INDIA IS ON CURRENCY MONITORING LIST OF USA

 INDIA IS ON CURRENCY MONITORING LIST OF USA

Context

• Recently, The U.S. Treasury labeled Switzerland and Vietnam as currency manipulators and added three new names to a watch list of countries it suspects of taking measures to devalue their currencies against the dollar. This includes India as currency manipulator watch list.

More about News

• • Currency Manipulators:
    • This is a label given by the US government to countries it feels are engaging in “unfair currency practices” by deliberately devaluing their currency against the dollar. 
    • The practice would mean that the country in question is artificially lowering the value of its currency to gain an unfair advantage over others. This is because the devaluation would reduce the cost of exports from that country and artificially show a reduction in trade deficits as a result.

• Manipulator Watch List:

• • The US Department of Treasury releases the semi-annual report where it has to track developments in international economies and inspect foreign exchange rates.
  • Criteria: An economy meeting two of the three criteria in the Trad e Facilitation and Trade Enforcement Act of 2015 is placed on the Watch List. This includes:
    • A “significant” bilateral trade surplus with the US — one that is at least $20 billion over a 12-month period.
    • A material current account surplus equivalent to at least 2 percent of gross domestic product (GDP) over a 12-month period.

India has been put on the monitoring list because it meets two of the three criteria. As per the USDT report, India had a trade surplus with the US worth $22 billion. And India’s net purchases of foreign exchange were 2.4 per cent of GDP-over the four quarters through June 2020.

• Implications of addition in US Monitoring List

• • Once on the Monitoring List, an economy will remain there for two consecutive reports. Being designated as a currency manipulator may have repercussions on the reputation of a country in the financial market.

U.S. IMPOSES CAATSA SANCTIONS ON TURKEY FOR S-400 PURCHASE

Context

• The U.S. has imposed sanctions on NATO-ally Turkey for its purchase of Russia’s S-400 missile defence system. The issue of sanctions under Section 231 of the Countering America’s Adversaries Through Sanctions Act (CAATSA) for purchase of Russian arms is of particular interest to New Delhi, which is also in the process of buying the S-400 from Moscow.

More about CAATSA 

• • Countering America’s Adversaries through Sanctions Act (CAATSA) was passed unanimously by the US Congress and signed reluctantly by US President Donald Trump.

• Enacted on August 2, 2017, its core objective is to counter Iran, Russia and North Korea through punitive measures.

• The Act primarily deals with sanctions on Russian interests such as its oil and gas industry, defence and security sector, and financial institutions, in the backdrop of its military intervention in Ukraine and its alleged meddling in the 2016 US Presidential elections.

• As part the Act, the US State Department has notified 39 Russian entities, dealings with which could make third parties liable to sanctions. These include almost all of the major Russian companies/entities such as Rosoboronexport, Almaz-Antey, Sukhoi Aviation, Russian Aircraft Corporation MiG etc.
• However, mere naming of 39 Russian entities by the US authorities or dealings by any country with these entities does not automatically lead to the imposition of sanctions under the CAATSA provisions. The key determinant for imposing sanctions is “significant transaction” between the named Russian entity and an outside agency.

Impact on Indian defence sector

• Following the US elections and allegations of Russian meddling – some call it collusion – in the US elections, the strain between Washington and Moscow has reached a new level.
• Angry with Moscow’s actions around the world, US lawmakers are hoping to hit Russia where it hurts most, its defense and energy business, through CAATSA.
• As per the Stockholm International Peace Research Institute (SIPRI) Arms Transfer Database, during the period 2010-17, Russia was the top arms supplier to India.
• The Russian share in India’s arms imports during the same period has declined to 68 per cent, from an all-time high of 74 per cent during the 2000s, whereas the combined share of the US and Israel has increased from nine to 19 per cent.
• Most of India’s weapons are of Soviet/Russian origin – nuclear submarine INS Chakra, the Kilo-class conventional submarine, the supersonic Brahmos cruise missile, the MiG 21/27/29 and Su-30 MKI fighters, IL-76/78 transport planes, T-72 and T-90 tanks, Mi-series of helicopters, and Vikramaditya aircraft carrier.
• Exemption for India
  • CAATSA impacts Indo-US ties and dents the image of the US as a reliable partner. At a time when the US is projecting India as a key partner in its Indo-Pacific strategy, with the US National Security Strategy 2017 explicitly supporting New Delhi’s vital role in this regard.
  • US Congressional committee has proposed waivers for India from stringent sanctions under Countering America’s Adversaries Through Sanctions Act (CAATSA). This is directed against those doing business with Russia’s defence industry.
  • This exemption means that growing defence and security cooperation that prompted India to sign a logistics pact with the US, the US designating India as a Major Defence Partner, and both countries coming together on Indo-Pacific strategy, the newly formed Quad, are on a stable footing.
• India hopes that Washington understands New Delhi’s security imperatives, especially with a hostile China along the border. his is more important since Indian and Chinese soldiers have been in a face-off situation for more than six months now, with no resolution in sight.
• US administration does not want to make a decision that “degrades the defence capabilities” of India which is its ‘Major Defence Partner’.

How do these new sanctions on Turkey complicate the issue?

• Turkey purchase of the S-400s and its refusal to reverse its decision, despite repeated pleas from Washington, left the United States with no other choice.
• Turkey condemned the sanctions as a “grave mistake” and urged Washington to revise its “unjust decision”. It said sanctions would inevitably harm mutual relations and threatened unspecified retaliatory steps.
• Washington had sought a solution but Ankara rejected all offers. The sanctions, near the end of Trump’s presidency are likely to weigh on Turkey’s ties with Democrat Joe Biden’s administration when he takes over as president next month.

Way Forward for India

How the Biden administration acts will also be reflective of how much it appreciates and understands India’s concerns on China, and whether it is going to support New Delhi against a belligerent Beijing. It could well turn out to be the litmus test.