With China’s central bank following up on Tuesday’s devaluation of its tightly controlled currency, yuan, by 1.9 per cent with another 1 per cent cut on Wednesday, India increased the import duty on certain steel products by 2.5 per cent.
This is the second increase in two months. The steel industry is facing profit pressure as prices of imported steel are up to 20 per cent lower than those of domestic products. As China’s move sparked fears of a currency war, the rupee weakened to 64.66 to the dollar, soon after trading opened on Wednesday. It was the lowest level since September 2013, when India was in the middle of its worst external account turmoil since the 1991 balance-of-payment crisis. But the rupee recovered to 64.81 by the close of trade.
Chief Economic Adviser Arvind Subramanian sought to allay fears a day after Finance Minister Arun Jaitley said the Congress’s “disruptionist” politics were aimed at stalling India’s growth.
Global experts have expressed extreme views on the devaluation of the yuan. Some have said it is more significant than the Greek crisis and the coming U.S. Fed interest rate increase. But for others, it is a small and long-overdue adjustment that barely begins to make up for the really big recent moves in the dollar, euro and yen.
“The pick-up in real credit growth and indirect tax receipts suggests that the underlying momentum in the economy is improving,” Mr. Subramanian told presspersons.
The growth in underlying indirect tax collections (excluding the additional revenue from excise increases in diesel and petrol and higher clean energy cess and service tax rate) of 14.6 per cent for the first four months of the fiscal, he said, represents a “healthy increase in nominal GDP growth”. He said China’s surprise decision, which saw its Asian counterparts trade with a bearish tone on Tuesday, could be aimed at satisfying the conditions the IMF had spelt out for granting it reserve currency status and inclusion in the special drawing right (SDR) basket.
Arundhati Bhattacharya, SBI Chairperson, however, said: “Yuan devaluation is a challenge obviously because it makes our exporters a little uncompetitive … As it is, they have to deal with a higher interest rate. Devaluation means Chinese exports become that much cheaper.”
India’s overall exports have contracted for seven straight months until June. Domestic players such as Tata Steel and JSW Steel have been urging the government to take more measures to check cheaper imports and save the domestic industry.
