China yuan devaluation rattles India Inc; cheap imports may rise

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New Delhi: With China’s move to devalue its currency, engineering and textile exports from India are expected to take a major hit with Chinese goods becoming more competitive, while steel firms fear that cheap imports from the neighbouring country could intensify further.

Faced with sluggish economic growth and dwindling exports, Chinese apex bank on Tuesday decided to devalue its currency, following which yuan has fallen almost 4 percent in two days.

Continuing its fall, the benchmark BSE Sensex today nosedived 384 points to 27,512.26, its two weeks low, while rupee facing high volatility plunged to two-year low at 64.78.

Industry body Assocham warned that the move could result in a “full-fledged currency war” between the world economies. For India, the devaluation could mean “triple whammy” in the form of rise in rupee volatility, exporters facing more competition and China dumping more goods into India, it said.

“Both the RBI and the Finance Ministry should keep a very close watch and take immediate and swift actions to ensure that Indian economy does not suffer the collateral damage of the currency war among the major economies,” said Assocham Secretary General D S Rawat.

Already battling a slowdown, engineering exports body EEPC also said it sees a further blow to the Indian exports from the steep depreciation in Yuan.

Engineering Exports Promotion Council said it fears the shipments will further lose competitiveness against the Chinese goods.

Finance Secretary Rajiv Mehrishi had also admitted yesterday that China’s central bank move will have impact on India’s exports.

“It may also have impact on FDI if China become more attractive destination vis-a-vis India. Investors would go there where with the exchange rate he will get more kick for his dollar. So we have to see the impact,” he said.

Chief Economic Advisor Arvind Subramanian said today that there was no doubt that China was responding to its own internal development of slowing down of growth and exports in order to give its economy a boost.

State-run SBI’s chief Arundhati Bhattacharya said that yuan depreciation is detrimental for Indian economy, but expressed hope that the country has potential to overcome this challenge.

In a report, domestic rating agency Care also acknowledged this challenge and said the Chinese woes of Indian steel makers will increase further, as it will significantly curtail the domestic players’ export competitiveness.

Tata Steel also said that depreciation in the Chinese unit is likely to result in more steel imports.

“Indian government raised import duty on some products by 2.5 percent, but the correction in global steel prices has offset any benefit to the local steel players. And now as the Chinese currency devaluation has happened, import pressure could worsen in the future,” Tata Steel Group ED (Finance and Corporate) Koushik Chatterjee said yesterday.

Taking a different line, French brokerage BNP Paribas however said yuan devaluation will not have a major impact due to country’s comparatively small trade exposure to China and strong balance of payments situation.

“Relative out-performance of the rupee looks most likely to continue,” it said in a note issued today.
The Engineering Exports Promotion Council also urged the government not to further increase custom duty on steel import.

“The move is ill-advised as it would push up the cost of manufacturing the engineering products and make them more uncompetitive. So, the engineering exports will take a hit from China as also from a high duty on steel, the mother raw material,” council’s Chairman Anupam Shah said.

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