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The 7th meeting of the Economic and Financial Partnership between India and USA was held in New Delhi recently, with the objective to deepen the economic partnership between India and US. India’s Finance Minister Mrs. Nirmala Sitaraman led the Indian delegation, while the USA delegation was led by the US Secretary of Treasury Mr. Steven Mnuchin.
Against the backdrop of India getting ready for the 2022 Presidency of G20, the US ensured all required support to India in the New Delhi meeting. The meeting has emphasized on the global debt sustainability and transparency in bilateral lending. This provide cues to India’s plans for global integration in investment for economic growth. This also highlights India’s ambition for analyzing the external macro-economic scenario to advance foreign portfolio investment in strengthening Indian economy.
The EFT bilateral discussions emphasised on the need for greater economic co-operation on global economic issues, and tackling the “synchronized economic recession” that is grappling the world. The deliberations highlighted the significance of “financial sector reforms” in this regard. The plans to merge the state-owned banks and also bank recapitalization were discussed. The financial regulatory authorities have also discussed the financial regulatory developments in the “Financial Regulatory Dialogue” including that of the Regulation of Insurance Sector. These deliberations are in addition to Steven Mnuchin’s meeting with RBI Governor Shaktikanta Das on one-to-one monetary-macro framework discussions.
The emphasis of bilateral meeting on “foreign portfolio investors” for economic growth need to be analysed cautiously as it might be a volatile component responsive to differentials in interest rates. These deliberations can also plausibly lead to linkages between real and financial sectors.
The focus of EFP meeting was relatively significant on “capital account” (ie., the foreign investment dynamics). The meeting was crucial in terms of analyzing the science of “economic diplomacy” in India.
India was also in discussions with the RCEP, which is a regional comprehensive free trade agreement which has been negotiated between the 10 ASEAN Member States and ASEAN’s free trade agreement partners Australia, China, India, Japan, Korea and New Zealand. India did not sign the pact in keeping with her national interests. The RCEP could have been a “game changer” deal, had India’s serious concerns about the “unsustainable trade deficit” been addressed. India has taken a judicious decision in not opting for RCEP. However, in case of EFT, an engaging development has materialized in the bilateral meetings between Mrs. Sitharaman and Mr. Mnuchin in case of co-operation regarding many issues regarding economic co-operation including the tackling “offshore tax evasion “and “money laundering”.
The EFT dialogue also emphasised on enabling an automatic exchange of country-by Country reports for purposes of high level transfer pricing risk assessment. They have also acknowledged the progress in the resolution of bilateral tax disputes between India and US, through the existing Mutual Agreement Procedure and bilateral Advance Pricing Agreement relationship.
In EFT dialogue, under the Inter-Governmental Agreement related to Foreign Account Tax Compliance Act (FATCA), the bilateral deliberations have progressed in sharing the financial account information between the two countries. However, sharing of data for mutual benefit is still a sensitive area in these negotiations. Yet another significant development, as highlighted in the Joint Statement issued after the conclusion of 7th India-US EFP dialogue was about combating the financing of terrorism.
It is important to highlight the tendency of States and the municipalities in India to go for foreign bonds to finance infrastructure, for instance, the rupee-denominated bond (known as masala bonds) floated by the Government of Kerala abroad. The municipal bonds launched by Pune in 2017 to support the “Smart Cities” initiative. Against the backdrop of India’s newly created National Infrastructure and Investment Fund (NIIF) to strengthen the private institutional investment in capital spending in India for building infrastructure, US has ensured continued commitment in “technical assistance” for India and a “broad-based strategic partnership”.
Script: Dr. Lekha S Chakraborty, Economist and Professor, National Institute of Public Finance & Policy