From ADITYA RAJ DAS
In the wake of growing phenomenon of trade war between two global economic giants—United States and China—the US Administration is now keen to further enhance its economic ties with India.
The US apart from boosting its strategic ties with India in the field of defence it is now increasingly showing its eagerness to take its economic ties with New Delhi to new heights.
This inherent desire of the US to deepen its economic relations with India is also spurred by the growing realization by the US Administration about the huge potential of Indian economy which is emerging as one of the fastest growing economies in recent times as well as a responsible economy having a stabilizing impact on the overall profile of the global economy.
This emerging new dimension in Indo-US ties was reflected at the 7th meeting of the Economic and Financial Partnership (EFP) between India and USA recently held in New Delhi with the objective to deepen the economic partnership between India and US. India’s Finance Minister Nirmala Sitaraman led the Indian delegation, while the USA delegation was led by the US Secretary of Treasury 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 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 EPF meeting was relatively significant on “capital account”, which relates to 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.
Analysts say 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 EFP, an engaging development has materialized in the bilateral meetings between Sitharaman and Mnuchin in case of co-operation regarding many issues regarding economic co-operation including the tackling “offshore tax evasion “and “money laundering”.
The EPF 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 EPF 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 EPF 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”.
In the face of growing aggressiveness of China to expand its financial muscles across the world while safeguarding only its narrow interest, it is being overwhelmingly felt that the exercise to deepen economic ties between two democratic giants India and United States will prove beneficial for the global economy.
Opinion expressed in the article is writer’s personal view