47TH G7 SUMMIT

Context

  • Recently, the United Kingdom has invited Prime Minister of India to attend the G7 summit that is scheduled to be held in June 2021.
  • The 46th G7 Summit was postponed by US.

Significance of G7 for India

  • As current president of Brazil-Russia-India-China-South Africa (BRICS) and G20 president in 2023, India will play a key role driving in multilateral cooperation helping to build back better around the world.
    • Build Back Better World (B3W) is an initiative undertaken by G7 countries. Launched in June 2021, the initiative is designed to provide an alternative to China’s Belt and Road Initiative (BRI) for the infrastructure development of low- and middle-income countries.
    • The initiative builds on the Blue Dot Network, a collaboration that aims to build a global network through lending-based financing to build roads, bridges, airports, ports, power plants.
    • The B3W efforts are in line with the standards and principles of the Blue Dot Network (BDN), relating to the environment and climate, labor and social safeguards, financing, construction, anticorruption, and other areas.
  • India will get more voice, more influence, and more power by entering the G7.
  • After the UN Security Council (UNSC), this is the most influential grouping.
  • If the group is expanded it will collectively address the humongous issues created by the Wuhan virus.
  • India has attended several G7 summits earlier, as a special invitee for its outreach sessions. This should hold down China’s objection to an expanded G7.
  • Diplomatically, a seat at the high table could help India further its security and foreign policy interests, especially at the nuclear club and UN Security Council reform as well as protecting its interests in the Indian Ocean.

Back to Basics

The Group of 7

  • The G-7 or ‘Group of Seven’ are Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.
  • It is an intergovernmental organisation that was formed in 1975 by the top economies of the time as an informal forum to discuss pressing world issues.
  • Canada joined the group in 1976, and the European Union began attending in 1977.
  • Initially formed as an effort by the US and its allies to discuss economic issues, the G-7 forum has deliberated about several challenges over the decades, such as the oil crashes of the 1970s, the economic changeover of ex-Soviet bloc nations, and many pressing issues such as financial crises, terrorism, arms control, and drug trafficking.
  • The G-7 was known as the ‘G-8’ for several years after the original seven were joined by Russia in 1997.
  • The Group returned to being called G-7 after Russia was expelled as a member in 2014 following the latter’s annexation of the Crimea region of Ukraine.
  • The G-7 does not have a formal constitution or a fixed headquarters. The decisions taken by leaders during annual summits are non-binding. The rise of India, China, and Brazil over the past few decades has reduced the G-7’s relevance, whose share in global GDP has now fallen to around 40%.

How the G-7 summit works

  • The G-7 nations meet at annual summits that are presided over by leaders of member countries on a rotational basis. The summit is an informal gathering that lasts two days, in which leaders of member countries discuss a wide range of global issues. The host country typically gets to invite dignitaries from outside the G-7 to attend the Summit.
  • The groundwork for the summit, including matters to be discussed and follow-up meetings, is done by the “sherpas”, who are generally personal representatives or members of diplomatic staff such as ambassadors. The sherpa for Prime Minister Modi at last year’s summit was former Union Minister Suresh Prabhu.

G-7 Challenges

  • Internally the G7 has a number of disagreements, e.g. clash of the USA with other members over taxes on imports and action on climate change.
  • The organisation has also been criticised for not reflecting the current state of global politics or economics.
  • There are no G7 members from Africa, Latin America or the southern hemisphere.
  • It is also facing a challenge from fast-growing emerging economies, like India and Brazil are not members of the G7.
  • However, G-20 was formed in 1999, in response to a felt need to bring more countries on board to address global economic concerns.

G-7 and G-20

  • The G-20 is a larger group of countries, which also includes G7 members. The G-20 was formed in 1999, in response to a felt need to bring more countries on board to address global economic concerns.
  • Apart from the G-7 countries, the G-20 comprises Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea, and Turkey.
  • Together, the G-20 countries make up around 80% of the world’s economy. As opposed to the G-7, which discusses a broad range of issues, deliberations at the G-20 are confined to those concerning the global economy and financial markets. India is slated to host a G-20 summit in 2023.

 

BUILD BACK BETTER WORLD INITIATIVE

Context

·         Recently, Build Back Better World Initiative or B3W is an initiative has been undertaken by G7 countries.

About Build Back Better World Initiative

  • The Build Back Better World Initiative initiative is designed to counter China’s strategic influence by providing an alternative to the Belt and Road Initiative for the infrastructural development of the low- and middle-income countries.
  • Led by the United States, the G7 countries will provide around $40 trillion to the developing countries by 2035 under the plan.
  • The B3W blueprint envisages actions in four key areas: climate, health and health security, digital technology, and gender equity and equality.
  • However, additional details as to what the plan entails and what is the funding that developing countries can count on were not immediately available.
  • The new infrastructure plan is recognition of the growing challenge mounted by Beijing’s Belt and Road Initiative, a mammoth infrastructure project, with the most ambitious being the China-Pakistan Economic Corridor (CPEC), linking China’s Xinjiang province with the Arabian Sea.
  • B3W will be global in scope, from Latin America and the Caribbean to Africa to the Indo-Pacific. Different G7 partners will have different geographic orientations, but the sum of the initiative will cover low- and middle-income countries across the world.
  • As a lead partner in B3W, the United States will seek to mobilize the full potential of our development finance tools, including the Development Finance Corporation, USAID, EXIM, the Millennium Challenge Corporation, and the U.S. Trade and Development Agency, and complementary bodies such as the Transaction Advisory Fund.
  • Guiding principles of Build Back Better World Initiative:
    • Values-Driven
    • Good Governance and Strong Standards
    • Climate-Friendly
    • Strong Strategic Partnerships
    • Mobilize Private Capital Through Development Finance
    • Enhancing the Impact of Multilateral Public Finance

Back to Basics

Group of Seven (G7)

  • It is an intergovernmental organisation that was formed in 1975.
  • The bloc meets annually to discuss issues of common interest like global economic governance, international security and energy policy.
  • The G7 countries are the UK, Canada, France, Germany, Italy, Japan and the US.
    • All the G7 countries and India are a part of G20.
  • The G7 does not have a formal constitution or a fixed headquarters. The decisions taken by leaders during annual summits are non-binding.

WHAT THE G7 CORPORATE TAX DEAL MEANS FOR INDIA

Context

·         Recently, advanced economies making up the G7 grouping have reached a “historic” corporate tax deal on taxing multinational companies. 

Key Details G7 corporate tax deal 

  • The first decision that has been ratified is to force multinationals to pay taxes where they operate.
  • They also agreed in principle to ratify a global minimum corporate tax rate of 15% to counter the possibility of countries undercutting each other to attract investments.
  • The G7 commit to reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20% of profit exceeding a 10% margin for the largest and most profitable multinational enterprises.
  • The deal will provide for appropriate coordination between the application of the new international tax rules and the removal of all Digital Services Taxes.

What is G7 corporate tax deal?

  • The finance ministers meeting in London agreed to counter tax avoidance through measures to make companies pay in the countries where they do business.
  • They also agreed in principle to ratify a global minimum corporate tax rate to counter the possibility of countries undercutting each other to attract investments.
  • The deal announced involving the US, the UK, Germany, France, Canada, Italy and Japan, is likely to be put before a G20 meeting in July.

Why the minimum rate?

  • The decision to ratify a 15% floor rate follows from a declaration of war on low-tax jurisdictions around the globe announced by US Treasury Secretary.
    • She had urged the world’s 20 advanced nations to move in the direction of adopting a minimum global corporate income tax.
  • The move to put a minimum rate in place attempted to reverse a “30-year race to the bottom” in which countries have resorted to slashing corporate tax rates to attract multinational corporations.

Who are the targets?

  • Apart from low-tax jurisdictions, the proposal for a minimum corporate tax are tailored to address the low effective rates of tax shelled out by some of the world’s biggest corporations, including digital giants such as Apple, Alphabet and Facebook, as well as major corporations such as Nike and Starbucks.

Concerns associated with G7 corporate tax deal

  • It impinges on the right of the sovereign to decide a nation’s tax policy apart from the challenges of getting all major nations on the same page.
  • A global minimum rate would essentially take away a tool that countries use to push policies that suit them.
  • The IMF and World Bank data suggest that developing countries with less ability to offer mega stimulus packages may experience a longer economic hangover than developed nations.
  • A lower tax rate is a tool they can use to alternatively push economic activity and a global minimum tax rate will do little to tackle tax evasion.

India’s stand on G7 corporate tax deal

  • In 2019, the finance minister announced a sharp cut in corporate taxes for domestic companies to 22% and for new domestic manufacturing companies to 15%.
  • The Taxation Laws (Amendment) Act, 2019 resulted in the insertion of a section (115BAA) to the Income-Tax Act, 1961.
    • It aims to provide for the concessional tax rate of 22% for existing domestic companies subject to certain conditions including that they do not avail of any specified incentive or deductions.
  • The cuts effectively brought India’s headline corporate tax rate broadlyat par with the average 23% rate in Asian countries.

Back to Basics

About G7

  • The G7 (Group of Seven) is an organisation made up of the world’s seven largest so-called advanced economies. They are Canada, France, Germany, Italy, Japan, the UK and the United States.
  • Russia joined in 1998, creating the “G8”, but was excluded in 2014 for its takeover of Crimea.
  • The G-7 was known as the ‘G-8’ for several years after the original seven were joined by Russia in 1997. The Group returned to being called G-7 after Russia was expelled as a member in 2014 following the latter’s annexation of the Crimea region of Ukraine.
  • China has never been a member, despite its large economy and having the world’s biggest population. Its relatively low level of wealth per person means it is not seen as an advanced economy in the way the G7 members are.
  • The G7 represents 58% of the global net wealth ($317 trillion), more than 46% of the global gross domestic product (GDP) based on nominal values, more than 32% of the global GDP based on purchasing power parity and 10% of the world’s population. 

What does the G7 do?

  • The G7 was formed initially to discuss economic and political concerns prompted by the 1973 oil crisis – when members of OPEC, the Organization of Petroleum Export Countries, increased the price of oil and cut global supplies to countries seen as having backed Israel in the Yom Kippur War.
  • Since then, the group has expanded its brief to cover a large number of international issues, including energy security, trade, climate change, global health issues, gender equality, poverty – and any other topic the country holding the G7 presidency chooses to put on the agenda.

Key Developments

  • In 1997, the G7 countries agreed to provide $300 million to the effort to contain the effects of the reactor meltdown in Chernobyl.
  • At the 2002 summit, members decided to launch a coordinated response to fight the threat of AIDS, Tuberculosis and Malaria. Their efforts led to the formation of the Global Fund, an innovative financing mechanism that has disbursed more than $45 billion in aid.
  • More recently, the Global Apollo Program was launched out of the 2015 G7 summit meeting.
    • Designed to tackle climate change through clean energy research and development, the Apollo Program was conceived by the UK but failed to generate traction until the other G7 countries agreed to support it.
    • The programme calls for developed nations to commit to spending 0.02% of their GDP on tackling climate change from 2015 to 2025; an amount that would total USD 150 billion over a 10-year period.

Member facts

  • 7 of the 9 top-ranked advanced economies with the current largest GDP and with the highest national wealth (United States, Japan, Germany, UK, France, Italy, Canada).
  • 7 of the 15 top-ranked countries with the highest net wealth per capita (United States, France, Japan, United Kingdom, Italy, Canada, Germany).
  • 7 of 10 top-ranked leading export countries.
  • 5 of 10 top-ranked countries with the largest gold reserves (United States, Germany, Italy, France, Japan).
  • 7 of 10 top-ranked economies (by nominal GDP), according to latest (2016 data) International Monetary Fund’s statistics.
  • 4 countries with a nominal GDP per capita above US$40,000 (United States, Canada, Germany, Japan).
  • 4 countries with a sovereign wealth fund, administered by either a national or a state/provincial government (United States, France, Canada, Italy).
  • 7 of 30 top-ranked nations with large amounts of foreign-exchange reserves in their central banks.
  • 3 out of 9 countries having nuclear weapons (France, UK, United States), plus 2 countries that have nuclear weapon sharing programs (Germany, Italy).
  • all 5 of the members of the NATO Quint (U.S., U.K., France, Germany, Italy) and Canada is also member of Five Eyes intelligence gathering body with U.S. and U.K.
  • 6 of the 9 largest nuclear energy producers (United States, France, Japan, Germany, Canada, UK), although Germany announced in 2011 that it will close all of its nuclear power plants by 2022. Following the 2011 Tōhoku earthquake and tsunami, Japan shut down all of its nuclear reactors. However, Japan restarted several nuclear reactors, with the refueling of other reactors underway.
  • 7 of the 10 top donors to the UN budget for the 2016 annual fiscal year.
  • 5 countries with an HDI for 2018 of 0.9 and higher (United States, Germany, United Kingdom, Canada, Japan).
  • 2 countries with the highest credit rating from Standard & Poor’s, Fitch, and Moody’s at the same time (Canada and Germany).
  • 3 countries are constitutional monarchies (United Kingdom, Canada, Japan), 2 are presidential or semi-presidential republics (France, United States) and 2 are parliamentary republics (Germany and Italy).
  • 4 countries are located in Europe (France, Germany, Italy, United Kingdom), 2 in North America (Canada, United States) and 1 in Asia (Japan).

The G7 fill out numerous global top lists:

  • Leading export countries
  • Largest gold reserves
  • Largest nuclear energy producers
  • Top contributors to the UN budget

Criticism and Controversy

  • ·         Until the mid-1980s, G7 meetings were held discreetly and informally. However, after discussions at a G7 summit in 1985, member countries subsequently signed the Plaza Accords, an agreement that had major ramifications for global currency markets. Their actions caused strong international backlash, with other nations upset by the fact that a meeting between a small group of countries could have such a disproportionate effect on the world economy.
  • ·         2014 suspension and subsequent exclusion of Russia
  • ·         About 7,500 protesters led by the group ‘Stop-G7’ demonstrated during the summit during 2015 Summit
  • ·         2018 Trump conflict over tariffs and Russia
  • ·         2019 Amazon rainforest fires and Brazil

Economic circumstances

  • ·         When constituted, the G7 countries accounted for close to two-thirds of global GDP. According to the 2017 report of the accountancy firm, PwC, “The World in 2050”, they now account for less than a third of global GDP on a purchasing power parity (PPP) basis, and less than half on market exchange rates (MER) basis.
  • ·         The seven largest emerging economies (E7, or “Emerging 7”), comprising Brazil, China, India, Indonesia, Mexico, Russia and Turkey, account for over a third of global GDP on purchasing power parity (PPP) terms, and over a quarter on MER basis.
  • ·         India’s economy is already the third largest in the world in PPP terms, even if way behind that of the U.S. and China.
  • ·         By 2050, the PwC Report predicts, six of the seven of the world’s best performing economies will be China, India, the United States, Indonesia, Brazil, and Russia. Two other E7 countries, Mexico and Turkey, also improve their position.
  • ·         It projects that India’s GDP will increase to $17 trillion in 2030 and $42 trillion in 2050 in PPP terms, in second place after China, just ahead of the United States.

The limitations of G7

  • The G-7 does not have a formal constitution or a fixed headquarters. The decisions taken by leaders during annual summits are non-binding. The rise of India, China, and Brazil over the past few decades has reduced the G-7’s relevance, whose share in global GDP has now fallen to around 40%.
  • The G7 failed to head off the economic downturn of 2007-08, which led to the rise of the G20.
  • The G7 has not covered itself with glory with respect to contemporary issues, such as the COVID-19 pandemic, climate change, the challenge of the Daesh, and the crisis of state collapse in West Asia.
  • It had announced its members would phase out all fossil fuels and subsidies, but has not so far announced any plan of action to do so.
  • The G7 countries account for 59% of historic global CO2 emissions (“from 1850 to 2010”), and their coal fired plants emit “twice more CO2 than those of the entire African continent”.

Need for a new institution

  • The world is in a state of disorder. The global economy has stalled and COVID-19 will inevitably create widespread distress.
  • Nations need dexterity and resilience to cope with the current flux, as also a revival of multilateralism. 
  • A new international mechanism will have value only if it focuses on key global issues.
    • India would be vitally interested in three: international trade, climate change, and the COVID-19 crisis.
    • India would be cross-cutting issues such as counter-terrorism and counter-proliferation.
      • An immediate concern is to ensure effective implementation of the 1975 Biological Weapons Convention and the prevention of any possible cheating by its state parties by the possible creation of new microorganisms or viruses by using recombinant technologies.
    • On regional issues
      • Establishing a modus vivendi with Iran would be important to ensure that it does not acquire nuclear weapons
      • Able to contribute to peace and stability in Afghanistan, the Gulf and West Asia. The end state in Afghanistan would also be of interest to India
      • Reduction of tensions in the Korean Peninsula and the South China Sea.

Conclusion

  • If the G-7 wants to truly exercise more leadership, it will have to convince the world that all its wonderful new principles, resilience, inclusion, global public goods, are not simply ruses to serve only the interests of the developed world.
  • Looking east and mobilising the south have been India’s default political orientations all these decades. While Delhi continues to strengthen its partnerships in Asia and the global south, a more productive partnership with the West helps secure a growing array of India’s national interests and adds a new depth to India’s international relations.

The G7 and G20 in the global governance landscape | Heinrich Böll Stiftung