America’s removal of India from a list of countries under its watch for currency manipulation is a relief. India does not figure in the US Treasury’s latest semiannual Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners submitted to the US Congress. Inclusion in the list requires three conditions to be met by a country. One, a trade surplus of more than $20 billion; two, a current account surplus of more than 2% of gross domestic product (GDP); and three, purchases of foreign currency totalling at least 2% of GDP in a year. India can be flagged only on one count: its trade surplus with the US. On the other two, the last two reports gave India a clean chit.
India shouldn’t have been on the watchlist in the first place, given its stated policy of allowing demand and supply to determine the level of its rupee, unlike countries like China that peg their currency cheaply to the dollar as a way to cheapen exports and gain a trade advantage, a tactic that Washington considers unfair. The Reserve Bank of India (RBI) has made it plain that it intervenes in the foreign exchange market only to contain excessive volatility, that’s all. Moreover, currency manipulation necessitates controls on capital flows in and out of the country, without which RBI could lose its leash on inflation. That would be against our interests.
President Donald Trump may have upped America’s ante on trade with India, charging New Delhi with an uneven import tariff regime and withdrawing preferential access to US markets. In this context, being taken off the currency watchlist is especially good news. It’s one less thing to worry about.