From a White House “Library Group” of finance ministers discussing the Bretton Woods collapse and oil shocks, to an agile group of world’s most advanced economies, the G7 has come a long way. What started as informal exchanges between West Germany, France, UK and the US, became more formalised discussions on managing the global economy. Italy, Canada and Japan joined them.
The European Union (representing 27 member states) became a non-enumerated member in 1981. Ever since, the world’s wealthiest economies have been using the G7 as a platform for coordinating policies on economy, trade, finance and foreign affairs.
Russia was a part of this grouping for almost two decades, before getting ousted in 2014 for the annexation of Crimea.
Italy’s G7 presidency
Italy took over G7’s rotating presidency the seventh time on 1 January 2024 from Japan. During the course of its presidency, Rome will be hosting 21 ministerial meetings ranging from discussions on industry and digital tech, foreign affairs, defence, security in Ukraine and Middle East, climate and green transition, and international finance and trade.
What is being convened right now from 13 to 15 June in Puglia is the annual leaders summit.
Prime Minister Narendra Modi has been invited to participate at the G7 outreach session, making it his first foreign visit after getting re-elected for the third time. Apart from the seven member countries and the EU, the G7 has, over the years, invited more actors from the developing world and international organisations to make discussions on globally relevant issues more inclusive.
The European world has just had its own elections. The EU Parliament has managed to retain a united Centrist front, which would ensure continuation of EU-wide policies until the next five years. However, the far-Right has reified its acceptability in no uncertain terms either.
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India, G7 and the BRICS
India, which is not a formal member of the G7, has been getting invited to the summit as an outreach member for nearly two decades now. This year’s invitation should also be seen as a continuation of India’s priorities and commitments to issues concerning the developing economies exhibited at the G20 last year.
However, India’s participation at the G7 goes beyond merely as the leadership of the “Global South”. It marks New Delhi’s growing heft as the soon-to-be third largest economy in the world, its embeddedness in global supply and production chains, and its relevance in coordinating financial policies that will have global ramifications, from climate change to hunger index.
According to the latest International Monetary Fund (IMF) data for 2024, China at 4.6 per cent and India at 6.8 per cent, are forecasted to maintain relatively higher growth rates than most G7 countries. However, when compared to 2023, growth has slowed down in both China (by 0.6 per cent) and in India (by 1 per cent).
On the other hand, three to four G7 nations are set to grow faster in 2024. This is especially true for Germany, which is making a comeback from its negative GDP growth of -0.3 per cent in 2023. The Eurozone on the whole has also escaped recession despite all the economic challenges of a war in Ukraine and trade wars with China.
The combined GDP of the G7 countries is about $47 trillion, at least $15 trillion higher than the BRICS countries. The BRICS’ GDP remains dominated by China, its share accounting for more than double the other major economies combined. This projection will not change much even after the expected expansion of the grouping later this year. New Delhi’s economic coordination with platforms such as the BRICS remain limited because of Beijing’s and Yuan’s overall dominance.
While the motivation in middle-order powers to join diverse forms of international cooperation suggests that the world’s economic multipolarity would continue, the influence of the G7 in coordinating economic policies on a range of issues remains significant despite the rise of other groupings.
What makes the G7 important?
Often criticised for not being globally representative, the G7’s coordination on key economic policies have a direct bearing on the rest of the world, especially on the policies of the Organisation for Economic Co-operation and Development (OECD) and G20.
For instance, one of the most path breaking recent decisions by the G7 has been the “historic deal” on OECD’s proposal for a global minimum corporate tax of at least 15 per cent. This move would hugely reduce tax-based competition among countries and apply a standard minimum tax rate to a defined corporate income base worldwide. The G7’s consensus on this deal led to its approval at the G20 Leaders Summit in Rome in October 2021, likely to come into effect from 2024.
These reforms are important for large developing countries like India. Even though companies would pay more tax than the current Indian government threshold, a steady flow of investments could still be ensured.
Announced during New Delhi’s G20 summit, the India-Middle East-Europe Corridor (IMEC), which aims to connect diverse geographies through multi-modal trade corridors, is rooted in a G7 initiative, Partnership for Global Infrastructure and Investment (PGII).
This initiative aims to develop multi-layered infrastructure by unlocking public and private investments through de-risking capital, serving as an alternative to China’s ubiquitous Belt and Road initiative. The 2024 PGII meeting at the G7, currently underway, has reaffirmed commitment to developing connectivity by mobilising $200 billion by 2027, as part of the broader G7 target of $600 billion by 2027. None of this could become reality without regular coordination with the rest of the developing world.
Finally, G7 countries remain responsible for providing a significant percentage of the world’s humanitarian aid as well. In fact, the US tops the list. The G7 deliberations have a major influence on prioritising aid flows and their size worldwide, directly affecting vulnerable economies.
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The Ukraine question
Ukraine, figuring topmost in the west’s agenda since 2022, has also been invited to the G7 summit. This year, there is a notable development to substantiate Western support of “as long as it takes,” and Ukrainian President Volodymyr Zelenskyy has had much to be relieved about.
The US and Japan will conclude separate 10-year security agreements with Ukraine. Marking a reconciliation between the US and the EU positions, the G7 leaders have reached a consensus to send $50 billion worth of profits made from frozen Russian assets to Kyiv. Washington DC has long been mulling the direct confiscation of Russian assets, while Brussels, which holds more than half of the total frozen assets, has preferred using the profits made on those assets. Brussels insists on the latter as a bargaining chip for favourable negotiations later.
Either way, this discussion has unleashed a new phase of controversy on asset seizure in the international economy. The rest of the world would become wary of investing their foreign reserves in dollars if it can be weaponised in an event of geopolitical turmoil. The current reconciliation between the West on deciding against asset seizure will go a long way in preserving the dollar’s hold on the world, which for now remains largely stable.
These decisions have come parallel to new US sanctions on Russia’s leading exchange MOEX. The immediate aftermath caused a plummeting ruble, from hovering around 90-100 rubles per dollar to crashing to about 125. The situation has forced the buying and selling of rubles to become vague and arbitrary. Some Russian banks were reportedly buying a dollar at 50 rubles and selling at 200 even when the official rates hovered around 90.
This has a direct bearing on India.
The lack of genuine convertibility has been an unresolved problem hindering the rupee-ruble trade between New Delhi and Moscow. This issue is likely to get exacerbated due to fresh injection of capital controls imposed by the Russian Central Bank to stabilise the value of the ruble after the latest sanctions take effect from mid-August.
Apart from attending the outreach session of the G7 summit, India is likely to have a series of bilateral meetings to brainstorm more cooperation and convergence with the West in coming years. With Italy, the recent upswing in relations will see more cooperation in strategic domains and perhaps unleash a new era of triangular cooperation in the developing world.
The writer is an Associate Fellow, Europe and Eurasia Center, at the Manohar Parrikar Institute for Defence Studies and Analyses. She tweets @swasrao. Views are personal.
(Edited by Ratan Priya)