The G7 has transformed significantly since its inception, evolving from a White House “Library Group” of finance ministers discussing the collapse of the Bretton Woods system and oil shocks into a dynamic assembly of the world’s most advanced economies. Initially, it began as informal exchanges among West Germany, France, the UK, and the US. These discussions soon formalized, focusing on managing the global economy. Italy, Canada, and Japan joined, broadening the group’s scope and influence.
In 1981, the European Union (representing 27 member states) became a non-enumerated member. Since then, the G7 has served as a critical platform for coordinating policies on the economy, trade, finance, and foreign affairs among the world’s wealthiest economies. Russia was part of this grouping for nearly two decades before being ousted in 2014 following its annexation of Crimea.
Italy Assumes the G7 Presidency
Italy took over the G7’s rotating presidency for the seventh time on January 1, 2024, succeeding Japan. Throughout its presidency, Rome will host 21 ministerial meetings covering a range of topics, including industry and digital technology, foreign affairs, defense, security in Ukraine and the Middle East, climate and green transition, and international finance and trade.
Currently, the annual leaders summit is taking place in Puglia from June 13 to 15. Prime Minister Narendra Modi has been invited to participate in the G7 outreach session, marking his first foreign visit after being re-elected for a third term. The G7 has increasingly invited more participants from the developing world and international organizations to foster inclusive discussions on globally relevant issues.
The European Union has recently held elections, with the EU Parliament managing to retain a united Centrist front, ensuring the continuation of EU-wide policies for the next five years. However, the far-right has also gained significant traction.
India, the G7, and the BRICS
India, not a formal member of the G7, has been regularly invited to the summit as an outreach member for nearly two decades. This year’s invitation underscores India’s commitment to addressing issues concerning developing economies, as demonstrated at the G20 last year. India’s participation in the G7 highlights its growing significance as the soon-to-be third-largest economy in the world, its integration into global supply chains, and its role in shaping financial policies with global impact, from climate change to hunger alleviation.
According to the latest International Monetary Fund (IMF) data for 2024, China and India are projected to maintain relatively higher growth rates than most G7 countries. However, growth has slowed in both nations compared to 2023. Conversely, three to four G7 nations are set to grow faster in 2024, notably Germany, which is recovering from a negative GDP growth of -0.3 percent in 2023. The Eurozone has avoided recession despite the economic challenges posed by the war in Ukraine and trade tensions with China.
The combined GDP of the G7 countries is approximately $47 trillion, significantly higher than the BRICS countries’ $32 trillion. The BRICS’ GDP is predominantly driven by China, which contributes more than double the GDP of the other major BRICS economies combined. This dynamic is unlikely to change even with the anticipated expansion of the BRICS grouping later this year. India’s economic coordination within the BRICS is limited due to China’s and the Yuan’s dominance.
While middle-order powers are increasingly participating in diverse international cooperations, the G7’s influence in coordinating economic policies on various issues remains significant, despite the rise of other groupings.
The G7’s Importance
Despite criticisms of not being globally representative, the G7’s policy coordination significantly impacts the rest of the world, particularly the Organisation for Economic Co-operation and Development (OECD) and the G20. One notable decision by the G7 is the historic deal on the OECD’s proposal for a global minimum corporate tax of at least 15 percent, aiming to reduce tax-based competition among countries and apply a standard minimum tax rate worldwide. The G7’s consensus on this deal led to its approval at the G20 Leaders Summit in Rome in October 2021, with implementation expected in 2024.
These reforms are crucial for large developing countries like India, ensuring a steady flow of investments despite companies paying higher taxes than the current Indian government threshold.
Announced during New Delhi’s G20 summit, the India-Middle East-Europe Corridor (IMEC) aims to connect diverse geographies through multi-modal trade corridors. This initiative is rooted in the G7’s Partnership for Global Infrastructure and Investment (PGII), which seeks to develop multi-layered infrastructure by unlocking public and private investments through de-risking capital. The 2024 PGII meeting at the G7 has reaffirmed the commitment to mobilizing $200 billion by 2027, as part of the broader G7 target of $600 billion by 2027. Achieving this goal requires regular coordination with the developing world.
Additionally, G7 countries provide a significant percentage of the world’s humanitarian aid, with the US topping the list. G7 deliberations heavily influence the prioritization and allocation of aid, directly affecting vulnerable economies.
The Ukraine Question
Ukraine, a top priority for the West since 2022, has been invited to the G7 summit. This year, notable developments include the US and Japan concluding separate 10-year security agreements with Ukraine. The G7 leaders have agreed to send $50 billion worth of profits from frozen Russian assets to Kyiv. This move marks a reconciliation between the US and EU positions, with Washington advocating direct confiscation and Brussels preferring using profits as leverage for future negotiations.
This decision has sparked controversy regarding asset seizure in the international economy. Countries might become wary of investing their foreign reserves in dollars if they can be weaponized during geopolitical turmoil. The current agreement against asset seizure helps preserve the dollar’s global stability.
Parallel to this, the US has imposed new sanctions on Russia’s leading exchange MOEX, causing the ruble to plummet. The instability has led to vague and arbitrary buying and selling rates for the ruble. This situation exacerbates the longstanding issue of genuine convertibility hindering rupee-ruble trade between New Delhi and Moscow. The Russian Central Bank’s new capital controls to stabilize the ruble’s value will likely further complicate this trade.
Beyond attending the G7 outreach session, India is expected to engage in bilateral meetings to explore further cooperation with the West. Strengthening ties with Italy, in particular, could lead to increased cooperation in strategic domains and potentially herald a new era of triangular cooperation in the developing world.
