Mumbai: The rupee’s movement will hinge on the fine print of the proposed India–US trade deal, Reserve Bank of India governor Sanjay Malhotra said on Friday.
“The deal has so far been announced and we saw the strengthening of the rupee after that. The impact on the rupee will depend on the fine print,” said Malhotra.
Following the announcement, the rupee posted a strong single day gain of 124 paise to 90.27 per dollar on 3 February, according to data by Bloomberg. On Friday, the rupee was down 37 paise from its previous close at 90.73 per dollar.
As part of the deal, the US would lower its reciprocal tariff on Indian goods from 25% to 18%, while India would reduce its tariffs and non-tariff barriers against the US to zero, Trump said. Reports also indicate that the 25% penal tariff for import of Russian oil will also be removed.
On Thursday, commerce minister Piyush Goyal said that India and the US will sign a joint statement on the trade deal in four to five days, per a Mint report.
Malhotra said the recently concluded India-EU free trade agreement (FTA) and the prospective India-US trade dealalong with several other trade pacts, will support exports over the medium-term.
So far, India has signed trade deals with the UK and Oman, while a trade deal with the European Free Trade Association (EFTA) came into effect from 1 October. That apart, trade deals with New Zealand and the European Union have been concluded; and a trade deal with the US has been announced.
“With the signing of a landmark trade deal with the European Union and the US trade agreement in sight, growth momentum is likely to be sustained for a longer period,” said Malhotra.
The governor said India’s macroeconomic fundamentals, including the external sector, are strong, robust, and healthy. India’s current account deficit moderated to 1.3% of GDP in the September quarter, from 2.2% of GDP in the previous quarter.
“All these deals, agreements, should only further help not only on the current account, but also on the investment side, because a lot of them have investment commitments,” said Malhotra.
He said that the regulators are primarily there to facilitate whatever economic activity will take place, whether in the domestic or external sectors. But, the government has been very proactive, both on current account as well as capital account, he said, adding that the latest example on capital account is the opening up of the insurance sector to 100% FDI.
“This year, we have witnessed record deals in the banking space and the NBFC space, about $15 billion of announcements or FDI already that has come in and then a number of other measures that now the government is taking,” he said.
