One of the points of celebrations in India in the last couple of years has been that India is growing faster than China. With China just growing at 6.5% in Q3, India’s GDP growth is likely to beat that by a comfortable margin. Is that reason to celebrate? Not exactly!
Growth worries globally
With an annual GDP of close to $13 trillion, China is the second largest economy in size and the largest in terms of demand. It has an insatiable appetite for everything from metals, alloys, minerals, agri products, fashion items, cars and aircraft. Even a 50 basis points slowdown in China will have a major impact on the demand of all these products. We have seen JLR shutting its European plant for 2 weeks to offset the fall in demand from China. This applies to almost every single product today. That demand shrinkage in China will have a contagion impact on India too.
Watch out for the Yuan
The bigger concern from China could be on the currency front. There are two events of importance here. Firstly, the US sanctions are unlikely to be diluted in the near future and that means the impact on trade will continue. For an export driven economy like China, the only way out will be to let the Yuan weaken in a managed band. We did see in 2015 that a weak Yuan has the capacity to wreak havoc on most emerging market currencies including India. The last thing that India would want at this point is further volatility in the INR which has stabilized after a long time. A weaker Yuan will also make it easier for China to dump its products into India at a lower cost. India will have to either impose CVDs or let local industries in suffer in the process. Slowing growth in China is not good news. For India, it could stall the nascent economic recovery! ©