Increase in the value of a countrys currency increases the value of the concerned countrys exports, while any decrease in its currency value affects their export value and simultaneously offers cheaper benefits to foreign consumers.

 

Indian currency gained 12 percent increase against the US dollar value during 2007. It was Rs. 39 INR for a US dollar. Since 2008, value of Chinese renminbi has increased by 2.23 percent, whereas, Indian currency has lost value by 1.32 percent. The appreciation of Chinese currency causes an intimidation to the countries that import goods from China. This sharp increase in the currency value has triggered the concern of foreign importers from China, creating potential risk to Chinas financial stability. Countries that import goods from China will shift their focus to India because the sharp appreciation in the value of Chinese currency makes it expensive for other countries to import goods from China. There are wild assumptions that the value of Chinese currency will still increase in the near future against major world currencies. Chinas role as a producer of low cost products is now fading slowly.

 

India Vs China Economic comparision:


  • China and India are the two hot destinations for foreign investors all across the globe. China has always been surpassing India until the recent past. China is the 4th largest economy of the world by GDP whereas, India is 12th.
  • Chinas part in global trade activities are 8 percent, while Indias contribution is only 0.8 percent.
  • During 2007, China registered a GDP growth rate of 11.3 percent whereas; Indias GDP was 9.3 percent.
  • As per the 2007 data, Chinese economy is worth $3100 trillion, while Indias economy value is $900 billion.
  • Chinas foreign exchange reserves exceed 1 trillion dollars, whereas Indias reserves in more than $265 billion.

 

Chinas growth is being boosted by its abundant availability of infrastructure. Its success is also related much to the increase in manufacturing exports. Indian exporters compete with China especially during the export for garments. The recent spike in the Chinese currency and a substantial depreciation in the Indian currency value, both being against the US dollar have actually favored the Indian exporters to surpass their Chinese competitors. During the last three months Indian exporters have gained a 6 percent currency advantage over their Chinese compititiors. This scenario is favorable more particularly for the firms that produce goods with a short production cycle; for instance garment industries. India would benefit more from countries like Europe and US who import goods from China.

 

But at the same time, all the sectors in India would not be benefited by the appreciation of Chinese currency. The Indian firms that import goods from China are at stake. Companies like telecom companies that buy their infrastructure equipments, and power companies importing boilers from China will be affected.

 

The market size of both India and China offer vast potential to the companies in each country. Due to Chinese currency appreciation, it is possible that in future, companies doing business with China will look at India as a positive alternate, and China will be facing competition from Indian companies. This situation favors especially textile and garment industries.

 

References:

 

1)     http://www.chinadaily.com.cn

2)     http://www.livemint.com

3)     http://www.agmetalminer.com

4)     http://www.merinews.com

 

 

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