Wednesday, 12 August 2015

Achae Din, China devaluation and its effect on India

Achae Din are here

The Industrial Output data was released yesterday
Consumer Price Index slowed to 3.8%
Food inflation was lower at 2.15%
Index of Industrial production was up at 3.78%
Manufacturing also grew faster

What can we infer from these numbers. The efforts of Dr. Raghuram Rajan and that of Mr. Narendra Modi is paying off. The slowing down of the inflation is actually more important for the poor of the country. The indirect and direct taxes will go up as there are green shoots in our economy.

The opposition (read Congress) has ensured that the GST Bill doesn’t get through in this monsoon session of the Parliament. As we all know Congress does not have the interest of the nation ahead of the silly points it is willing to score in the Parliament. Net result is we may not have the GST bill in operation from 2016 April.


If you thought US Fed was going to increase interest rates. You were mistaken, China has come with a devaluation of the Yuan by about 2%, the largest in about 2 decades. There has been a fall in its value after that too.

The cost of Chinese products will become cheap and will result in competitive devaluation by other economies. We can see South Korean and Japanese economies devaluing their currencies. Maybe India might also follow suit. If this happens Fed (of US) might not raise rates just yet. So many of our expectations might be false regarding the World economy.

We are likely to impose an anti dumping duty against Chinese steel into India. I guess a 4% anti dumping duty might not be enough. We might have to have a steep anti dumping duty. This might lead to a sharp reaction on the Indian Exports to China, as exports will not only be costly but might attract anti dumping duty as well. The total trade deficit of India with China is $45 Billion in favour of China.

What we have just now described is not only with regard to the Indian economy but refers to all the economies of the world.

What we are going to witness is an action and counter action currency war due to this devaluation.

1 comment: