Several countries participating in the G20 2nd Framework Working Group (FWG) meeting in Chennai on Friday felt that inflation is stickier and coming down slowly than they thought it would . They reiterated that they would remain on track with their monetary tightening and felt financial stability risks can be handled and need not come in the way of further interest rate increases in their countries, said V Anantha Nageswaran, Chief Economic Advisor to the Government of India.

The two-day meeting on the finance track is being held under India’s G20 Presidency. Nageswaran is the co-chair of the FWG along with Clare Lombardelli, Chief Economic Advisor, UK Treasury

Speaking to select media persons on the sidelines of the meeting, Nageswaran said that on the recent banking turmoil, most of the countries felt that the situation that arose with the specific institutions had specific reasons, and they did not think that there was a need for widespread concern.

Policy makers have things under control and they are responding. Of course, there is a need to remain vigilant and strengthen risk management, but the current prevailing sentiment is that it need not lead to a systemic crisis. This was the sentiment that member countries expressed, he said.

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The delegates felt that food and commodity prices have come down, and economic activity in several countries in the last few months has picked up, as seen in the Purchasing Managers’ Indices. They felt that China’s reopening has gone off smoothly. This was positive, but there was some concern that China’s reopening may lead to higher demand for commodities down the road, but then most of the remarks were prepared before the last two weeks of financial sector events that happened, he said.

Non-fossil fuel

In their presentation at the request of the Indian G20 presidency, the IMF included some important information on the availability of critical minerals and rare earths such as copper, cobalt, and lithium that will be needed for switching to renewable energy.

The production of these minerals is concentrated in a few countries, and processing is also concentrated in a few countries, predominantly in China, but the demand will come from the entire world.

“If we do not manage the production, distribution, and ensure adequate availability for all countries, or if technology gets developed whereby these minerals are not required for renewable energy transition, then if such technology is developed, it should be made commercially viable and it should be shared with all the countries. We also need technology for recycling,” Nageswaran said.

“We need to have a mechanism for adequate and fair sharing of critical minerals and rare earths for all countries in the world. If we don’t do that, and if countries are compelled to reach their net zero transition, then it will be a chaotic process. They may not be able to achieve it. They may not be able to shift towards renewable energy and then have to go back to fossil fuels,” he said.

If enough investment in fossil fuels has not been made, which has been the case in the last several years, fossil fuel prices will soar. Then it will have implications for macroeconomic and social stability, and it will also setback efforts to tackle climate change.

There is a lot riding on the rare earths and critical minerals: either ensuring their adequate availability for all countries over the next 20-30 years and developing technologies to minimise dependence on these and developing technologies for recycling, and ensuring that these technologies are commercially developed and shared with countries. All these elements are very important if the world as a whole has to succeed in tackling climate change. These were the issues discussed on Friday,” said Nageswaran.