Wednesday, August 12, 2015

What the 'Yuan' devaluation means to India.

1. China's recent devaluation of its currency by nearly 2% will definitely have an impact on India's economy and I'm sure that our government would do the needful to contain the fallout. I'm no economist and shan't bore you with statistics that I do not grasp myself in the best of times! I must , further, reiterate that my analysis is that of a layman.

Fact file.

2. Before going any further, we need to understand the trade practices that exist between the two nations. Here are the details:-

 (a) Items exported by India to China.

      Cotton, Copper, Organic Chemicals, Mineral Fuels and Oils, Salt, Cement, Plastics and                       Mechanical Appliances.

 (b) Items imported by India from China.

       Machinery(electrical and electronic), Mechanical Appliances, Organic Chemicals, Fertilisers,
       Project Goods, Plastics, Iron and Steel, Imitation Jewellery.

 (c) India and China compete in the export markets in the following:-

      Man made Fibre, Garments, Steel, Gems and Jewellery, Organic Chemicals.

The Repercussions.

3. These could be the fall out:-

              * The Indian companies' realisation from their exports to that country will take a hit.
              *  Make Chinese products more competitive than the Indian items as their exports would
                  be cheaper (Remember that our largest export markets are the US and the EU).
              *  The FDI inflows into our country could get affected.
              *  A large dumping of Chinese goods into our markets is likely and
              *  Will swell the trade deficit between the two countries.


Why did China devalue its currency now? It's said that the alarming trend of market slides prompted it to take such an action. Or is it that it's getting worried about a resurgent India and the thrust in the 'Make in India' policy by the Modi government?

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