'Yuan devaluation will make Indian exports expensive'

Imports will rise further: Sitharaman

For India’s dwindling exports, China’s Yuan devaluation has come as a curse. Commerce Minister Nirmala Sitharaman warned that it will make exports more expensive while imports will rise further leading to a widening in India’s trade deficit with the neighbouring country.

India already has a trade deficit of close to $50 billion with China.
 China on Thursday allowed the biggest fall in Yuan in the past five months. The move has also triggered the fear of a currency war among other emerging markets to stay afloat in uncertain times. “It is going to make imports from China even more cheaper. Our products are going to be more expensive. So, that is an immediate black-and-white kind of a situation which is developing,” Sitharaman said.

The government has taken some action on import front with raising tariff on steel products, tiles and tyres. But the minister said that it is not going to rush into action with further curbs. Steel companies have been asking the government to impose minimum import price to curb cheap import of steel from China.

Yuan depreciation may also hit the Make in India campaign that pitches for India to be a manufacturing destination, according to analysts.

To a question if there was a need for some intervention in the rupee market,  Sitharaman said, “If you look at one school of thought which prevails, yes, if my currency is devalued, my exports would do better. But there is also another section or a school of thought which will say why should India’s currency be devalued? If it is holding out against other currencies, let it hold out.”

Reserve Bank of India Governor Raghuram Rajan, however, does not see much of a gain in achieving a country’s macro-financial goals by depreciating its currency. Rajan has always spoken against resorting to exchange rate depreciation to boost currencies.

RBI’s Technical Advisory Committee on financial markets, however, met in the day and reviewed the recent developments in forex markets.