China’s central bank decision to devaluate Yuan by 2 percent to boost their economy, will hit Indian exports and further trade deficit may also widen which is currently close to $50 billion as imports from China may increase particularly as China is having excessive capacity in diverse sectors of manufacturing. This devaluation is bound to raise the competitiveness of outbound shipments from the neighbouring country and will not just hurt India’s export to China but also to other countries with increasing competiveness of Chinese exports, said Ajay Sahai, Director general and CEO of the Federation of Indian Export Organizations (FIEO). The biggest losers are Indian tyre manufacturers who have already been hit by the rising demand for cheaper Chinese tyres in Indian markets.
Indian exporters are worried that this move from China will hit India’s exports at a time when they are already under pressure due to slow global demand where exports have contracted for seven straight months until June 2015. Chinese demand for Indian goods is likely to contract further due to the decline in the overall demand in the world’s second largest economy. Imports from China have jumped by one-fifth to $60 billion in 2014-15, compared with previous year, while exports have plunged to $12 billion, resulting in a huge trade gap between the two countries. There are worries that the yuan devaluation will tilt the balance further in China’s favour.
SC Ralhan, President, Federation of Indian Export Organisations (FIEO) said that this may also lead to a currency war as could be seen by huge depreciation in numerous currencies such as Euro, Japanese Yen, Brazalian Real and Turkish Lira. The devaluation of the Chinese yuan will boost the competitiveness of Chinese exports, however a further decline in the currency may make it difficult for India to maintain its pace of monthly exports at $22 billion.
Around 36 Indian companies have subsidiaries or representative offices for doing business in China. These include Reliance, Tata, Infosys, Satyam, Lupin, Ranbaxy, Aurobindo, SBI, Essel Packaging, Jindal Strips.