The United States might exclude India from “the monitoring list” of its “major trading partners that merit close attention to their currency practices and macroeconomic policies”.
The US in April 2018 included India in “the monitoring list” which is a part of the semi-annual report on “Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States” prepared by the US Department of Treasury for the US Congress.
“India’s circumstances have shifted markedly, as the central bank’s net sales of foreign exchange over the first six months of 2018 led net purchases over the four quarters through June 2018 to fall to $4 billion, or 0.2 per cent of GDP,” the latest semi-annual report released on October 17 said.
“This represented a notable change from 2017, when purchases over the first three quarters of the year pushed net purchases of foreign exchange above 2 per cent of GDP. Recent sales have come amid a turnaround in foreign portfolio flows, as foreign investors pulled portfolio capital out of India (and many other emerging markets) over the first half of the year.”
As per the report, the rupee has depreciated by around seven per cent against the US dollar and by more than four per cent on a real effective basis in the first half of 2018.
“India has a significant bilateral goods trade surplus with the United States, totaling $23 billion over the four quarters through June 2018, but India’s current account is in deficit at 1.9 per cent of GDP,” the report said.
“As a result, India now only meets one of the three criteria from the 2015 Act. If this remains the case at the time of its next report, Treasury would remove India from the Monitoring List.”
As per norms, the US Department of the Treasury focuses on three criterion to include or exclude a country from its monitoring lists.
These criterion include an economy having a significant bilateral trade surplus with the United States, a material current account surplus, and engaged in persistent one-sided intervention in the foreign exchange market.
“India has been exemplary in publishing its foreign exchange market intervention. The Reserve Bank of India (RBI) has noted that the value of the rupee is broadly market determined, with intervention used only during episodes of undue volatility,” the report said.
Once on the “Monitoring List”, an economy will remain there for at least two consecutive reports to ensure that “any improvement in performance versus the criteria is durable and is not due to temporary factors”.
The current list comprises China, Japan, South Korea, Germany, Switzerland, and India.