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Prabhat Patnaik is an Indian economist, writer and academic. His research interests cover a wide spectrum of economic issues, ranging from macroeconomics and development economics to international trade and finance. Patnaik's work is characterized by its commitment to addressing social and economic inequalities, advocating for the rights of the marginalized, and challenging prevailing economic orthodoxies.

For issue #44 we draw from, India and the G20: Legacy and Prospects for Multilateralism Amidst a Polycrisis (Yoda Press and CFA, 2023). In the foreword to this book, Patnaik explains how India's G20 Presidency offers an opportunity to address global economic challenges amid rising inflation and potential third-world debt crises.

India’s assumption of the Presidency of the G20 opens up immense possibilities for a democratic intervention in world economic affairs. What such an intervention should look like is discussed in the various papers brought together in this volume.

India’s Presidency is also occurring at a crucial moment in the history of the world economy. Inflation is currently raging everywhere, even in the advanced capitalist world, including the United States which has substantially raised its interest rates. The Federal Reserve Board has increased the Federal Funds Rate from 0.25 per cent on March 1, 2022, to as much as 4 per cent by the first week of November 2022; some expect it to be raised even higher, to a whopping 6 per cent in the near future.

This increase in rates has led to a flight of finance from the rest of the world to the US, notwithstanding the fact that other countries too have raised their interest rates along with the US, and because of this inflow of finance into the US, the dollar has appreciated vis-à-vis virtually all major currencies of the capitalist world with the exception of the Russian rouble. India for instance has not only raised its interest rates substantially to match the increase in US rates, but has even run down its foreign exchange reserves by over USD100 billion, or nearly a sixth of its total reserves, between March 1 and end-October; yet it has been unable to prevent a substantial depreciation of the rupee, by more than 10 per cent over this period.

There has been a good deal of discussion on the prospects of a global recession arising from this pervasive increase in interest rates, and the mass unemployment that this would give rise to. The generation of such mass unemployment however should cause no surprise, for unemployment is the main weapon that capitalism uses against inflation, as it both reduces excess demand pressures and also weakens the bargaining strength of the workers, because of which they are unable to defend themselves and thereby bring inflation to a halt.

For the third world, however, there is an additional danger looming large, namely, the near impossibility of servicing its current external debt. The hardships to the people that this can cause is illustrated by the example of Sri Lanka which till the other day was considered a ‘middle income country’. Therefore, for a large swathe of countries across the world, there is a real danger of their drowning under the burden of external debt.

There are a number of reasons why such a fate is imminent. First, we are entering a period when the availability of external finance for third world countries will be severely limited so that, let alone servicing external debt, even meeting current account deficits on the balance of payments will pose a severe problem. Second, with the rise in interest rates, whatever external finance does become available, whether from private or from official institutional sources, will be much more expensive than before, so that even if external debt is allowed to be rolled over, it will still entail a far heavier burden on the borrowing countries. Third, since the bulk of this debt is denominated in dollars, the depreciation of third world currencies vis-à-vis the dollar implies that the burden of debt in local currency will be greatly enhanced. The people will be saddled in effect with an even heavier debt-burden because of currency depreciation. Fourth, the impact of the world recession will mean that exports from the third world will suffer both in volume terms, and, in the case of primary commodities, also in terms of prices; this means that most third world countries will face the additional problem of a wider current account deficit, quite apart from the greater difficulty of financing such deficits. Therefore, most such countries are staring at the terrifying prospects of a real economic collapse.

The typical preoccupation in such a situation of the advanced capitalist world, and of institutions like the World Bank and the IMF dominated by them, is with the interests of the creditors, with how to ensure that they get back the money they had lent, or resources of an equivalent order of magnitude. To this end, debt renegotiations are carried out which impose draconian ‘austerity’ measures on these countries with seriously adverse implications for the lives of the common people, a fact illustrated by a host of cases, from Greece a few years ago to Sri Lanka and Pakistan today.

This approach however is both practically and ethically flawed. It is practically flawed because an economic collapse of several third world countries will simultaneously jeopardize the security and well-being of the advanced countries themselves; for a start, it will increase the scale of attempted immigration into the latter. It is also ethically flawed because while ‘getting one’s money back’ may be the dominant consideration within the existing rules of the game, these rules themselves are weighed heavily against the people of the third world. For instance, the exchange rate depreciation brought about by the whims of a bunch of financial speculators who cause an outflow of finance has the effect of raising a country’s debt-burden even in dollar terms, though it bears no responsibility for such a rise. There is little ethical justification for this.

India’s Presidency of the G20 gives it a unique opportunity to intervene on behalf of the third world, to act as a tribune of the third world people, and break with the purely commercial approach of ensuring that the lenders get their money back, even if in the process, millions are pushed into destitution.

The G20 till now has been a club of the advanced capitalist countries, even though some third world countries have got admission to this club. This was evident in 2008, for example, when the then President of the U.N. General Assembly, Father Miguel d’Escoto Brockmann of Nicaragua, had wanted, in the wake of the financial crisis, an international conference, with the participation of all the member states of the United Nations, to discuss and establish a new world economic order. But a G20 meeting convened shortly after Brockmann had set up a Commission to make recommendations on what such an order should look like, and scuttled his attempt, though Brockmann had the support of most of the third world countries. India’s Presidency of the G20 should be used to thwart advanced countries’ attempts to ride roughshod over the third world peoples’ interests.

The danger that currently threatens the people of the third world must be urgently assessed and steps taken to prevent it. To discuss what these steps should be, a Commission for discussing the problem of third world external debt and making recommendations on how to cope with it, must be set up forthwith. Such a Commission should not consist of the usual coterie of financiers, bureaucrats and Fund-Bank officials, but rather should have representation from eminent public intellectuals, including from the debtor countries themselves. India can use its Presidency of the G20 to move in this direction.


Excerpted with the permission of the publisher, Yoda Press.

India and the G20: Legacy and Prospects for Multilateralism Amidst a Polycrisis is edited by Sonal Raghuvanshi and co-published by Centre of Financial Accountability, Delhi.

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