US could remove India from its currency monitoring list of major trading partners, the Treasury Department has said, citing certain developments and steps being taken by New Delhi which address some of its major concerns.
India for the first time was placed by the US in its currency monitoring list of countries with potentially questionable foreign exchange policies in April along with five other countries — China, Germany, Japan, South Korea, and Switzerland.
Department of Treasury maintained the same monitoring list in its latest report released on Wednesday but said if India continues with the same practices as in the last six months, it would be removed from its next bi-annual report.
“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 USD 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.
Last year, India met two of the three criteria for the first time in this report — having a significant bilateral surplus with the US and having engaged in persistent, one-sided intervention in foreign exchange markets. US Treasury Secretary Steven T Mnuchin says in the report (2017), “We will continue to monitor and combat unfair currency practices, while encouraging policies and reforms to address large trade imbalances.”
This represented a notable change from 2017, when purchases over the first three quarters of the year pushed net purchases of foreign exchange above two per cent of the GDP, it said.
Recent sales have come amidst 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, it said.
The rupee depreciated by around seven per cent against the dollar and by more than four per cent on a real effective basis in the first half of 2018, the report said.
India has a significant bilateral goods trade surplus with the US, totalling USD 23 billion over the four quarters through June 2018, but India’s current account is in deficit at 1.9 per cent 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.