The United States Treasury Department has put India again on the currency manipulator watchlist as the country's foreign exchange net addition and the bilateral trade surplus with the US have breached two of the three criteria but here's why it's not a big deal.
The United States Treasury Department has put India again on the currency manipulator watchlist as the country’s foreign exchange net addition and the bilateral trade surplus with the US have breached two of the three criteria determining manipulation. But is India really on the cusp of being a currency manipulator? Perhaps not!
The US Treasury Department uses three parameters to determine a currency manipulator: Bilateral trade surplus with the US to be $20 billion, current account surplus at 3% of country’s GDP, and net purchases of foreign currency to 2% of country’s GDP over a year.
While adding India to the currency watchlist among other countries such as China, Mexico, and Japan, what US Treasury Department said was that India’s “net annual purchases of foreign exchange reached $56 billion in 2017, equivalent to 2.2 percent of GDP” — which breached the third criterion.
Also, the report has said that India’s goods trade surplus with the United States was $23 billion in 2017, the highest level on record, which breached the first criterion. However, the US Treasury in its 2018 —- said that India’s current account deficit widened modestly in 2017 to 1.5% of the GDP, which is in stark contradiction with the second criterion that makes a case for current account surplus instead.
And even as India’s goods trade surplus with the United States breached the $20 billion mark, other countries are way ahead in breaching it; and yet not named as currency manipulators and continue to remain under watchlist. Even as there is trade war brewing, the US refused to name China a currency manipulator with a gigantic goods trade surplus standing at $375 billion.
Last October too, the US Treasury had put India under the watchlist and said to have been closely monitoring its currency activities. India’s foreign exchange reserves, in fact, have been touching a new high every week, with minor fluctuation since it surpassed the $400 billion mark in September last month.
India’s foreign exchange reserves rose by $503.6 million to touch a lifetime high of $424.864 billion in the week to April 6, aided by an increase in foreign currency assets. the foreign currency assets, a major component of the overall reserves, rose by $657.7 million to $399.776 billion.
In the same week, the foreign currency assets, a major component of the overall reserves, rose by $657.7 million to $399.776 billion. Foreign currency assets include the effect of appreciation or depreciation of the non-US currencies such as the euro, the pound and the yen held in the reserves.