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‘Yuan devaluation to hit Indian exports, widen trade deficit’

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New Delhi: Chinese central bank’s move to devalue its currency will hit India’s exports, cause more volatility in the rupee and is likely to widen the trade deficit between the two countries, Assocham said today.

Faced with sluggish economic growth and dwindling exports, China today devalued its currency for the second straight day, sending fresh shockwaves through global markets and fuelling fears of a currency war as jittery Asian neighbours came under pressure to devalue as well.

According to an analysis by industry body Assocham, the devaluation of Yuan was likely to lead to “lot more volatility around the rate of rupee”.

Moreover, it said, Indian exports, which are already under, a huge pressure in major markets of the world would see further erosion in their competitiveness as the Chinese would become much more aggressive.

The chamber observed that if the Indian rupee is not able to keep pace with yuan in losing value, China will further dump goods into the Indian market, further widening the trade deficit between the two countries.

“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. Chances are that the US may react in a manner which may further queer the pitch,” Assocham Secretary General D S Rawat said.

Engineering exporters’ body EEPC India Chairman Anupam Shah said a steep devaluation of Yuan will deal a further blow to the Indian exports which are battling a slowdown in most markets of the world, as the shipments from India further lose competitiveness against the Chinese goods.

“The impact of the Chinese aggression on the export front is certainly not a good news for India. In the last two days, China has got itself the export advantage of 4 per cent.

“In our engineering exports, we compete with the Chinese manufacturing industries face to face on a number of value added items. Surely, a lot more troubles lie ahead of us. As it is, our exports of engineering goods have contracted by close to 6 per cent in the first quarter of this financial year,” Shah pointed out.

The world’s largest exporter, China’s exports account for 13.7 per cent of the global pie. India’s overall exports have contracted for seven straight months until June.

Besides, on the government’s decision to raise basic customs duty on base metals such as iron, steel, copper, nickel and aluminium by 2.5 per cent, Shah said: “The move is ill-advised as it would push up the cost of the manufacturing of the engineering products and make them more uncompetitive. So, the engineering exports will take a hit from China as also a high duty on steel, the mother raw material.

Finance Minister Arun Jaitley today approached Parliament seeking to increase the basic customs duty by 2.5 per cent on specified goods falling under Chapter 72.

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