FROM THE OFFICE OF PUBLIC AFFAIRS

As part of the Enhanced U.S.-India Economic Dialogue, senior U.S. and Indian policymakers discussed economic and financial developments and global efforts to combat terrorist financing.  India’s Finance Secretary S. Narayan led the Indian delegation, which included officials from the Ministry of Finance, the Reserve Bank of India, and the Securities Exchange Board of India.  The U.S. was led by Treasury’s Assistant Secretary for International Affairs Randal Quarles and Federal Reserve Governor Donald Kohn; the U.S. delegation included officials from the Treasury Department, the Federal Reserve Board, the Office of the Comptroller of Currency and the Securities and Exchange Commission.

The discussions focused on:

Macroeconomic policy: The two delegations discussed the importance of appropriate and effective fiscal policies for macroeconomic stability and sustained economic growth.  Emphasis was placed on tax policies that promote growth, strong tax administration and inter-governmental fiscal relations that are structured to give both central and state governments incentives to maintain fiscal discipline.

Financial sector issues: Both sides agreed that a strong financial sector is necessary for sustained growth and macroeconomic stability.  They discussed the role of the public sector as a regulator, supervisor and direct provider of financial services, and noted efforts in India to increase private investment in the banking sector.  They discussed ways to deepen trade in financial services, noting that foreign financial service providers could provide capital, technology, management skills, and increased competition to the benefit of consumers.  They underlined the importance of transparency in financial regulation.  They discussed the U.S. experience in encouraging bank lending to underserved regions without weakening prudential supervision.  Both sides stressed the need to adequately provision for and restructure non-performing loans.

Terrorist Financing Issues: The two sides pledged to continue close cooperation in the fight against terrorist finance and to protect charitable non-profit organizations from terrorist abuse.  They noted that alternative remittance systems were particularly vulnerable to abuse by terrorists and agreed to enhance information exchange on such systems, their weaknesses, and ways to deal with such transactions.  To prevent abuse of the formal financial sector, both sides acknowledged the importance of establishing a financial intelligence unit (FIU) to monitor suspicious financial activity and to record and share financial information in accordance with international standards promoted by the Financial Action Task Force (FATF) and the Egmont Group.  Toward this end, the Indian government’s ongoing efforts to establish an FIU were applauded.

Next steps:  Both sides were pleased with the discussions and agreed that the discussions laid a solid foundation for the upcoming Cabinet–level meeting in New Delhi of the India–U.S. Financial and Economic Forum.  The delegations agreed to continue discussions on the following areas in future meetings:

·        Strengthening tax administration.

·        Examining experiences in Asset Reconstruction Companies.

·        Continuing cooperative information exchange, especially on financing of terrorist groups and establishing Financial Intelligence Units.

·        Sharing experiences on pension reform, risk containment measures in derivatives, and commodities futures.

·         Strengthening the legal framework for investor protection, investigation and enforcement procedures and codes for corporate governance.

·         Considering the views of the U.S. and Indian private sectors on issues related to financial services, capital markets and macroeconomic developments prior to the Cabinet-level meeting of the India-U.S. Financial and Economic Forum in November.