Unlocking the Currency Puzzle: India's Challenge Against China's Competitive Edge

Introduction

In the global economic arena, the rivalry between India and China is often scrutinized, with comparisons drawn on various fronts. While both nations boast burgeoning economies and significant global influence, India has long struggled to match China's level of competitiveness. One crucial factor in this equation is the currency value of each country. This article talks about how the value of money affects and how well India and China can compete globally.

Discussion

At the heart of the competitiveness debate lies the contrasting trajectories of the Chinese Renminbi (RMB) and the Indian Rupee (INR). China has meticulously managed its currency, maintaining a relatively stable and controlled exchange rate, which has facilitated its favorable import-export-led growth strategy. In contrast, India's currency has been subject to greater volatility, influenced by many domestic and international factors.

Currency Exchange Rates Comparison: China and India

China's competitive edge is partly attributed to its currency, which makes its imports as well as exports more attractive in the global market. For example,

China - America Currency Exchange Rate: 1 USD equals 7.23 RMB

India - America Currency Exchange Rate: 1 USD equals 83.48 INR

So for importing a commodity of 1 USD value the Chinese company only pays 7.23 RMB whereas for importing a commodity of 1 USD the Indian company pays 83.48 INR. Thus, Chinese companies have to pay less money than Indian companies for purchasing same amount of a commodity. This advantage has allowed China to dominate various industries, ranging from manufacturing to technology, and significantly expanded its trade surplus. Conversely, India's fluctuating currency has led to uncertainties for importers and exporters alike, hindering the country's ability to establish itself as a manufacturing powerhouse. Thus, Indian companies are facing increased financial burdens, leading to a loss of competitiveness.

Let’s consider the purchase of crude oil as an example:

Crude oil

Suppose both a Chinese and an Indian company want to import crude oil priced at $86 per barrel from the international market.

Chinese Company: With the exchange rate of 1 USD = 7.23 RMB, the Chinese company would need to pay approximately 620.78 RMB per barrel (86 USD * 7.23 RMB/USD) for the crude oil.

Indian Company: With the exchange rate of 1 USD = 83.48 INR, the Indian company would need to pay approximately 7,197.28 INR per barrel (86 USD * 83.48 INR/USD) for the same crude oil.

We can see that the Chinese company pays significantly less in terms of their local currency compared to the Indian company for the same quantity of crude oil. This currency advantage allows Chinese companies to procure resources like crude oil at a lower cost compared to their Indian counterparts, giving them a competitive edge in industries reliant on imported commodities.

Let's consider other examples involving copper and lithium:

Copper

Chinese Company: With the exchange rate of 1 USD = 7.23 RMB, the Chinese company would pay approximately 65,070 RMB per ton (9,000 USD * 7.23 RMB/USD) for copper.

Indian Company: With the exchange rate of 1 USD = 83.48 INR, the Indian company would pay approximately 753,120 INR per ton (9,000 USD * 83.48 INR/USD) for the same amount of copper.

Lithium

Chinese Company: At the same exchange rate, the Chinese company would pay around 108,450 RMB per ton (15,000 USD * 7.23 RMB/USD) for lithium.

Indian Company: Similarly, the Indian company would pay approximately 1,252,200 INR per ton (15,000 USD * 83.48 INR/USD) for lithium.

In both cases, the Chinese company pays significantly less in its local currency compared to the Indian company for the same quantity of copper and lithium. These highlights the advantage Chinese companies have in importing commodities due to the favorable exchange rate of the Chinese currency, the Renminbi (RMB), making their imports cheaper and thus boosting their competitiveness in the global market.

China's meticulous management of its currency has been a cornerstone of its import and export-led growth strategy. By maintaining a relatively stable and controlled exchange rate, China has garnered a competitive edge, making its imports and exports more attractive in the global market. This advantage has propelled China to dominate various industries and significantly expand its trade surplus.

The stability of a nation's currency plays a pivotal role in attracting foreign investment. China's controlled exchange rate instills confidence in investors, offering predictability and mitigating currency risks. This stability has consistently attracted substantial foreign direct investment, fueling China's economic growth.

On the other hand, India's volatile currency has deterred some investors, who perceive greater risks in navigating the fluctuating exchange rates. Addressing this issue requires a multi-faceted approach, including prudent monetary policies and structural reforms aimed at enhancing the competitiveness of domestic industries.

Conclusions

The currency dynamics between India and China serve as a critical determinant of their respective competitiveness on the global stage. While China's controlled exchange rate has bestowed upon it a significant advantage in trade and investment, India's fluctuating currency has posed challenges and hindered its quest for competitiveness.

However, by prioritizing macroeconomic stability, implementing prudent monetary policies, and fostering an enabling environment for businesses, India can narrow the gap with China and bolster its position in the global market. Strategic partnerships, coupled with domestic reforms, will be pivotal in shaping India's economic trajectory and leveling the playing field with its Chinese counterpart.