High inflation a challenge; volatility in EMs likely to affect India: US Treasury Secretary Janet Yellen in india

Talking about global economic situation, US Treasury Secretary Janet Yellen said high inflation is a challenge that many advanced and developing countries face in common and that the central banks are first and foremost 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 going forward and figuring out a way to ease these debt burdens,” Yellen added.

Finance Minister Nirmala Sitharaman said though the inflation number is in a “manageable range”, the challenges are “largely due to the import of crude”.

“The volatility in the emerging markets is going to affect India and that is one thing that we are keenly watching. The external factors causing a stress on inflation is something that we have to be mindful of,” she added.

Given the competitive cost of labour in the country, Sitharaman said it is time for concrete plans and businesses to come together, to have transfer of certain technologies without hesitation. “It is not that the US will be completely outsourced to India, but by locating some of them in India, you will get cost-effective labour. The labour costs are still competitive when compared to many other countries. So this is a time for concrete plans, to have guidance given to businesses to come together, to have transfer of certain technologies without hesitation to joint venture partners so that you can do business without any insecurity. So, this would be the best time for investments to come in,” she said.

When asked about cryptocurrencies in an interactive session with the industry leaders and economists, Yellen said that international collaboration is important to deal with illicit finance and cross-border payments.

“This has been a tremendous focus for the Biden administration and we have made a good deal of progress at least dealing with the issues of illicit finance in connection with cryptocurrencies in the US…this is an area where international collaboration is really important among public authorities, private sector and other stakeholders,” she said.

“We need a high regulatory standard globally and take steps to reduce the cost of cross-border payments. We are 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,” Yellen added.

The joint statement released after the session stated that discussions were held between the two countries on the macroeconomic outlook, supply chain resilience, climate finance, multilateral engagement, global debt vulnerabilities, anti-money laundering and combating the financing of terrorism.

India and the US agreed to work together for arriving at a “new collective quantified goal from a floor of $100 billion annually for the post 2025 period, taking into account the needs and priorities of developing countries”. The countries also discussed mutual collaboration in sharing of information to tackle offshore tax evasion. The two sides will continue to engage in discussions relating to the Foreign Account Tax Compliance Act (FATCA) for sharing of financial account information, the statement added.