A Sneak Peak – What is Yuan Devaluation?
China's Central Bank, devalued its own currency by close to 6% earlier this week, simply to boost exports in an attempt to recoup from the slowdown in its domestic economy and recent stock market crash.
The Impact- What It means for India
The recent devaluation of Chinese currency Yuan, is called to be a bold move on the part of its Government, considering the fact, that while it will boost the Chinese exports, this move will eventually harm a large section of other markets, worldwide. In fact, this came as a blow to the Indian export market given the situation that the markets have already been going week in the recent past due to the recessionary conditions in the global arena! Now the question arises, where is it that it hurt the most? Sadly the answer is not just singular. This move on China’s part is understood to interfere with India’s textile industry, chemicals, metals, consumables as well as the e-commerce sector. Further the depreciation in Yuan’s value may cause Chinese people to opt local brands over imported ones. India will face substantial challenges due to this situation because china is a big market for goods such as cotton copper and chemicals exported from India. If china strategically keeps reducing the value of its currency in comparison to rupee, Indian markets might get flooded with cheaper Chinese goods available in the market.
About Textile Industry
Textile is the largest segment, wherein India and China have a neck-to neck competition with each other. China is said to have making a move towards high-end textiles, however, the fact that Indian companies are set to face certain competition cannot be downplayed. Simply because India deals in the low-end textile market, which offers considerably low margins and the devaluation will result in lowering the same even further. Another factor that comes into play here is that the products of Indian textile industry are sold at higher duties in almost the entire international arena, therefore making the local markets noncompetitive.
The major blow in this regard will be suffered by yarn exports, considering the fact that while the cotton yarn prices were already falling, the devaluation will result in further slack.
Now, the point to be understood is that while the margins of Indian companies are sure to suffer a significant fall, especially in context of exports to China, the Chinese market on the other hand will become much more competitive than the Indian markets with respect to garments, man-made fibres and fabrics.
Centre has promised to take remedial measures in the current circumstances to subdue the adverse effects that might follow by keeping a check on inflow of Chinese goods in order to protect the Indian manufacturer’s interest, also RBI’s policies will be of prime importance in this situation since India recently suffered a two year low against the US dollar in trade. Central banks should also slash its interest rates in the coming policy meet of September 29th or even before to cope up with the fall in annual wholesale inflation for July which was as low as (-)4.05 percent .