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BusinessRBI not accumulating reserves, says Commerce Secy

RBI not accumulating reserves, says Commerce Secy

Published: 20th Apr 2021 6:58 pm

New Delhi: India on Tuesday rejected grounds used by the US treasury department for putting the country on the currency manipulator watchlist, saying the central bank’s activities in the foreign exchange market were perfectly balanced and it was not accumulating forex reserves.

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For the second time since the start of the pandemic, India on Monday figured on the US treasury department’s watchlist of currency manipulators. The central bank’s dollar purchase at 5 per cent of the GDP exceeding the 2 per cent threshold was cited as the reason.

Commerce Secretary Anup Wadhawan said that these watchlists are recent phenomena and it is an intrusion into the policy space of central banks, which “I personally do not understand it’s rational or economic logic”. He said that India’s overall forex reserves have been fairly steady, below $500-600 billion, and the country is not accumulating reserves like China.

“These are, in my view, very legitimate market-based operations of a central bank. It is a mandate of the central bank to provide stability in the currency, as a result of which the central bank buys and sells foreign currency. Our overall forex reserves have been fairly steady.

“We are not accumulating reserves, which are steadily growing. We have a steady pattern of reserves holding. So I think the central bank’s activity in the foreign exchange market has been perfectly balanced and completely legitimate,” he told reporters.

When asked about the proposal of India and South Africa at the World Trade Organisation (WTO) about temporary waiver of certain provisions related to an agreement on intellectual property rights to deal with Covid-19 pandemic, Wadhawan said that proposal has received “widespread” support from different members, while some nations have opposed that.

“The proposal has met with tremendous success and more importantly highlighted the importance of the issue,” he said. On a question of whether the government is planning to waive 10 per cent customs duty on Covid vaccines, the secretary said that departments of revenue and pharmaceuticals would take a joint decision on that, but “I do not have any information on that”.

Exports may be in positive territory in FY22

The country’s exports are reviving and the shipments are expected to be in the “solid” positive territory in this financial year, Commerce Secretary Anup Wadhawan said on Tuesday. He said that exports recorded a significant contraction in April last year but gradually things started improving and the shipments have entered the positive territory.

“So, I am quite positive and hopeful that in 2021-22, we will be in solidly positive territory. I have no doubts about that. But I do not want to predict numbers and make any targeted projections,” the secretary told reporters.

Since December 2020, the country’s merchandise exports are recording positive growth. In March this year, the exports rose by 60.29 per cent to $34.45 billion. However, in 2020-21, the shipments dipped by 7.26 per cent to $290.63 billion.

Product categories that recorded positive growth during March include oil meals, iron ore, carpet, gems and jewelry, engineering goods, rice, spices, pharmaceuticals, chemicals, marine products, petroleum products, coffee, and tea.

Gems and jewelry is a luxury product, and its demand would also slowly pick up, Wadhawan said, adding that exports are recovering from the severe Covid-19 impact. He added that exporters have shown resilience and have covered a lot of the lost ground, after hit by the Covid-19 pandemic.

When asked about India’s trade gap with the US and China, the secretary said that trade surplus with the US and deficit with China has improved in 2020-21. India’s exports to the US stood at $53 billion in 2019-20 and $51 billion in 2020-21. Imports from the US aggregated at $35.8 billion in 2019-20 as compared to $28 billion in 2020-21.

The country’s exports to China in 2019-20 were at $16.6 billion and $21.2 billion in 2020-21. Imports from China were worth $65 billion in 2019-20 while the numbers were roughly the same for 2020-21.

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