By Elton Gomes
The US could remove India from its currency monitoring list of major trading partners, the Department of Treasury said. The Treasury made its comments citing certain developments and steps taken by New Delhi, which considered some of its major concerns.
India was, for the first time, placed in the US’ currency monitoring list in April 2018. Besides India, the US also placed China, Germany, Japan, South Korea, and Switzerland on the list.
The Department of Treasury maintained that the list remains the same, but it said that if India continued with the same practices as those seen in the last six months, it would be removed from the Treasury’s subsequent bi-annual report.
Why was India added to the list
The US had in April included India in “the monitoring list” of its “major trading partners that merit close attention to their currency practices and macroeconomic policies”, IANS reported.
The Congress requires the Treasury’s report in order to identify countries that have been attempting to artificially manage the value of their currency so as to gain a trade advantage.
“The Treasury Department is working vigorously to ensure that trade is free, fair, and reciprocal so American workers and companies can compete and succeed globally,” said US Treasury Secretary Steven T. Mnuchin, as per the IANS report. “We will continue to monitor and combat unfair currency practices, while encouraging policies and reforms to address large trade imbalances.”
Once listed, the concerned country will remain on the list for at least two consecutive report cycles ”to help ensure that any improvement in performance versus the criteria is durable and is not due to temporary factors”, IANS reported.
What has the Department of Treasury said
“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 the GDP,” the Treasury said in its latest semi-annual Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the US, PTI reported.
India has a significant bilateral goods trade surplus with the US. Indo-US trade amounts to $23 billion over the four quarters through June 2018, but India’s current account is in deficit at 1.9% of the GDP.
“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,” the Treasury said, as per the PTI report.
Why the US might not keep India for too long on the list
Vinay Patel, who heads Asia Advisors, an independent financial advisory and research firm, claimed that the US could engage with India and persuade it to change its forex and macroeconomic policies to reduce the goods trade surplus.
Patel said, “India, I believe, should get off the list by next year as it is just on the borderline. India has a goods trade surplus with the US of $23 billion in 2017, but the much-touted LNG imports from the US started a few months ago,” Business Today reported.
“Growing energy imports can reduce the surplus to below $20 billion and India should look to divert more oil imports from the Middle East to the US,” he explained.
Elton Gomes is a staff writer at Qrius