Stating that devaluation of Chinese currency was a “very serious issue”, she said it could lead to a situation where China will push more of its goods into markets like India. China wants its currency to be aligned to the realities of the economy and the world markets. China became the largest source of India’s steel imports, at 3.6 million tons, in 2014, a 232% year-on-year increase.
India’s exports, which have contracted for seven straight months to June 2015, are likely to come under further pressure. The integrity of some of its economic data is also being questioned.
Effects of the yuan devaluation were felt world wide, with the dollar firming, gold gaining some ground as safe-haven again, and Asian currencies tanking against the greenback. In practice, however, Indian importers pay their Chinese suppliers in US dollars; therefore, only a stable rupee-dollar rate (at about Rs 64 to an US dollar) will help Indian importers to derive full benefits of yuan depreciation. “We will make sure that safeguard clauses are invoked”.
The Chinese economy which has high trade linkages to growth, in a surprise move devalued its currency leading to a further widening of trade competitiveness for Indian exporters says India Ratings and Research (Ind-Ra). The risk for India comes from two ways: one cheaper imports from China affecting domestic companies and second it would affect India’s exports to other countries. The yuan devaluation has only further deepened these concerns. The recent depreciation of the renminbi has also had a significant impact on India’s steel companies, as their prices will be less competitive, the report said.
While China is battling with falling exports, globally exports have also been sliding. Although the People’s Bank of China has stated that this is a one-off move, however, history shows that currency devaluations are followed by a series of such moves. India’s key items of exports are petroleum products, gems and jewellery, chemicals and textiles. Pointing out that due to to the global economic conditions the Indian exports have come down by six percent, she said her Ministry is already in the process to increase the exports.
Dalmia pointed out that the Chinese government appeared to be more sensitive to the decline in their exports than the Indian government as they had acted with alacrity to arrest the decline in their exports by taking urgent steps like devaluing their currency. He pointed out that the government has not yet announced the interest rate subvention of 3%, which has been pending despite sanction of funds for this goal by the Finance Ministry.