India: A currency Manipulator?
Recently everyone must have heard of the US adding India to the currency manipulator watchlist, so what does it mean & what’s India’s counter?
Currency manipulation is when a country is artificially lowering the value of its currency to gain an unfair advantage over others i.e. cheaper exports
Two benchmarks which India recently crossed to be on the US’s watchlist includes:-
o India’s trade surplus with the USA crossed $20 bn.
o India’s net purchase of forex crossed 2% of its GDP.
India’s situation:-
India’s trade surplus hit a record high of $ 32 bn in Q2 mainly due to the high amount of FPI’s, FDI’s & current account surplus
The high amount of FPI’s is due to investors searching for high yields with interest rates at all-time low globally, plus high global liquidity & it seems to continue for the next FY as well
This will put further pressure on the ₹ to appreciate, although it is not completely bad, but it makes the exports less competitive in the global market
Therefore, RBI intervention is pretty much necessary in the current situation when India is struggling with falling GDP & cannot compromise on exports
Although, the US categorizing India as a currency manipulator may keep RBI on the back foot
What’s your view? Do comment.
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