India Concerned Over China’s Economic Slowdown

SOURCEInSerbia

As the global economy is being rocked by China’s economic slowdown, India has started taking necessary steps to safeguard its economy.

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The biggest Asian economy grew at its lowest pace in a quarter of century, as Chinese GDP growth rate was 6.9% in 2015. It is the slowest since China recorded a 3.8% GDP growth in 1990, a year after the Tienanmen Square crackdown rocked the country and isolated the Asian power internationally.

The influence of Chinese economic slowdown on other economies is pronounced, whether through the prices of commodities, like iron ore, oil and copper, or through the rising demand for luxury and consumer goods from foreign countries. Worries over the Chinese economy have fuelled sell-offs in overseas stock markets in recent weeks. For India, the impact of China’s slowdown has been on the rupee that breached the 68-to-the-dollar mark on Wednesday. As the weak rupee can make imports costlier, the Reserve Bank of India (RBI) plans to think long and hard about further interest rate cuts.

Indian economic experts consider the slowdown as a turnaround and also a worrisome sign especially after decades of rapid Chinese growth that had helped the world navigate the 2008 global financial crisis. Analysts believe that a weaker external environment caused Chinese exports to drop in 2015 and a limping property market – a key source of revenue for Beijing. The recent stock market crash also caused the financial sector to contribute less to the Chinese economy and a weak currency that has seen capital storm out of the Asian country.

With the weak growth figures spurring expectations, the Chinese authorities may further loosen their monetary policy in 2016 to fight economic deflation. Beijing is also exploring ways to handle a massive oversupply of property and to rein in continued overproduction in heavy industries. Heavy industries, many of which are still state-owned, dominate the Chinese economy.

India may not be the worst sufferer of a Chinese meltdown, but the slowdown can affect all the emerging markets, including the South Asian nation. India will also be very concerned if China decides to allow a major devaluation in the yuan currency. Economic expert Arvind Panagariya has expressed serious concern over the scenario, saying: “India has to be certainly very concerned if a massive or very large devaluation of the yuan happens. In the end, that not only makes Indian goods less competitive in the Chinese market, but also India’s ability to compete with the Chinese in third markets is impacted.”

Meanwhile, the International Monetary Fund (IMF) has kept India’s growth projection unchanged at 7.3% in the 2015-16 financial year and 7.5% in the next, although it cut the world economic outlook to 3.4% for 2016 and 3.6% for 2017. In its update on World Economic Outlook, the IMF said that China’s economic growth would slow to 6.3% in 2016, but India would continue to grow at a “robust pace”.

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