ICRA expects the current account deficit to narrow in FY 2016 from 1.3% of GDP in FY 2015 following Yuan Depreciation

• ICRA expects CPI inflation to undershoot the Reserve Bank of India’s (RBI’s) projection of 6.0% for January 2016
• China’s share in India’s total imports has reduced in the current year to about 36% during Q1FY16 from 44% in FY 15
• Yuan devaluation has exacerbated the price differential between Indian made and Chinese landed tyres.
• India’s trade deficit with China has widened from USD 1.03 billion in FY10 to USD 2.83 billion in FY15
• FY15, India imported auto components worth USD 3.17 billion from China, as against USD 344 million exports to China
• Imports from China are priced-on an average-20%-25% cheaper than Indian components, posing a serious threat to domestic auto ancillaries
• The current Yuan devaluation could lead to a product specific relook at these cost dynamics to some extent
• The continued devaluation of Yuan could lead to global OEMs continue using China as a sourcing point for India, instead of developing local Indian suppliers

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ICRA analysis on Yuan Devaluation impact on Corporate Sector