Great News for India, But End of the Road for the Current Global Financial Order?

Blain’s Morning Porridge, Sept 7^h 2023: G20 Gabfest – Great News for India, But End of the Road for the Current Global Financial Order?

“It’s Istanbul not Constantinople Now.. Istanbul not Constantinople.”

The G20 Gabfest in Delhi will boost Modi and paint India as the nation everyone wants to engage with, but it also hints at the end of the current global financial order of the G20, G7, The World Bank, IMF and WTO – No matter, we can build something better.

The Big Event this weekend – aside from the kick-off of the Rugby World Cup in Paris – is the G20 Gabfest in Delhi.

It will be fascinating, full of subterfuge and subtlety, what is not said, who attends and the all-important spontaneously scripted side meetings – but can anyone remember what the point of a conference of the “leading 20 nations” is? They have been trying to agree the content of the post-conference “communique” for over 2 years already!

The G20 meeting is an opportunity to send signals and messages. It is part of The Game of Geopolitics – where it’s increasingly clear the global financial institutions that have facilitated and led global trade and finance since the last war are in urgent need of reinvention in the face of the changing environment and financial ecosystem, and the first real challenge to its authority by China. The very relevance of G7, G20 and the world economic order is in question.

The first thing is… the G20 is not happening in India.

The G20 is taking place in Bharat. Despite a whole bookshelf given over to Indian history, and one of my very best chums being an Anglo-Indian, I was blithely unaware India is also Bharat – it’s enshrined in the constitution no-less. India is a Western contraction of the Indus, the Land of the River, which might go right back to before the times of Alexander the Great. Bharat is what the locals call it, and it’s The President of Bharat that’s inviting delegates to the conference dinner. Apparently Prime Minister Narendra Modi intends to make Bharat the official name of the nation in the near future – expecting a surge of nationalist inspired patriotic fervour will further boost his standing at the next election.

(I suppose I should not be surprised: She-Who-is-Mrs-Blain is Welsh, but comes from a land called Cymru…. I am a Scot and hale from Alba/Caledonia.)

There are two aspects to today’s Morning Porridge.

• What G20 creates in terms of opportunity for India – which is massively positive, and
• The threat to Western Financial Hegemony represented by post war institutions including the World Bank, The IMF, World Trade Organisation, the supranational development banks, and the G7 and G20 bureaucracies. They have played their role for 80 years – dealing with multiple crises from Emerging Market and Sovereign Defaults, Asian crisis and Global Financial Crisis in 2008, but they are essentially bureaucracies founded in the days of big bank deference to authority. That has diminished relevance in today’ diverse and dispersed financial system, where China actively seeks to create a disruptive alternative.

Let’s start with India:

Modi will milk the conference for every one of the trillions of rupees it has cost to stage. He is on every bill-board, presenting as a global statesman. He will ensure the cameras record every aspect and moment of the adulation of global leaders will give him. He sits in a fascinating seat as India finds itself the most courted nation on Earth. Everyone wants Bharat on side and co-aligned, which Modi will strenuously avoid doing. For Modi it’s a great opportunity to showcase himself as a global statesman ahead of next year’s election. It suits India to remain above the Ukraine Crisis – ensuring cheap oil from Russia and the fawning attention of the Americans. He can afford to choose sides.

That side will not be China.

The big question is why is Emperor Xi not attending? His behaviour at the recent South African BRICS gab-fest was intriguing – turning up for the dinner, but not delivering his key-note speech, mouthed instead by a court mandarin to a bemused audience. Some think Xi may be ill or scared of Covid, but others suspect his Imperial Jade Majesty has become a little too grand on the throne and no longer wishes to be troubled by mundane matters of politics.

Or, Xi’s no show at the Dehli-Gabfest might be because;

• Xi wanted to send a clear message on not attending the party because Modi is clearly against a China dominated trade and power block. Modi tried to blank China on expanding membership of BRICS, and recently India shunned the Belt and Road programme at the SCO summit.
• It might be because China and India contest the longest (and ill-defined) border on the planet, and have been literally been shouting at each other across Glaciers and Ravines for decades. (They have been to war over the border.)
• India and China are shaping up as competing economic rivals. India has multiple issues to address, but is now the most populous nation, with strong demographics, and is setting itself up as pro-“democracy”, pro-business nation seeking to attract high value manufacturing to a nation with large, well-educated, computer-literate workforce.
• Or,
• The G20 is part of the western financial construct and has no part in Xi’s vision of a Chinese economic and trade ecosystem where BRICS, the Shanghai Cooperation Agreement (SCO) and the linked Belt and Road Initiative become the Middle Kingdom’s counterweight to G7 and G20. As WTO is effectively an empty space, Xi’s priority is to own China’s own global trade and power network. He’s keen to see the Western Construct of G20, WTO, IMF, World Bank and associated bodies further diluted and sidelined, while China’s alternatives gather pace. The best way to do that is to diminish it by being a no-show.

Neither will Modi seek alignment with the West.

Modi has an option to sidle up to Washington – but why squander it? He owns it – receiving access to Western aid, support and weapons, and access to Western Tech to manufacture and sell back to the West. The potential is decades of India becoming the new China, an economic miracle of de-bureaucratisation and commercial growth. The key thing Modi realises is he can get that access without giving anything away – all India needs to do is be honest, stay-out-the cage, and reap the economic gains. That may change if India started to show any challenge militarily.

A few years ago my colleagues and I decided to quietly pass on any Indian transactions we were shown. (Before you accuse me of racism, it was my Indian chums here in London that insisted.) We concluded dealing with Indians and Indian deals was simply too difficult – littered with inconsistency, full of holes and unlikely assumptions, where the rule of law could not be relied upon. We reckoned any deal involving Indians in India would probably result in pain, wasted time and a very low likelihood of ever getting paid.

That is changing – and changing fast. I’ve been watching India for a while now. It is becoming much more interesting. I am still struggling to figure how to play it. The stock market is massively overpriced – largely on scarcity, and as the recent shenanigans at Adani shows – it is less than honest or transparent. But, there are changes afoot. Red-tape across commercial law is being slashed – it now takes months rather than years to enforce claims. There are genuine opportunities to look at. Watch this space.

In terms of global financial institutions….

When I was a young banker, the IMF/World Bank meetings were a critical forum – the place where big decisions were made, and to meet, greet and spend money on clients. They were the ultimate ligging opportunity – I remember one night attending three dinners and multiple parties. The WTO and IMF were critical components of the financial order. Not any more.

You can imagine the fury in the corridors of supranational institutions at the suggestion they are overly-bureaucratic and obsolete. Something new in terms of Global Institutions is probably due. The era of the G20/World Bank as the foundation of the world’s economic order is over – it had its day, but the world has changed. The next but one G20 is in South Africa and will likely prove utterly irrelevant to the West – not just on the basis South African is fast becoming a client state of China, which is marginally better than how the Gupta’s (an Indian Family) effectively captured the state and the ANC a decade previously.

If G20 and the Western order of development banks, the IMF and WTO is to retain any future relevance then it needs a clearly defined mission, and protection from being undermined by a China seeking to build up its own alternative global financial eco system. Any new institutional network would need to show clear concern for ESG issues, wealth and opportunity equality, emerging and less-wealthy nations, energy transition, climate change, growth, economic stability, and health. Such a global vision is clearly needed – the trick will be to make China and insider and bound to it.

Out of time, and back to the day job

Bill Blain

Strategist – Shard Capital