Minister in the discussions in the run-up to the summit, said the focus of the summit about a month ago was on the need for a new financial architecture but since then there has been a "deterioration" of the situation.
In fact, Ahluwalia said, "our focus now is the recession should be fought and there should be action to mitigate the downturn. The US is now projected to be in a deeper recession. What we are seeking for is coordinated steps.
"It is our view that if we are facing a serious crisis since the Great Depression (of the last century) then we need to take special unorthodox steps. If we had not taken the unorthodox steps like easing liquidity, then we would not be in a position to say that the real economy has been benefited. There is real urge to take a coordinated fiscal response."
The Planning Commission deputy chief said that while a new Administration would take charge soon in the US, the outgoing Administration was working in consulting with the transition team. "I expect there is no problem on the stimulus package" for the new Administration, he felt.
"I am reasonably hopeful that the communique (at the end of the summit on Saturday evening – Sunday morning IST) will send a signal that will be substantial for the world at large" in this exceptionally difficult situation, he said.
Ahluwalia, however, said stimulus package is a sovereign decision each country has to take and the summit cannot direct any country.
Ahluwalia noted that India has consistently said the recent crisis did not originate in developing countries but started in the US and rapidly spread to Europe.
The worst affected will the developing countries and the global efforts should not get restricted till normalcy returns, he said. The developed countries should take steps for the return of normalcy to help the developing countries.
He said reforms of governance were needed in the international financial institutions and that should cover the voting rights of the members.
The voting rights were fixed long back and they should now reflect the changing realities, Ahluwalia said adding he did not think there were any clear indications at the moment.
He said one of the weaknesses in the system was inadequate and lack of norms, regulation and risk management that led to the collapse of the financial institutions and added that there was a need for regulation and prudential system that the leaders were looking at.