FM Sitharaman seeks global framework to address sanctions fallout | Economy & Policy News

Finance Minister (FM) Nirmala Sitharaman has called on the international community to explore a multilateral convention on economic sanctions outside the Bretton Woods Institutions, including World Bank and International Monetary Fund (IMF), citing their growing economic and financial consequences for countries beyond those directly targeted.

 

“The growing economic and financial ramifications of primary and secondary sanctions, and their mounting macrocritical implications for countries beyond those directly targeted, highlight the need for the international community to explore a multilateral convention on economic sanctions outside the Bretton Woods Institutions to enhance predictability and stability in the global economy,” Sitharaman said at a meeting of the International Monetary and Financial Committee during the IMF-World Bank annual meetings in Bangkok last week.

  

Sitharaman called for greater attention to the spillover effects of a broader range of policy instruments beyond traditional monetary and fiscal policies, including trade and technology restrictions, carbon taxes, and industrial and labour policies.

 

The remarks came amid concerns over the effects of US sanctions against Russia and Iran on third countries, including India. The Lindsey O Graham Sanctioning Russia and Iran Act of 2026, signed into law in September, sought to increase pressure on Moscow over its war in Ukraine and on Tehran by enabling tariffs of up to 100 per cent on imports from countries that continue to buy Russian oil and gas. The threat raised concerns in New Delhi over the potential conflict between securing affordable energy supplies and protecting access to the US market. US President Donald Trump has waived key provisions of the law for 60 days, citing US national interests.

 

Sitharaman also flagged how large fiscal deficits, high debt, and heavy investment in artificial intelligence have pushed bond yields higher in major economies, with the effects spilling over to emerging markets (EMs) and developing economies through capital outflows, exchange-rate pressures, and tighter domestic financing conditions. “This creates difficult policy trade-offs for EMs in preserving both internal and external stability,” she added.

 

Sound macroeconomic (macro) policies are more important than ever amid these challenges, Sitharaman said, calling on countries to rebuild fiscal buffers to withstand recurrent shocks. “Fiscal reforms should focus on revenue mobilisation, spending efficiency, growth-friendly consolidation, and targeted social protection, underpinned by credible medium-term plans. Close fiscal-monetary coordination will be essential to preserve macro stability amid simultaneous pressures on growth, debt, and inflation,” she added.

 

Turning to India, Sitharaman said that despite heightened global uncertainty, the country’s growth momentum remained strong, driven by infrastructure investment, robust manufacturing, and resilient domestic consumer demand. “The emphasis on formalisation of the economy, healthier bank and corporate balance sheets, and prudent macro policies is underpinning the strong growth outcomes,” she said.

 

The IMF has projected India’s growth at 7 per cent in both 2026-27 and 2027-28. “It is encouraging to note that India continues to be a major contributor to global growth, with a share of almost 18 per cent, and that its improved growth trajectory has contributed to the IMF’s upward revision of global growth,” Sitharaman said.

 

While maintaining that inflation and inflation expectations remained anchored, supported by prudent policies and active supply-side measures, Sitharaman acknowledged that the breadth of price pressures had widened, raising the risk that food, freight and energy costs could spill over into core prices and inflation expectations. “Policy will therefore continue to combine monetary vigilance with targeted interventions and logistics improvements to respond to supply-side shocks,” she added.

 

The FM said India’s growth-friendly fiscal consolidation aimed to preserve and augment capital expenditure while containing untargeted subsidies and recurrent spending. “The quality of consolidation — supported by tax reforms and improved spending efficiency — is already yielding positive outcomes, including by crowding in private investment. Enhanced fiscal credibility is also reflected in a moderate rise in Indian government bond yields compared with major economies since March 2026. Stronger macro fundamentals, together with recent sovereign rating upgrades, have helped contain risk premia and borrowing costs,” she added.

 

Referring to the successful raising of more than $130 billion through foreign currency non-resident (bank) deposits, Sitharaman said capital-flow measures announced in June had helped attract sizeable non-resident deposit inflows, supporting a strong accretion to foreign exchange reserves and strengthening India’s buffers against global volatility.