New Delhi: China was central to the subtext of US treasury secretary Timothy Geithner’s comments on the Tuesday launch of a new forum to enhance bilateral economic ties with India, even though the Indian team led by finance minister Pranab Mukherjee stuck to comments on bilateral issues.
The bilateral forum will operate at two levels. According to a joint media statement, the next meeting will take place in the US and would be at the cabinet level. Mukherjee and Geithner would lead the Indian and US teams, respectively. The date of the meeting has not been announced. Separately, senior officials and experts from the two countries will take forward discussions in specific policy areas.
Geithner’s comments came in the wake of growing differences between US and China on exchange rates and macroeconomic rebalancing. The differences have spilled over into international forums such as the Group of Twenty (G-20), where India is currently co-chair of a group discussing global economic imbalances. The leaders of G-20 are scheduled to meet in Canada in June this year.
“I think you will see over time as we strengthen this relationship, work more objectively together not just to address or take advantage of opportunities in our economic relationship, but to make sure we are working closely together in the G-20 in trying to shape a set of reforms that can build a stronger and more stable financial system,” Geithner told a press conference, when asked what was the benefit from the launch of a new bilateral forum to supplement similar bodies.
The two countries launched an India-US Financial and Economic Partnership which aims to enhance bilateral engagement and understanding on macroeconomic, financial sector and infrastructure-related issues.
Working closely: Finance minister Pranab Mukherjee (left) greets US treasury secretary Timothy?Geithner?at a joint press conference for?the?launch of an Indo-US forum to enhance?economic ties in New?Delhi on Tuesday. Ramesh Pathania/Mint
Following the financial crisis in some developed markets in 2008, G-20 has become the primary vehicle to deal with global financial issues and also other critical issues such as financing means to mitigate the fallout of climate change.
Indian officials have said G-20, which represents countries that together contribute at least 75% of global gross domestic product, offered India a seat at the “high table”. After working in 2009 on finding ways to offset the impact of the financial crisis, the G-20 agenda has moved to dealing with other issues such as addressing global macroeconomic imbalances.
In the current phase of G-20 discussions, India has found itself walking a tightrope in the clash between the US and China, currently India’s largest trading partner.
“By placing it as an issue on the G-20 table, instead of an US-China issue, it (debate on imbalances) becomes a global issue,” Renu Kohli, who has worked for the Reserve Bank of India and the International Monetary Fund, said.
India is not a direct party to the differences between the US and China. The debate about the need to correct macroeconomic imbalances emerged as China’s export growth was believed to have been partially driven by a currency that is artificially kept weaker than it should be. Over the last few years, China’s export boom has translated into large current account surplus and the US has run current account deficits on the back of growing consumption.
In this situation, Indian officials had earlier said that India needs to perform a balancing act between the US and China. In fiscal 2009, China emerged as India’s largest trading partner. In 2010, the two-way trade between the two countries is estimated to touch $60 billion (around Rs2.6 trillion), according to Chinese ambassador to India Zhang Yan.
The extent to which India could benefit from an appreciation in the yuan against the US dollar and other currencies is a moot point as Chinese firms are expected to provide a large amount of capital goods for India’s infrastructure needs, particularly in the power sector, where Chinese firms provide critical equipment for coal-fired power plants.
India’s exports to China are largely primary products such as iron ore.
A joint media statement on the bilateral economic forum said discussions among the working groups of both sides focused on macroeconomic policies, measures to reform financial regulation, and to deepen capital markets with a view to generating resources to finance infrastructure development.