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Amid an ‘extremely challenging’ global economic outlook and geopolitical instability, US treasury secretary Janet Yellen on Friday in New Delhi said that the US will pursue the ‘friendshoring’ approach of deepening economic integration with trusted trading partners like India to diversify away from countries that present geopolitical and security risks to supply chains. She said that the Russia-Ukraine war-led elevated food and energy prices were making debt unsustainable for some economies and measures to ease these debt burdens will need to be discussed.

Speaking on the sidelines of the India-US Economic Financial Partnership, Union Finance minister Nirmala Sitharaman said that while India’s headline inflation number was in a ‘manageable range’, the government is keenly watching external factors that may impact prices, with 85% of India’s petroleum requirement is imported.

US treasury secretary Yellen and Sitharaman led the 9th meeting of the India-US EFP, where the two sides discussed issues of mutual interest including climate finance, multilateral issues, taxation, supply chain resilience, India-US Cooperation at G20 under India’s presidency, global economy, and the macroeconomic outlook.

Yellen said that India’s G20 presidency will help advance shared goals including mitigating the existential risks of climate change, reforming multilateral institutions, and expressing the debt burden faced by many developing countries, said Yellen during her opening remarks at the India-US EFP.

“The global economic outlook at present is extremely challenging… in part, because high inflation is a challenge that many advanced and developing face, and central banks are … trying to deal with these problems. In part this inflation reflects the spillover of Russia’s brutal war in Ukraine, which is boosting energy and food prices and for many emerging markets that have found themselves with high debts and high interest rates. The cost of moving higher energy and food costs are the things that have made debt unsustainable for some of them. So I think that is something we will have to deal with something going forward. Figuring out a way to ease these debt burdens," said Yellen during her interaction with business leaders on the sidelines of the India-US EFP.

Yellen on Friday also met business leaders at Microsoft India Development Centre, Noida during her first trip to India as US Treasury Secretary where she highlighted that the US is deepening economic integration with trusted trading partners like India to reduce the world’s dependency on ‘risky countries’.

“For too long, countries around the world have been overly dependent on risky countries or a single source for critical inputs.We are proactively deepening economic integration with trusted trading partners like India." The two nations share an interest in strengthening their supply chains in a world where certain governments wield trade as a geopolitical weapon, Yellen said as she introduced the concept of ‘friendshoring’. Explaining “friendshoring", Yellen said the approach involves partnering with developing countries to grow local industries and connect them to the global supply chain.

She said that new supply chains are developing across regions from Asia to the European Union. “We are also seeing signs that Western firms are diversifying their supply chains beyond China. Technology companies like Amazon and Google are investing in India and Vietnam. Apple recently announced that it was shifting some iPhone manufacturing from China to India. The US will continue to deepen our business and commercial ties with India as we pursue our friendshoring agenda," she added.

Yellen further said that its development finance institution is providing America’s largest solar manufacturer with up to $500 million in debt financing to build a facility in Tamil Nadu in India and this facility will boost India’s solar manufacturing capacity. “At the same time, it will help diversify supply chains away from China, which currently dominates over 80% of global solar panel production," she said.

Sitharaman highlighted global energy prices and skilling as among the challenges faced by India. “I think in India the inflation challenges are prompted more by external factors. So while the headline number today is in a manageable range, the challenges are largely due to the import of crude,… The external factors causing a stress on inflation is something that we have to be mindful of. On this, both the RBI and the ministry of finance are working together," said Sitharaman, while adding that “skilling at scale for meeting the challenges of the job’ was another challenge for India.

On the need for a global regulation of cryptocurrencies, which India has been pressing for, Yellen said that the US was actively working towards that. “The Biden administration has made a good deal of progress at least in dealing with the issues of illicit finance in connection with cryptocurrencies in the United States…this is an area where international collaboration is really important among public authorities, private sector and other stakeholders," said Yellen. She added that there is a need for high regulatory standard globally. “We need to take steps to reduce the cost of cross-border payments and we are very actively working in the context of financial stability with Financial Action Task Force and multilateral banks like IMF to really address on global basis the risks and some of the benefits from cryptocurrencies, added Yellen.

ABOUT THE AUTHOR

Dilasha Seth

" Dilasha Seth is a journalist reporting on macroeconomic policy for the last 11 years. She writes extensively on issues including international trade, macroeconomic data, fiscal policy, and taxation. At Mint, she reports on trade deals that India is signing besides key policy decisions of the Ministry of Finance. She closely tracked and covered the transition to the goods and services tax (GST) regime in 2017 and also writes on direct tax-related issues. In the past, she has worked with Business Standard and The Economic Times. She is based in Bangalore."
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