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US takes India off currency watchlist (Relevant for GS Prelims & Mains Paper III; Economics)

The US government removed India from its list of major trading partners to be closely monitored for potentially questionable foreign exchange policies with the move coming amid escalating trade tensions between the two countries.

Why India’s name has been removed?
India has been removed from the list for “addressing” some of the Trump administration’s concerns over its currency practices and macroeconomic policies, according to the Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States report released by the US Treasury department. According to it, the only factor of concern from India is its “significant” bilateral trade surplus with the US, which crosses the country’s maximum limit of $20 billion.

What is the criteria of adding in monitoring list?
The US includes major trading partners in its monitoring list if they meet at least two of three criteria – if it has either a significant bilateral trade surplus with the US, if it has a material current account surplus or if it is engaged in “persistent one-sided intervention” in the foreign exchange market.

Signifies improvement in trade relations
Currency policy has been used by the Trump administration as a tool in trade talks. This move is based on quantifiable criteria but it signals a possible de-escalation in India-US trade tension. US has been holding off on notifying the withdrawal of trade benefits to India despite the expiry of its notice period, possibly in the hope that the new government will defuse the standoff.

When was India included?
India was included in the list over a year ago because, in 2017, its foreign exchange purchases over the first three quarters of the year pushed net purchases of forex above 2 per cent of GDP. It also had a trade surplus of over $20 billion.

Countries in the current list include China, Japan, Korea, Germany, Italy, Ireland, Singapore, Malaysia and Vietnam.

Pressure from US
Over the last two years, US put pressure on India by increasing tariffs on products like steel and aluminium,as well as removing the country from its Generalized System of Preferences, which allowed Indian businesses certain trade benefits.

 (Source:https://indianexpress.com/article/india/united-states-india-currency-watch-donald-trump-5755396/)



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