The United States administration excluded India from its USD watchlist last Tuesday. This move is a result of Indian counterparts taking developmental steps towards addressing major concerns.
Apart from India, Switzerland is the other prominent nation removed from the watchlist. The current USD watchlist includes Japan, Vietnam, South Korea, Malaysia, Ireland, Singapore, Italy, Germany and China.
India is removed from the USD watchlist as it has a significant bilateral surplus with the US for two consecutive reports. This is one of the three criteria set by the US administration to exclude a nation from its watchlist.
This announcement was made in the latest semi-annual report on the macroeconomic and foreign exchange policies of prominent trading partners of the United States.
As per the American treasury report on foreign exchange policies, India sold reserves for the most part of 2018 and net sale of foreign exchange touched 1.7% of the GDP. India is maintaining adequate reserves as per the International Monetary Funds (IMF) metrics for reserve adequacy.
India was included in the USD watchlist for the first time in May 2018 along with Germany, Japan, Switzerland, South Korea and China. In October 2018 report, the US Treasury indicated India’s removal from the watchlist in its next report.
America’s decision to exclude India from the watchlist is expected to give India an advantage over China and help in improving bilateral trade with the USA.
The Chinese Yuan has steadily fallen through 2019 and has lost about 2.5% against the USD despite being on the watchlist.
China and USA are imposing import duties and tariffs on each other. They have not reached an agreement despite holding 11 rounds of talks over grey areas. China warned the US of cutting the supply of rare-earth minerals.
China is the leader in supplying rare-earth minerals. These minerals are used in oil refineries, weapons used in the US national security and automobiles.
The USA recently levied anti-dumping duty on Chinese Aluminium which has given India, a major Aluminium producer after China, a big advantage. India’s export of Aluminium saw a drastic rise of 58% in 2018 to USD 221 million as China and the US got into a trade war.
India’s exclusion from the US currency watchlist gives India an edge over other leading exporters. Exporters like Japan, China, South Korea, Ireland and Vietnam are going to be affected as they are still in the currency watchlist.