The Chinese crisis is expected to put downward pressure on the yuan versus the US dollar while the rupee may be more resilient. This will result Chinese imports to India becoming cheaper, says a Credit Suisse economist.
The Chinese crisis is expected to put downward pressure on the yuan versus the US dollar while the rupee may be more resilient. This will result in Chinese imports into India becoming cheaper.
That's the belief of Deepali Bhargava, Economist at Credit Suisse, who in an interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy said cheaper Chinese imports could help revive the Indian capital goods sector.
Below is the transcript of the interview on CNBC-TV18.
Latha: What is the in-house view at Credit Suisse? Are people reading the Chinese data as portending a recession? Are you expecting to see financial markets continue to perform badly fearing this kind of a recession?
A: I think there are two things to the correction in markets that we have seen over a period of time and that is the Credit Suisse view: which is that one part of the correction is positioning-led. So the sharp correction for example that we have seen in currencies like INR is partly positioning-led.
If you look at the equity inflows into the Indian markets since 2009, which was the global financial crisis, inflows have been sharp. So part of the correction is positioning led but the second part of the shock is the new growth shock, which the economies are experiencing from the China slowdown.
The impact of China slowdown will be felt very differently on various economies -- developed versus developing -- there could be a divergence because most of the key developed economies do not have a huge exposure to China but for certain Asian economies, the exposure is primarily on the higher side.
For India, again, it is not so much when we look at the domestic demand for China and even India's share in exports to China. So there will be a divergence from the China impact when it comes to the growth angle but when it comes to positioning, most of the correction is likely to be seen all across the board.
Sonia: Can you give us some numbers then, what exactly is India's share in terms of exports to China and imports from China and how does the trade balance change?
A: Yes, if you look at the trade balance of India with China, we import big amounts but export tiny amounts. Last year for example, the export to China was barely USD 11 billion compared to imports of USD 60 billion leaving a trade deficit of about USD 48 billion. and I think the bigger story is the sharp expansion in India\\'s trade deficit with China.
If you were to look at a broader and a longer-term fx forecast, what we are factoring in is a relative outperformance of INR versus the rest of the Asian economies. What is a very under-appreciated fact -- a lot of people do talk about how the Chinese yuan-dollar valuation could impact India exports and especially in the baskets where we are similar but I think an underappreciated fact is the impact on India imports.
If you look at the India imports basket, almost 54 percent of capital imports for India are coming from China plus the rest of Asia and that is big. If you were to look at a revival to happen from the capital goods import side, where you have a positive terms of trade impact, capital goods imports get cheaper, I think that is definitely a big positive for India from the China story.The Great Diwali Discount!
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First Published on Aug 25, 2015 11:19 am