Yuan devaluation serious, will ensure safeguards: Comm Min

Claiming the Centre is aware of the impact of Chinese yuan devaluation on Indian exports, the Minister said it would take steps to prevent dumping of Chinese good into India.

ANALYST VIEW: The Chinese central bank’s “opaque communications policy may well have led to panic over-selling earlier in the week”, Angus Nicholson of IG markets said in a commentary. China is the world’s biggest exporter.

She said that the yuan devaluation was a serious concern, and “we are closely monitoring the situation; obviously dumping will not be entertained, where there is an artificial price reduction which is what is happening through China now”. India’s exports which have contracted for seven straight months until June 2015 are likely to come under further pressure from Chinese exports.

Even as global financial markets shudder at the prospect of China devaluing its currency – the yuan – even further, that is precisely what importers of toys, music instruments, Ganpati and other idols and curios, ornamental lights, silk, umbrellas and other products of daily use are hoping for. But China has moved into a time of currency volatility.

With global demand contracting, emerging markets are looking to grab pieces of the shrinking global trade pie. Key markets for Indian exporters are EU, USA, UAE, Hongkong and China. Top Chinese exports include clothing, gems and jewellery, base metals and machinery which are some of the key items that India also exports. “Indian exports may come down and our exporters may face greater challenge”, Ms Sitharaman told reporters.

The Chinese action had an impact in India with the rupee falling to its two-year low and the stock market tumbling in line with other markets.

“Items whose exports were over $1bn included cotton, copper and its articles, mineral fuels and oils and organic chemicals”, Mr Pant said. Moreover, Chinese demand for Indian goods will contract further due to the decline in the overall demand in the world’s second largest economy.

Indian corporates have been setting up shop in China to explore growth opportunities and 36 Indian companies have subsidiaries or representative offices for doing business in various provinces of China, mainly Beijing, Shanghai and Guangzhou. China became the largest source of India’s steel imports, at 3.6 million tons, in 2014, a 232% year-on-year increase.

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.