Diwali for exporters as Yuan hits record high

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Mithun Dasgupta | 16 Nov, 2012
It was a happy Diwali for the Indian export community, thanks to the Chinese Yuan that rose to a record high this week.

Exporters said shipment of products like engineering goods, textiles, leather and steel products would be benefited due to the steep appreciation of China's currency against the US dollar.

It would also check, they said, China's rising exports to India.

For the second consecutive day Nov 13, the spot price of the Yuan hit a record high against US dollar since the country initiated its foreign exchange reforms in 2005.

The Yuan hit a record high following China's positive economic data coupled with strong export growth, while India's rupee fell to its lowest in two months to 55.12 against the US dollar Monday after data showed a record trade deficit and contraction in factory outputs.

"It (Yuan's record rise) is big news for Indian exporters. Due to this, Indian exports should be more competitive against Chinese exports in overseas markets," Federation of Indian Export Organisations (FIEO) president M. Rafeeque Ahmed told agency.

The export items from India which would directly benefit are textiles, engineering products, steel and leather goods, Ahmed said.

"In every export market our products would be more attractive. We will see good results especially in the US," he added.

This would certainly be a great delight for India's export community as the country's exports slipped for the sixth straight month in October this year.

Exports for October fell 1.63 percent from a year ago to USD 23.24 billion, while imports rose 7.37 percent to USD 44.20 billion, leaving the trade deficit at a record high of USD 20.96 billion.

Ahmed argued that the sharp hike in the price of Chinese currency would lead to a check in volume of exports from China to India. "It may also in turn check India's widening trade deficit," he averred.

Rakesh Shah, former chairman of the Engineering Export Promotion Council (EEPC), seconded Ahmed's view that the appreciating Yuan would certainly push exports of India's engineering goods to the international markets.

He, however, pointed out that it was the high-end engineering products that would see good demands compared to Chinese products.

"We cannot compete with Chinese engineering goods in mass category because these are very cheap due to the economies of scale. So, we have to compete in specialised or high value machinery and electrical equipment. In the high value engineering goods, we will have a comparative advantage than our biggest rival in the overseas markets following its recent high currency appreciation," he explained.

According to Shah, India's exports of engineering goods category stood at about USD 60 billion, of which high-value product accounts for 45 percent.

A higher Yuan also prompted Ramu Deora, the former president of FIEO, to say "It is good for India". Deora expects it would help India boost its exports to Asian markets, China and Scandinavian countries.

"Following the rise in Yuan, our exports to China will see a jump. Exports of pharmaceutical products should record a major hike," Deora averred.