Embrace multilateralism

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Embrace multilateralism

Wednesday, 02 September 2020 | Karan Mangotra | Ritu Ahuja

Embrace multilateralism

India’s decision to not only rely on local manufacturing but also multiply the scale to meet global demands stands to gain extensively from multilateral support

We are moving from ‘Make in India’ to ‘Make for the world’. But as every nation is already on the brink with the pandemic, we are faced with the critical question of the existence of globalisation as we know it. Countries are looking to bring supply chains back home as a measure to increase economic resilience. At this point, India’s position on self-reliance does not steer away from multilateralism, rather embraces it. India holds a strategic position to counteract the conservative and unilateral mood pervasive in the global political economy. Its position as a fast-growing Asian power enables it to implement more equitable global rules that can protect economic interests of other developing nations as well. At the recently-concluded 19th Darbari Seth Memorial Lecture by TERI, External Affairs Minister Dr S Jaishankar reiterated that as India enters the United Nations Security Council (UNSC) as an elected member in 2021, and joins the troika of the G20 at almost the same time, “there could be no better opportunity to work with all those who recognise the benefits of multilateralism.” At the same event, António Guterres, Secretary General of the UN, emphasised on the necessity of taking climate risks into account in all financial and policy decisions and furthering collective action.

Some experts have argued that a retreat from the multilateral trade order is likely to widen inequalities between countries, virtually disable economies of scale thereby making everything more expensive, limit free mobility of goods and services, thereby affecting employment and intensify geo-political tensions, making it difficult for an already fragile global economy to recover. As more countries shift away from this era of globalisation, it is crucial to prepare for what takes its place. In this flailing global discourse, we explore the value that multilateral institutions (MLIs) and developmental banks stand to add, especially for developing countries like ours. In this context, we discuss three vital roles MLIs play.

Mobilisers of finance: One branch of MLIs comprises Multilateral Developmental Banks (MDBs), which help mobilise finance globally, particularly in fragile States and lower and upper middle-income countries. In the new world order that countries are expected to enter in the post-COVID scenario, the role of MDBs is crucial from three vantage points.

First, fast-emerging economies like India can enable transformative action by achieving economies of scale. The extent and potential of scalability of new research in India and other developing countries is very large. This has been evident in wide adoption of technological innovation in vital sectors such as clean energy, low carbon alternatives and even models of large-scale financing. In order to tap into this potential, adequate finance must be mobilised to spur investment required to achieve scale. Public finance is argued to be one such driver of investment in upcoming sectors. However, such finance is often already stretched thin to be able to wholly mobilise financial resources in newer avenues such as hydrogen and wind and hydro-power among others. In the past, MDB financing has enabled an irreversible transition to favourable technologies and means of production. This source of financing will be all the more crucial as countries start looking to internalise supply chains. Second, catalysing private finance. Investments by MDBs reduce risk perception, create conducive environment for private investment and lead to a lower cost of financing for newer sectors. In addition to these financial gains, the presence of an MDB also reduces policy risk, lack of credibility and minimises the problem of contract enforcement. This in turn helps mobilise further private interest. Investment in renewables in India gained significantly from investment by MDBs. In 2018, MDBs reported mobilisation of over $69 billion of private finance in low and middle-income countries.

Third, enhancing institutional capacity. MDBs help strengthen developmental policy to bring about institutional reforms in key sectors. Such measures are essential in building capacity and increasing the scale of reach. For example, financial assistance during the pandemic has been crucial in such capacity building in a variety of sectors ranging from health to Small and Medium Enterprises (SMEs). As economies recover, MDB financing will be vital in reviving key productivity.

Tackling global externalities: One of the fundamental purposes of the inception of MLIs has been to overcome market failures. Climate change is the biggest market failure that we are currently witnessing. MLIs have been instrumental in bringing together policymakers to take collective action to safeguard against this externality by enabling structural transformations that bring about more sustainable economies. Institutions such as the UN Framework Convention on Climate Change (UNFCCC), Intergovernmental Panel on Climate Change (IPCC), Green Climate Fund (GCF), Adaptation Fund (AF) and other global bodies play the critical role of mobilising technical resources, knowledge and expertise from across the world into the poorest and vulnerable regions. Even if the global order transitions into that of more conservative and closed economies, climate change will remain an externality necessitating collective solutions. In such a scenario, support by MLIs will be vital for local civil societies to carry out research and evidence building.

This is essential for three critical activities. First, continued ground-level research on adapting to climate change. Second, dissemination of new research, which can be further scaled by multilateral support. And third, increased community-based action to build resilience which can support long-term sustainable solutions. Climate-related disasters and the associated chronic challenges that the world is likely to face require the same urgency as when dealing with the acute health impacts of COVID-19. This necessitates countries, the private sector and civil societies to engage collectively. MLIs can help achieve this with efficacy.

Global coalitions between governments and the private sector: Inter-national multilateral agreements play an important role in achieving both global climate and sustainable development goals. They play an important role in nudging national policies to combat climate change and spurring sub-national and non-State actors to action as well. This was evident in the 2019 UN Climate Summit, where major industries pledged to reducing emissions. Several Indian industry front-runners were also part of the ‘Industry Transition Track’ led jointly by the Indian Government and Sweden. Multilateral agreements play a crucial role in building new alliances and coalitions as highlighted by the International Solar Alliance and the Coalition for Disaster Resilient Infrastructure. Such coalitions are effective on both domestic and international platforms. On a domestic scale, these ensure a coordination of action across developmental policy and climate action. At the international level, it would help in ensuring a continuum in real climate action. They can support coalitions between governments to develop favourable ecosystems which further enable non-State action.

It is evident that countries are moving towards more unilateral policy frameworks. This has raised concerns if the widespread conservative sentiment on international policy and the precarious global supply chain could mean a reversal of what the Bretton Woods Agreement sought to achieve in 1944.  One of the most pressing global problems — climate-related disasters — does not impact countries and institutions in silos. These impending and ongoing crises require urgent attention and action. Countries, private sector and civil societies, therefore, must engage collectively. MLIs, by their design and purpose, can help achieve this effectively.

In this context MLIs can support three interlinked activities: Mobilisation of finance, streamlined action towards tackling the biggest global externality and engagement of State and non-State actors to further climate action. These will hold immense importance even as countries choose to move into more unilateral and autarkist policies. Enabling large-scale finance to minimise carbon lock-in, creating conducive market conditions for green investments and building resilience through enhanced adaptation can be achieved with the support of dedicated MLIs. Their unique structure allows them to disseminate knowledge, technical and financial resources from developed countries for the benefit of emerging economies and vulnerable communities. India’s decision to not only rely on local manufacturing but also multiply the scale to meet global demands stands to gain extensively from multilateral support.

(Mangotra is Associate Director, Earth Sciences and Climate Change Division and Ritu Ahuja is Research Associate, Centre for Global Environment Research, TERI)

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