 "Yuan devaluation to impact MSMEs engaged in foreign trade")
Last week, China's central bank, People's Bank of China, devalued the yuan by about two per cent last Tuesday last - the biggest one-off devaluation in 20 years. This will likely impact Indian micro, small, and medium enterprises (MSMEs) engaged in foreign trade (i.e. exports and imports). CRISIL has analysed the performance of about 6,900 Indian MSMEs rated on the basis of their 2013-14 (financial year April 1 to March 31) financials, of which about 425 are engaged in foreign trade.
Nearly 55 per cent of CRISIL-rated MSME exporters operate in industries such as engineering, textiles, fast-moving consumer goods (FMCG) and chemicals & drugs, and the yuan devaluation means these will face increased competition from Chinese players. Also, industrial machinery, construction material, gems & jewellery, electronics, and chemicals & drugs accounted for 73 per cent of CRISIL-rated MSME importers. Imports are expected to become expensive because of rupee depreciation vis-à-vis the US dollar. Most of India's imports from China are settled in the US dollar; thus, Indian MSME importers will not be able to gain much from the yuan devaluation.
Nearly 55 per cent of CRISIL-rated MSME exporters operate in industries such as engineering, textiles, fast-moving consumer goods (FMCG) and chemicals & drugs, and the yuan devaluation means these will face increased competition from Chinese players. Also, industrial machinery, construction material, gems & jewellery, electronics, and chemicals & drugs accounted for 73 per cent of CRISIL-rated MSME importers. Imports are expected to become expensive because of rupee depreciation vis-à-vis the US dollar. Most of India's imports from China are settled in the US dollar; thus, Indian MSME importers will not be able to gain much from the yuan devaluation.
Note: CRISIL has rated over 75,000 MSMEs in India. This fortnightly tracker presents to our readers insights on MSMEs, a key element of the Indian economy.