With indications of dwindling China's economy, analysts have begun to see the ripple effects across the world. An ASSOCHAM paper reports that there would be more negatives than positives in India.
The paper which analyzed the impact of the problems in China on Indian economy, stated that while it is true that fall in commodity prices, linked to China’s slow demand, is a positive for India, the development is not all that positive for a host of metal and iron ore producers like SAIL, Tata Steel, NMDC and upstream oil producers. A sharp fall in iron ore, steel and copper prices has equally hit the Indian manufacturers as any other company in the world.
Besides, if a bubble like situation erupts from China, the impact will be seen all around the world to which the Indian economy is too well entrenched into. China is No 1 merchandise trader in the world with over $4.16 trillion worth of trade, followed by the US with $3.9 trillion.
“If there is a shakeout, a slew of sectors in the global markets, which get their sizeable chunk of revenue from China-tourism, hotels, education, health, etc will feel the immediate impact. Then, the kind of cost competitiveness which the Chinese companies provide to several manufacturing, semi-process industries like electronics, electrical, telecom equipment, will go missing from the global supply chain,” the ASSOCHAM paper pointed out.
However, the ASSOCHAM paper sounds only caution and does not indicate any of the so-called de-coupling impact as some analysts in the stock markets might suggest. “Even in the stock markets, it would be too simplistic an assessment to suggest that the global portfolio investors would shift their funds from China and invest in India. Each dollar that will come to India will come because of its own merit and not due to weaknesses in China or elsewhere”.
“The so-called de-coupling for India had proved to be an illusion. We as an economy are not at all de-coupled with close to USD one trillion of our global engagement in goods, services and investments,” the chamber Secretary Mr D S Rawat said.
The ASSOCHAM paper said that in none of these industries, the space vacated possibly by the Chinese companies can be occupied by India which has not so far invested seriously in these sectors and several other manufacturing verticals. “Even if the Chinese get temporary jerks, they are not going to disappear from the scene. Their capability to impair is good enough to stage a comeback. The Indian enterprise, as of today, has its own problems of large debts, aggravated by high interest rates, slow demand, inability to pass on the costs and a big pressure on profit margins”.
With $94 billion imports and barely $12 billion exports (for FY’ 2015) , India runs a huge trade imbalance with China. “Imports from China account for 21 per cent of India’s total import bill; but not all the imports are avoidable, given the fact that at this point of time, we have not built manufacturing capabilities”.
“The Make in India types of initiatives are a long haul and any disruption in essential imports from China can hit the Indian supply chain as well. Moreover, because of pre-dominance of the services sector in our GDP, it is the trade which drives the Indian economy. Trade, in turn, has become China-centric, which for right or wrong reasons, cannot be given a shake-out,” the ASSOCHAM document noted.
The Indian IT sector which is fast reaching the crucial $100 billion mark in exports in the near future, would also be impacted by the jerks in China. Bulk of the revenue for the Indian IT companies comes from the US which is so closely linked to the Chinese economy. World’s top two economies have goods trade engagement alone of over $600 billion with the American imports far-exceeding the exports. A huge level of US investment has been made in China , which would also get hit building a kind of domino impact.
(News courtesy ASSOCHAM)