Experts, however, feel that the worst impact of the Asian crisis on India's economy may be over. And the threat of intense competition, including undercutting and large-scale dumping, to India's exports may not be as severe as feared by industry. India's exports to East Asia, including Japan, is 20 per cent of its total exports, the bulk of which again is in the low-value segment.And the significant threat will arise only if China tries seriously to increase its share of the global market.
If China does go ahead and devalue its yuan, exports of textiles and garments could take a severe hit, feels economist Bibek Debroy. Next in the line of firing would be gems and jewellery (mainly diamonds) and to some extent, engineering goods. The other area where India could face some music is if a sliding yuan starts off competitive devaluation in the region. Already, industrialists are complaining about the indiscriminate dumping of steel and intermediates by some of the desperate Asian nations. Says Amit Mitra of FICCI: "Major domestic producers, even public sector giants, are hit by cheap imports from the region flooding India, which don't even come under the gambit of dumping."
The positive side to the disaster is a further slide in the rupee which has depreciated roughly only about 50 per cent in relation to the drop experienced by the Asian currencies on average. Strong capital flows, including $30 billion of reserves (as per the 1998 World Bank Update), have helped the rupee to stay stable. The correct value could well be Rs 45-46 and if the secondary bout of Asian flu sends the rupee down to close at that level, thanks to market expectations and some timely nudges from the RBI, some long-term economic benefits are likely.
Renowned economists and global institutions have found India's lack of capital convertibility a good defence against the Asian flu. While that remains a strength, the weaknesses of a barricaded trade may lead to short-term problems. Problems which can only be tackled through increased reforms, essentially globalisation of trade and foreign investments. Essentially, it amounts to raising the global stakes in the country. The miracle is something India could have reproduced, though it seems we have succeeded in replicating some of the panic. As Jagdish Bhagwati noted recently: "When you confine yourself to the internal market, you have to worry about where the demand is going to come from... When you are outward-oriented, the world is at your feet."
