The US department of treasury has removed India from a list of countries suspected to manipulate their currencies.
“Italy, India, Mexico, Thailand, and Vietnam have been removed from the monitoring list in this report, having met only one out of three criteria for two consecutive reports,” a treasury department biannual report (pdf) said. China, Japan, Korea, Germany, Malaysia, Singapore, and Taiwan remain on the list.
The report assesses if the US’s trading partners have manipulated exchange rates to gain unfair competitive advantages in trade and prevent effective balance of payment adjustments.
The Indian rupee first came under the department’s scanner—though it wasn’t on the list then—in October 2017. This followed the Reserve Bank of India (RBI) accumulating $52 billion (1.8% of the country’s GDP then) in the first half of the year with regular forex market intervention.
India was eventually added to the list for the first time in April 2018. After being removed from it in May 2019, India was back on it in December 2020.
The treasury department report, however, did not specifically mention the criteria India had met to be now delisted. Economists believe it might be a drawdown in India’s forex accumulation over the past year.
India’s forex reserves have fallen by $105 billion since the beginning of 2022, to $530 billion in the week ended Nov. 11, RBI data show. The central bank had deployed dollars to soften the rupee’s fall (by 8.5% this year alone).
The US reviews its training partners’ exchange rate policies through three criteria:
- A trading partner must have a bilateral trade surplus of at least $15 billion with the US
- Its current account surplus must be at least 3% of its GDP
- Persistent one-sided intervention on its part, particularly forex purchases in at least eight of the past 12 months, accounting for at least 2% of the partner’s GDP
The economies that meet two or all three of these criteria are placed on the currency monitoring list under US legislation. Once on it, the country is deemed a “currency manipulator.” It will then be assessed on improvements and durable performance for at least two consecutive reports.
The US is one of the few countries with which India has a trade surplus. In the four quarters through June 2022, this surplus stood at $48 billion, ensuring that the country met one of the three criteria, the treasury department report stated.
It primarily exports polished diamonds, pharmaceutical products, jewellery, light oil and petroleum, frozen shrimp, and cosmetics, among other items. India’s imports from the US include oil, liquified natural gas, gold, coal, recycled products and scrap iron, large almonds, and more.
India has traditionally had a current account deficit for years. On that account, it didn’t meet the second criterion to be on the US’s currency monitoring list.
In the quarter-ended June 2022, the deficit was $23.9 billion, 2.8% of the GDP, compared with a deficit of $13.4 billion in the previous quarter.