If Beijing devalues the yuan, India suffers. So warns Delhi’s G-20 negotiator, Arvind Panagariya, in an interview with Reuters:
“India has to be certainly very concerned if a massive or very large devaluation of the yuan happens,” Panagariya said in an interview after returning from a visit to China to discuss preparations for this year’s G20 summit.
“In the end, that not only makes Indian goods less competitive in the Chinese market but also India’s ability to compete with the Chinese in third markets is impacted.”
Panagariya, appointed by Prime Minister Narendra Modi a year ago to run his government’s Policy Commission, said he doubted China would allow the yuan to crash: “The Chinese are not going to let the yuan devalue excessively.”
With the Indian rupee appreciating against many currencies (although not the dollar), India watchers should keep a close eye on Beijing’s moves. The downsides of currency devaluation aren’t so great at the moment, and the upsides are clear. A weaker currency makes raw materials more expensive to import, while making exports more attractive. In an era of dirt cheap commodities, raising the cost of raw materials imports isn’t so much of a concern. But the need to keep exports competitive remains a key challenge.
Asia watchers often miss the extent to which officials in Tokyo, Beijing, Delhi, and elsewhere are making decisions in order to gain a competitive advantage and not simply in response to domestic concerns. So while we don’t know whether a big yuan devaluation is coming, we do know this: China wouldn’t mind if India struggled a bit.