China’s Hard Landing To Trigger Meltdown In India: “We Will See Another Crisis”
Despite RBI Governor Raghuram Rajan’s penchant for catching markets off guard and despite the fact that exports had fallen for eight consecutive months, economists still failed to predict that anything more than 25 bps was in the cards.
“The weakness in India’s exports is striking, not only in terms of past trend, but also from a cross country perspective,” Deutsche Bank wrote at the time. “Indeed, India’s exports performance has been the weakest in the region in 2015.”
In short: in a world gone Keynesian crazy, you live and die by your willingness to engage in competitive easing and with China having just a month earlier moved to devalue the yuan, India had little choice but to cut lest the export picture should darken further.
Since then the malaise has deepened.
Exports have now fallen for 12 straight months and although some of the decline is probably attributable to slumping prices (as opposed to lower volumes), it’s worrisome nevertheless.
“India’s external trade likely fell for second consecutive year in FY16E, with both exports and imports contracting by 18.5%YoY and 17.2%YoY in the period Apr-Nov’15,” Citi notes, adding that “the meltdown in India’s exports and imports was even sharper than the global tradewhich contracted by 12- 13%YoY.”
On Friday, in the wake of China’s continued devaluation of the yuan, Indian Trade Minister Nirmala Sitharaman expressed concern about the effect a sharply weaker RMB will have on her country’s trade deficit with Beijing. “It’s worrying,” she said. “My deficit with China will widen.”
India is now looking at ways to prevent a flood of cheap imports from hitting domestic producers. “India steel companies such as JSW Ltd have asked the government to set a minimum import price to stop cheap imports undercutting them,” Reuters writes. “A similar measure was adopted in 1999.”
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