Chances are dim that India could be under US radar for manipulating its currency to its advantage, said a report by Singapore based DBS.
In its biannual report released recently, the US Treasury said it plans to closely monitor India’s foreign exchange practises as the pace of foreign reserves pile up in the past year has been very fast. This report keeps a close eye on economic trends and policies of its key trading partners with an intention to curb any unfair currency practises. Presently, five economies - China, Japan, South Korea, Germany and Switzerland - are under the Treasury’s monitoring list. “ Risks of India joining this list is low” said Radhika Rao, India economist, DBS in a recent report.
The Treasury’s observations are primarily based on three criteria, namely, a significant trade surplus with the US (more than $20bn), current account surplus at and above 3% of GDP and net purchases of foreign currency at and above 2% of GDP.
Of the three, India is an all-clear on the second criteria, that is a current account deficit of 1.3% of GDP for four quarters ending Jun17.” In recent notes, we have highlighted the risk that FY18 current account deficit might widen to -1.6% of GDP from FY17’s 0.7%” said DBS. On contrast, Germany, Switzerland and Taiwan run sizeable current account surpluses in the range of 7-13% of GDP. “India is therefore unlikely to fall under the radar on this account” it said
On the first criteria India has consistently, though narrowly, been in breach in recent years. In the four quarters ending Jun17, the trade surplus with the US stood at $23bn against the threshold of $20bn. However, pressure on India to correct this imbalance is lower as the US’ surplus with other partners is far in excess. China leads the list with a sizeable surplus of $357bn, followed by Japan at $70bn.
Source: economictimes.indiatimes.com