Amid concerns over devaluation of Chinese yuan hitting Indian exports and investments, Finance Secretary Rajiv Mehrishi said the government will come out with a “carefully thought-out response” to deal with the situation.
Mehrishi pushed for RBI cutting interest rate to encourage manufacturing and boost exports, arguing risks are not much as inflation is low.
China last week devalued the yuan to combat the deepest economic slowdown since 1990 amid falling exports. The move has made Indian exports to the communist country more uncompetitive and is likely to further widen the bilateral trade gap.
“Where we are competing with China, our exports are likely to be adversely affected (following yuan devaluation). If China becomes a more attractive investment destination, then there would be an outflow of money from here. There will be a reverse flow.
“So, basically devaluation of yuan is something which has to be taken note of by us and there has to be a response in terms of policy, both from the government and RBI. We are still working at it. There are a whole host of areas that need attention. Maybe, our export policy,” he said.
China, which is one of the top five destinations for Indian exports, may see contraction in demand for Indian goods due to the devaluation, making it difficult to maintain the pace of monthly outward shipment at USD 22 billion.
Indian exports to China declined 19.5 per cent yoy to USD 11.9 billion in 2014-15.
Mehrishi said “a carefully thought-out response” will be made to help exports and investments, refusing to elaborate.
“We have to make sure there is more investment, that the issues of the steel sector are attended to… And if you are willing to become competitive in exports, that is the idea, whatever is required (will be done),” he said.
Cost of production of steel in India was nearly 1.4 times the figure in other parts of the world and yuan devaluation will make it even more uncompetitive in comparison with Chinese products.
Rupee has fallen to a 2-year low of sub-65 to US dollar in response to the steep depreciation in the yuan, but Mehrishi indicated that there was no cause for panic.
“I think the rupee will find its own value. In my opinion, there is no need for any intervention at this stage,” he said, adding that there is nothing to be alarmed about as of now.
