With the devaluation of the yuan roiling global markets, Indian officials on Tuesday expressed concern that the latest move by China could hurt India’s exports as well as FDI inflows into the country.
“It (yuan devaluation) should have some impact on our exports as exports from China will be cheaper,” finance secretary Rajiv Mehrishi said on Tuesday.
With China devaluating its currency to boost exports, some finance ministry officials even called for the lowering of interest rates, as well as allowing the rupee to depreciate to remain competitive and to boost investments in the country.
“We are wrong in not lowering the interest rate and we are wrong in not letting the rupee depreciate,” another finance ministry official said. The Reserve Bank of India kept interest rates unchanged in its monetary policy review on August 4, saying it was awaiting transmission of earlier rate cuts in the banking system. Finance minister Arun Jaitley has said on many occasions that the cost of funds need to be brought down for businesses as inflation is under control.
A cheaper yuan could further hit India’s exports as the rupee is stronger than most other currencies against the dollar, Mehrishi said. India, which has a trade deficit of $48 billion with China, has been demanding more market access to Indian products.
China’s central bank devalued the yuan by nearly 1.9% on Tuesday after exports declined 8.3% in July, its lowest point in three years.