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The devaluation of the Chinese yuan will hit the competitiveness of the automobile parts makers in the export market. Among the various export markets, a greater impact is expected in Europe, where a weak euro has already affected the competitiveness of Indian exporters. The yuan fell for a third day on Thursday to a four-year low.
"This is certainly bad for us as prices of Chinese components will become more competitive. The devaluation of the Chinese currency will offer a platform for buyers to discuss prices again. This will pose a problem for exports from India over the next six to 12 months", said Rajinder Kakroo, general manager of exports, Shriram Pistons & Rings. The company's export revenues stood at Rs 215 crore the past year.
The Rs 2,34,000-crore domestic component sector exports nearly 30 per cent of its produce. Registering a growth of 11 per cent, component exports touched a record Rs 68,500 crore in the year ended March 2015. As a region, Europe is the largest market, accounting for 37 per cent of shipments, followed by Asia at 25 per cent. Some of the key export components are engine parts, transmission parts, brake system, body parts, exhaust systems, and turbochargers.
"Indian components compete with China's in almost every single market. The devaluation of the Chinese currency is definitely a matter of concern, both from the point of view of competition in the export market, as well as the domestic market. However, India is strong when it comes to quality. So, an improved price competitiveness of Chinese components may not necessarily reverse the fortunes of the Indian sector," said Vinnie Mehta, director-general, Automotive Component Manufacturers Association.
China has access to cheaper raw materials that go into component manufacturing. Kakroo said dollar-denominated exports from India are competitive but competitiveness has taken a hit in euro-denominated exports. "Our margins from Europe had already reduced due to a 10 per cent weakening of the euro over the past one year. Margins will come under further pressure now", he said.
"Exports can take a hit if this trend strengthens, as our competitiveness will suffer. The government can step in, with some sops to support exports. The sector also needs a lower interest rate. High cost of capital also hits competitiveness in the export market for all products", said Nishant Arya, executive director at JBM Group, which exports components worth Rs 700 crore annually.
