Indian Exporters Apprehensive on China's Yuan Flexibility Move, Indian Exporters Apprehensive For Chinese Yuan Flexibility, Indian Exporters Apprehensive Cause Chinese Currency Flexibility

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Namrata Kath Hazarika | 23 Jun, 2010
Although Indian exporters have hailed the recent move by China to make yuan more flexible in near future, they are still apprehensive about its possible benefits, which will be nullified if rupee continues appreciating or China shows lack of commitment to what it has promised.

"It is a question of how strong the Indian currency will be in connection to the dollars. If Indian rupee becomes stronger, we will loose this advantage. If China's currency is stronger and if rupee is soft then we can give a price advantage to our customers," Sudhir Dhingra, Chairman and Managing Director of Orient Craft Ltd, told SME Times.

"I hope the Indian rupee does not appreciate further which can create hurdles for the Indian exporters," he added.

China has taken the decision to make Yuan more flexible in order to grow their exports, said Dhingra, adding, "They have immense pressure from the US and European countries and once China makes the move it might be viable.

"Now because of the pressure from foreign markets, China have to appreciate their currency which will help the exports extensively." he opined.

We have to observe the entire situation. If rupee becomes stronger then we will also have to ask for more money to our customers. However, if rupee is soft and Chinese currency is hard then Indian exporters will be at an advantage, Dhingra added.

Another exporter, Subhash Mittal, who is also the Chairman of India Silk Export Promotion Council, pointed out that China has been promising to take this kind of steps since a long time but unfortunately nothing happened.

He expects that China should implement the measures at the earliest, which is likely to help the Indian economy.

Mittal told SME Times, "This move is certainly going to benefit us. It is a positive sign. China was giving us tough time on pricing. But now suppose Chinese Yuan appreciates, the Chinese prices in dollars will also go up, which will give an edge."

He added that the Chinese move will be beneficial for Indian exporters as demand flow can get diverted to India. The US counterparts may not be able to afford to avail goods at high costs from China.

"India usually loose business for slight price differential by 2-3 percent which used to go to China. But now that kind of differences will be over. And, India is considered to be reliable and dependable supplier as compared Chinese counterparts for long-term business relationship," Mittal added.

Further, Mittal also observed that the present initiative by the China will make the US to slow their placement of orders to the Chinese exporters and hence making India more profitable. He expects certain orders, which use to flow to the Chinese market probably could get diverted to the Indian market.

"For example, earlier when an American importer used to buy a shirt from China he/she used to pay 20 dollars but now they have to pay 21 dollars. They have become expensive. Some business can come back to India if suppose Chinese Yuan increases by 6-7 per cent." he said.

Sectors those are most labour-intensive will be benefited such as textiles, leather, carpets, gems and jewelry, electric components including many more, he added.

According to the Federation of Indian Export Organization's (FIEO) Chairman, A. Saktivel, the positive move announced by the Chinese government to make Yuan more flexible is the right kind of initiative as the global crisis adversely impacted the Indian export market lately.

He said, the competition is likely to increase in the market as China will definitely increase their prices of products, which will give India a competition advantage in the potential market.

"All our manufacturers will be benefited if China implement the steps accordingly which might rise demand flow from US and Europe and help India to show resilience," Saktivel mentioned.

Recently, Ashok Chawla, Secretary, Ministry of Finance also said that the government would like to wait and watch before coming to any conclusion on how China's move to make Yuan more flexible will impact the Indian industry and its current policy.

China had unified the exchange rate system in 1994 and fixed yuan's value at about 8.6 a dollar. Also, certain reformation took place again in the year 2001 at about 8.277 yuan a dollar. This was again revalued in the year 2005.

Between July 2005 and July 2008, the yuan was allowed to appreciate (steadily) by about 20 percent against the dollar, before it was again re-fixed against the US currency.

The US has been arguing for months that an undervalued Chinese currency destabilizes growth. A cheaper yuan has helped China to depend more on exports, giving competing countries a tough time.