Yuan impact on Indian exports

According to media reports, the country’s Commerce and Industry Minister Nirmala Sitharaman has cautioned that a continued devaluation of the Yuan by China may come as a further blow for the country’s exporters already reeling under the effects of a global slowdown, weighing on the outlook for Asia’s third biggest economy.

Sitharaman warned that a weakening of the Yuan will make Indian exports more expensive in China, reducing their appeal, thus widening India’s trade deficit with the world’s second biggest economy. Moreover, Yuan’s devaluation may boost Chinese imports to India by making them cheaper, hurting domestic manufacturers.

“The depreciation of the Yuan is definitely going to make imported goods (from China) cheaper ... the fact is my deficit with China will (also) grow”, she said, the PTI reported.

Sitharaman’s comments come at a time when India’s exports have suffered twelve straight months of decline, plunging by 18.46 per cent to USD 174.3 billion, year on year in April-November 2015, a sign that India isn’t immune to the current bout of global volatility amid a faltering Chinese economy, disinflation risks and the start of the US Federal Reserve’s interest rate tightening cycle.

Bilateral trade between India and China was USD 72.3 billion in 2014-15 while the trade gap with China stood at USD 49 billion.

China’s central bank last week weakened the value of the Yuan to the lowest level since March 2011 in a bid to bolster exports and help combat a worsening economic slowdown. However, China’s sharp depreciation move rattled global markets, wiping out more than USD 4 trillion from equities worldwide this year, reigniting fears of a fresh global currency war and signaling heightened worries over the health of the Chinese economy.