The G20 meet presents a huge opportunity for India to use inputs from other members to address issues. 

The agenda for the ensuing G20 meeting to be held this June in Mexico perfectly aligns with the areas in which India's performance has been lagging. The meeting, thus, presents a huge opportunity for India to use inputs from other members and raise the quality of debate on how to address those issues.

 This article outlines discussion points, presents evidence and perspectives on India's current performance, and then discusses related scope for improvement, if any.

 Achieving economic stability through reduced unemployment: The rate of unemployment in India was 11 per cent, as of 2011.

This compares to the G20 average rate of 8.3 per cent, based on the most recent unemployment statistics available for each country. Only South Africa has a significantly higher unemployment rate (24 per cent) than India in the group.

 Most of the G20 countries use unemployment statistics, updated at regular intervals, for formulating macro economic policies related to economic stability.

The US, for instance, provides unemployment data at quarterly intervals in the form of non-farm payrolls, real earnings, metro area unemployment and state-wise employment.

 Our country collects this data only once every five years. India can possibly use this meeting to understand how to effectively collect this vital data more frequently, and use it for policy implementation.

  Ensuring financial inclusion: India's efforts at financial inclusion have seen many initiatives ranging from priority sector lending by banks to microfinance provided by the private sector. Among recent initiatives towards financial inclusion is the push for banks to offer no-frills accounts and the diktat asking banks to ensure that all Indian households have at least one bank account.

However, these schemes have mainly focused on providing an account to every household. This is perhaps just one small component of the larger agenda on financial inclusion. 

Terms of lending, such as the need for collateral to obtain a loan, has excluded many households from gaining access to funds. The microfinance finance segment routed through the private sector has been mired in controversy, after severe setbacks in Andhra Pradesh.

 Ideally, the vital components of inclusion stressed by the Reserve Bank of India in a recent speech, would consist of ease of access to funds, particularly to vulnerable population, affordable cost of obtaining funds, and transparency in the process of fund disbursement.

These objectives have not been met to a large extent by the above initiatives. In fact, India ranks 50 among 100 nations, according to a world-wide survey that measures financial inclusion with respect to the extent of bank penetration.

In this regard, India can probably learn from the host nation, Mexico, which features in the top 10 countries in effective micro-finance management, on policies to encourage microfinance.

Enhancing international financial coordination: International financial coordination has been an agenda in almost all of the G20 meetings. This aspect includes information-sharing across nations as well as periodically assessing systematic risk in the financial and banking sector to ensure financial stability.

Several indicator variables are used by the G20 members to measure the respective countries' performance on this front. Broadly, these indicators reflect the liquidity and capital adequacy situation of banks.

 Based on the profitability indicators, Indian banks' return on assets has declined since 2009. Most other countries have improved on this parameter.

Our country's banks also fall in the middle of the pack, with respect to performance in return on equity and interest margin to gross income.

Mexico, Brazil, China and the US have been on top of the list of countries based on all these three criteria.

 Regarding bank's capital risk exposure, Indian bank's performance in Regulatory Capital to Risk-Weighted Assets deteriorated since 2009 along with eight other countries. Performance in Regulatory Tier-1 Capital to Risk-Weighted Assets remained stable since 2009 alongside Australia.

 Nine countries in the pack either performed better or maintained their performances since 2009 on both of these measures.

 While India's recent FDI flows have been healthy, there is concern about their sustainability, given the lack of policy enablers in recent times.

With regard to effectively attracting and managing funds, India could get inputs from a country such as Australia. The country has the fourth largest pool of investment funds in the world, standing at $1,200 billion, while India's number is $130 billion.

 Ameliorating price volatility: The stubborn inflation in the last several months has raised serious questions on the country's ability to tackle inflation and manage price volatility.

Price rise has persisted despite successive rate hikes by the central bank. Brazil and Mexico could be countries that India could turn to in this regard — the countries have been able to achieve much lower rates of inflation than India, and maintain reasonably high economic growth rates.

 Framing policies on infrastructure, energy efficiency, and green growth: India has been fraught with supply-side constraints because of infrastructural bottlenecks.

The huge detraction in potential investment owing to poor infrastructural management, both in quality and quantity, is well-documented.

India significantly lags behind most other G20 members in quality of public infrastructure such as roads, water, or power. Particularly, India could look upon the UK and Japan for inputs on developing efficient public transport facilities.

 The discussion points of this G20 meet look tailor-made for India, and the country should make full use of it.

(This article was published on June 2, 2012)
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