Warning Bells for Indian MSMEs from Devaluation of Chinese Currency

Warning Bells for Indian MSMEs from Devaluation of Chinese Currency

China, which tightly controls the value of its currency by setting a daily rate for Yuan versus US Dollars, on Tuesday devalued its currency by nearly 2 per cent, which certainly is not a good news for the Indian MSME sector.

China’s central bank announced a 2 per cent devaluation of its currency, following which Yuan witnessed its biggest one day fall in a decade. Currencies across the world have been impacted by China’s surprise move.

The move is likely to have a ripple effect on imports and exports as China is world’s biggest trader and the Yuan is largely used overseas.

The MSME sector in India, who are already the victims of cheap Chinese imports, are more worried by the move as the depreciated currency would make the already cheap products more cheaper, leading to increase in dumping.

The devaluation will adversely impact countries that export commodities to China as a lower yuan makes resources more expensive to Chinese buyers. Oil prices also slumped on Tuesday tracking the events in China.

Going by the data, Director General of Commercial Intelligence & Statistics said in its report that in respect of 12 major product groups, largely manufactured by MSMEs in India whose imports from China grew at a higher rate than their respective imports from All Countries combined during 2011-12 to 2014-15.

As these 12 product groups accounted for 74 per cent of India’s total imports from China in 2014-15, a significant proportion of Indian MSMEs are seem to be adversely affecting from Chinese imports.

The Government, however, has been imposing anti-dumping duties, permitted under the WTO, for restricting imports when such imports have been established as unfairly affecting the market for goods and services produced by Indian industries.

Animesh Saxena, Managing Director of Neetee Clothing Pvt Ltd, said the move will add to the “Misery” of the MSME Sector, which is already under acute pressure due to cheap Chinese imports.

He said, “The rate of interest for lending in India is anyways higher. Finance is a major issue for the small entrepreneurs. The depreciated value of Yuan will add more to our problems.”
The textile associations have been voicing concerns over the higher rates of duties for Indian textile products in various major international markets, higher raw material cost, high cost of funding and high transaction cost, saying the industry is not in a position to achieve its potential growth rate.

On Saturday, Southern India Mills’ Association (SIMA)  Chairman T Rajkumar also appealed for expediting free trade agreements (FTAs) with all the major textile importing countries particularly China and EU and make the tariff rate slightly lower or on par with other competing nations.

Managing Director of PME Power Solutions (India) Ltd, Anil Kumar Agarwal, who is also a Senior Vice President of Federation of Indian Micro and Small & Medium Enterprises (FISME), said “The devaluation of Chinese Currency would make the competition stiffer for the Indian MSME sector.”

“Our main competitor is China,” he said adding that it will now become a cut throat competition for the sector.”

He opined that not only the exporters and importers but also the manufacturing sector would be impacted by the move.

“The markets would be flooded by the cheap Chinese imports now,” Agarwal said.

Further, he raised concern over the withdrawal of interest subvention scheme for Indian exporters, urging the government to reinstate it.

“Cost of finance in India is very high unlike in China. The wage of labourers in India for the organised sector is now equivalent to China. Further, the Chinese government gives number of incentives to the exporters unlike in India,” he said.

Hence they have an edge over the Indian MSMEs, he stated.