Rupee strengthened 4 per cent over yuan since February

India runs a trade deficit with China which has increased significantly over the years.

New Delhi: The appreciation of rupee against Chinese renminbi threatens to further increase already huge trade deficit with the communist country. Rupee has appreciated by around 4 per cent against Renminbi since February 2017. While analysts till now have focused on appreciation of Rupee against dollar, fall in Chinese currency could be another headache for Indian policy makers.

“If this trend of Rupee appreciation continues, thereby making goods from China cheaper our imports from China could very well exceed the level of $61.30 billion attained in FY17,” said economic research department of SBI in a report. India runs a trade deficit with China which has increased significantly over the years.

Trade deficit has risen to $51.1 billion in FY17 compared to $19.26 billion in FY10 (which is a staggering 48 per cent of our total trade deficit), said the report. Exports to China are more or less at the same level while imports have doubled during the same period. Indian exports to China were at $10 billion in FY17.

India majorly imports electronic goods, engineering goods and chemicals from China. The appreciation of rupee against Chinese remnibi has enabled Indian importers to purchase larger quantity of goods at lower prices. “We estimate, India on a conservative basis, saved at least $3.9 billion in May 2017 because of stronger Indian rupee,” said the report.

However, it could adversely impact production of these domestic industries. “Even the IIP data reveals that industries such as electrical equipment; motor vehicles, trailers and semi-trailers; fabricated metal products, chemicals industries are showing negative growth in the past few months,” said the report. This calls for some policies which support and encourage domestic industries and reduce dependence on such frivolous Chinese imports, the report said. Rupee has also appreciated by close to 5.5 per cent against the US dollar since February 17.

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