Observing that there has been a notable increase in the scale and persistence of India’s net foreign exchange purchases, the US Department of Treasury has told the Congress that it will closely monitor New Delhi’s foreign exchange and macroeconomic policies.
“Over the first half of 2017, there has been a notable increase in the scale and persistence of India’s net foreign exchange purchases, which have risen to around USD 42 billion (1.8 per cent of GDP) over the four quarters through June 2017,” the Treasury said in its latest half yearly report to the Congress.
In its report to the Congress “Foreign Exchange Policies of Major Trading Partners of the United States,” the Treasury said India has a significant bilateral goods trade surplus with the US, totalling USD 23 billion over the four quarters through June 2017.
“Treasury will be closely monitoring India’s foreign exchange and macroeconomic policies,” it said.
In its report, the Treasury said that it assesses net purchases of foreign currency, conducted repeatedly, totaling in excess of 2 per cent of an economy’s GDP over a period of 12 months to be persistent, one-sided intervention.
Switzerland and Brazil meet this criterion for the four quarters ending June 2017, as per Treasury estimates.
“India is very close to meeting this criterion for the four quarters ending June 2017, with net purchases of foreign currency slightly below 2 per cent of GDP,” it said.
The report said, China has an extremely large and persistent bilateral trade surplus with the US, by far the largest among any of the US’ major trading partners, with the goods trade surplus standing at USD 357 billion over the four quarters through June 2017.
Moreover, China continues to pursue a wide array of policies that limit market access for imported goods and services, and maintains a restrictive investment regime that adversely affects foreign investors.
In comparison to the extremely large and persistent bilateral trade imbalance, China’s multilateral external position has undergone greater adjustment in recent years, with its current account surplus falling to 1.4 per cent of GDP in the first half of 2017 from 1.8 per cent of GDP in 2016, and down from 10 per cent of GDP in 2007, the report said.
Further, after engaging in one-way, large-scale intervention to resist appreciation of the renminbi (RMB) for a decade, China’s recent intervention in foreign exchange markets, tightened capital controls, and increased discretion over setting the daily fixing rate of the RMB have likely prevented a disorderly currency depreciation that would have had negative consequences for the United States, China, and the global economy.
“Treasury remains concerned by the lack of progress made in reducing the bilateral trade surplus with the US,” the report said.
The Trump Administration remains deeply concerned by the significant imbalances in the global economy, the report said.
Bilateral trade imbalances with many of our major trading partners have grown to very large levels, it said adding that more broadly, current account surpluses in several major trading partners have not only been large but unusually persistent over the last decade.
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