Rupee appreciation may take imports from China to over $61 billion

The rupee has appreciated significantly against the dollar and the Chinese Renminbi since February and if the trend continues, imports from China may cross USD 61.30 billion, a level attained during last fiscal, says a report.

The domestic currency has firmed up by close to 5.5 per cent against the dollar since February on the back of a significant portfolio capital inflows of about USD 27.5 billion.

Moreover, the Indian currency has appreciated by 3.7 per cent against the Chinese Renminbi since February, resulting in surge in cheaper imports from China.

According to SBI's research report Ecowrap, appreciation of the rupee against the Renminbi has enabled Indian importers to purchase larger quantity of goods at lower prices and if the firming trend continues, it will make goods from China even cheaper.

"If this trend of rupee appreciation continues, thereby making goods from China cheaper, our imports from China could very well exceed the level of USD 61.30 billion attained in 2016-17," the report noted adding that it can adversely impact the production of domestic industries.

The report further said with trade deficit with China constituting 48 per cent of the overall trade deficit in 2016 -17, this is indeed a matter of serious concern for policy makers.

India runs a trade deficit with China which has increased significantly over the years. Trade deficit has risen to USD 51.1 billion in 2016-17 compared to USD 19.26 billion in 2009 -10.

Exports to China are more or less at the same level while imports have doubled during the same period.

"This calls for some policies which support and encourage domestic industries so that they can grow, generate income and employment and reduce dependence on such frivolous imports thereby making the dream of 'Make in India' successful," the report noted.

India majorly imports electronic goods, engineering goods and chemicals from China.

"While rupee appreciation does have positive consequences in terms of lower imported inflation, in times of lower oil prices, we could perhaps live with a little bit of rupee depreciation !," the report said.