US places India under watch list

•  The US Treasury Department has placed India under a watch list that monitors countries' currency practices.
• According to department, foreign exchange policies of six countries were needed to be monitored. Earlier, the department had five countries - China, Germany, Japan, Korea, and Switzerland - under this list. India is now the sixth country.
• The Department's findings are based on the three key criteria: (1) a significant bilateral trade surplus with the United States, (2) a material current account surplus, and (3) engaged in persistent one-sided intervention in the foreign exchange market.

Analysis

• India has a significant bilateral goods trade surplus with the United States, totalling USD 23 billion in 2017.
• India increased its purchases of foreign exchange over the first three quarters of 2017. Despite a sharp drop-off in purchases in the fourth quarter, net annual purchases of foreign exchange reached $56 billion in 2017, equivalent to 2.2 per cent of GDP
• Given that Indian foreign exchange reserves are ample by common metrics, and that India maintains some controls on both inbound and outbound flows of private capital, further reserve accumulation does not appear necessary.
• Annual bilateral trade between the US and India has doubled over the last decade and was $114 billion in 2016. Unfortunately, over the same period trade deficit has tripled.

By: Vishal