DEVALUATION OF YUAN AND ITS IMPACT

ON INDIAN ECONOMY

BY : NANDAN THAKUR 2014A8PS481G

SHRIYA SHRIVASTAVA 2014A3PS314G
AKSHITA MITTAL 2014A8PS461G
ABHYUDAY PURI 2014A3PS233G
 TODAYS GOALS

Chinese Yuan and Devaluation of Currency

definition.
Reasons for Devaluation of Yuan by China.
Impact of Chinas Yuan Devaluation on Indian
Economy.
Impact of Chinas Yuan devaluation on Indian
Industry.
WHAT IS YUAN ??
Yuan is the Basic Monetary Unit of China

1 Chinese Yuan = 9.91 Indian Rupees

Symbol of Chinese A 100 Chinese Yuan note

Yuan
Symbol of Chinese Yuan
CURRENCY DEFINITION

Currency is a generally accepted form ofmoney, including coins and paper notes, which is
issued by a government and circulated within an economy.
Currency also serves as a medium of exchange between goods and services.

Currency devaluation is a deliberate downward adjustment to the value of a country's

currency relative to another currency or a group of currencies.

Currency Devaluation is amonetary policytool used by countries that have afixed

exchange rateor semi-fixed exchange rate.
 10TH AUGUST 2015
On 10th August 2015, the global economies and markets had experienced the Black
Monday.
Yuan dropped a significant amount of 1.8% on a single day which is the steepest one-
day decline in at least 20 years.

Dollar Yuan exchange rate fell by

around 25% in the past decade
REASONS FOR DEVALUATION OF YUAN BY CHINA

REASON NUMBER 1: To help the declining GDP growth of China by boosting Exports

Growth in exports leads to :

1. Employment

2. Economic growth

3. Current Deficit
REASONS FOR DEVALUATION OF YUAN BY CHINA

REASON NUMBER 2: To expand the role of China in Global Financial System

A decade long boom has turned China into the worlds second largest economy.
Despite the worlds second largest economy by trade its role in the was limited in the
global financial system.
IMPACT OF CHINAS YUAN DEVALUATION
ON INDIAN ECONOMY
HIGH VOLATILITY IN RUPEE

It strengthened US dollar and caused other currencies,

including Rupees to depreciate. Rupee immediately
plunged to a two year low and depreciated @4.22%
against US dollar.
if the same trend continues: the imports would be costlier,
increase in inflation, increased interest rates, increase
trade deficit, sluggish economy with decreased industrial
output and further increase the current account deficit.
INDIA FROM IMPORT ANGLE

India solely imports 80% of its crude oil requirements, and a weaker Rupee would
mean that oil companies will have to hike petrol and diesel prices. Costlier
transport fuel will knock up prices of most goods and stoke inflation. All imports
right from raw material to finished goods would turn costlier and squeeze profit
margins. This may prompt companies to raise prices of consumer goods such as
cars and TVs.
IMPACT ON FOREIGN INVESTORS

FIIs (Foreign Institutional Investors) have

invested billions of Dollars in Indian stock
market. Their returns are negatively
impacted due to falling Rupee and squeeze
in profits of Indian companies. Thisincreased
volatility in Indian bond markets further
triggered additional weakness for the rupee.
INFLATION

Expensive imports would lead to inflation and that force Reserve Bank of India
(RBI) to hold on to high interest rates, which hampers ongoing economic recovery.
IMPACT ON DOLLAR DENOMINATED LOANS OF INDIAN
COMPANIES

Devaluation of Yuan led to the strengthening of the dollar and hence led to the
weakening of the Indian Rupee.

This led to hardships in repaying dollar denominated loans since they will become
costlier.
INDIA V/S CHINA: EXPORT

India and China are competitors in export of items like textiles, metals, jewellery
etc.
Devalued Yuan hence gives China an advantage over India.
In 2014-15 imports from China were at $60 billion as compared to the previous
year, while exports from India were only $12 billion.
This clearly points to a trade gap.
DECLINING EXPORTS

Apart from the before mentioned items, India and China are E-commerce
competitors as well.
China would now export at lower costs due to devaluation.
This enables China to take away Indias export share.
The economic slowdown in China also affects Indian exports to China.
DECLINING EXPORTS
DUMPING OF CHINESE GOODS

Indian manufacturers would now face threat from the Chinese goods being
dumped in to India.

Again, taking advantage of devaluation, China can sell these goods at a price
lower than Indian counterparts.
MOUNTING PRESSURE ON CENTRAL BANKS

Strengthening of US Dollar puts pressure on RBI to devalue its currency as well.

Decreasing rates of interest may eventually throw economies into deflation.

IMPACT ON THE INDIAN INDUSTRIES

Textil Meta Electrical E-

Chemic
e l Consumabl Commerce
al
es
TEXTILE

The biggest sector that competes with China.

China would export the goods at a lower cost (Competitive price advantage).
CHEMICAL

India and China are major producers or ORGANIC and INORGANIC chemicals.
India has been impacted by higher oil prices.
China is selling goods at a lower price.
METAL

Chinese exports have impacted global metal producers.

China is facing multiple legal cases for selling goods below the cost price.
Increased import duty ------ NULLIFIED by the decrease of the YUAN.
ELECTRICAL CONSUMABLES

Majorly imported from China.

They may get cheaper.
Companies will pocket this difference.
 E-COMMERCE

Most of their goods are imported from China.

CONCLUSION

Post the devaluation of Yuan, all the markets started showing negative returns.
This goes to show the far reaching effects of the devaluation.
The Indian economy too is undergoing adverse effects due to this.
THANK YOU