G-20 discussions set to focus on impact of yuan devaluation

But according to several economists, the Chinese devaluation of the yuan is not of serious consequence to the Indian economy.

The Indian government on Thursday said competitive devaluation of currency is a major threat to the stability of the global economy. The statement was made in the release announcing Finance Minister Arun Jaitley’s departure to Ankara in Turkey for a meeting of G-20 Finance Ministers and central bank governors.

“The recent devaluation of major currencies followed by currency depreciations in a large number of Asian emerging markets raises the risk of competitive devaluations. Competitive currency devaluations, at a time when global demand is sluggish, is a major threat to stability in the global economy,” the Ministry release said.

The two-day meeting will take stock of the global economic situation and the yuan devaluation is expected to dominate the agenda.

However, according to several economists, the Chinese devaluation of the yuan is not of serious consequence to the Indian economy, even in the medium term.

“Over the last year, the Indian currency has devalued far more,” than the Chinese one. I do not understand what the major fear is over the Chinese devaluation,” It will not affect our economy too much even if it devalues its currency in the future, economist Surjit Bhalla told The Hindu .

DK Joshi, chief economist at Crisil, reiterated this view, but said that a rapid devaluation could have an adverse effect on the Indian economy. The rupee fell 4.5 per cent against the dollar compared to 3.3 per cent for the yuan against the dollar in the period January 1, 2015 to August 25, 2015, he said. He added that, since August 2014, this difference was more stark, with the rupee falling more than 9 per cent and the yuan only falling 4.2 per cent.

"However, if in the future China devalues its currency very rapidly, then this could cause instability and affect the Indian economy adversely. But, keep in mind that India is still severely uncompetitive in its processes compared to China, so even if the currency situation is favourable for India, it won’t really help us much,” Mr Joshi told The Hindu.

The overarching purpose of the two-day meeting is to take stock of the global economic situation and review the member nations' growth strategies. Reserve Bank of India Governor Raghuram Rajan will also participate in the meet.One of the items on the agenda in the G20 meeting, it added, would be to "analyse the situation and consider collaborative measures like developing the global safety nets to protect countries from negative spillovers arising from domestic actions”.

The Finance Minister had highlighted the effect of China’s devaluation of the Yuan during a speech two weeks ago as well. "China’s devaluation of its currency is creating ripples in global markets. And obviously being part of the globally integrated economy this will leave some transient impact on the Indian economy as well,” he said at the time, speaking at a tax conference.

Also on the agenda during the finance ministers’ meeting is a review of the progress on the G-20/OECD High Level Principles on SME financing and the establishment of the private sector-led World SME Forum, “a new initiative to serve as a global body to drive the contributions of SMEs to growth and employment”.The Finance Minister will arrive back in India on September 7.