World economies, including India, will have to take note of Chinese currency devaluation designed to avert slowdown in its economy and exports, Chief Economic Advisor Arvind Subramanian said on Wednesday.
“There is no doubt that China is responding to its own internal development of slowing down of growth and exports in order to give its economy a boost. All of us policymakers around the world, including India, have to take notice of this action,” he said.
Subramanian, however, refused to comment on the impact of yuan devaluation on India and its exports.
China’s central bank on Tuesday devalued its tightly controlled currency by close to 2 per cent to boost exports, amid a slowdown in the world’s second-largest economy and the recent stock market crash.
Even global exports are on a sliding path. This decline in global demand is putting pressure on the export-driven Chinese economy.
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 2015.
Subramanian said China, on the one hand, has devalued the currency and taken measures aimed at reducing the spread between onshore and offshore rates.
“This action is both an endeavour to make their yuan a more plausible credible candidate for inclusion in the SDR basket,” he said.
Special Drawing Rights (SDR) is an international reserve asset created by the International Monetary Fund (IMF) to supplement its member countries’ official reserves.
Talking about credit growth in the economy, Subramanian said when the wholesale price index is in negative for eight months, one should not look at nominal credit growth.
“… Real credit growth has started increasing after declining for several quarters and within that, there is a sharp divergence between real credit growth to the personal sector, which is doing surprisingly well, while it’s credit growth to industry that remains relatively weak,” he said.