China troubles not good news for India: Assocham

New Delhi, Jul 12: Economic troubles in China may have significant impact on India, particularly in sectors like IT and steel, industry body Assocham has warned.

While it is true that fall in commodity prices, linked to China's slow demand, is a positive for India, the development is not all that positive for a host of metal and iron ore producers like SAIL, Tata Steel, NMDC and upstream oil producers, a paper, which analysed the impact of the problems in China on Indian economy, stated.

"A sharp fall in iron ore, steel and copper prices has equally hit the Indian manufacturers as any other company in the world.

"Besides, if a bubble like situation erupts from China, the impact will be seen all around the world to which the Indian economy is too well entrenched into.

China is number one merchandise trader in the world with over USD 4.16 trillion worth of trade, followed by the US with USD 3.9 trillion," the paper prepared by Assocham pointed out.

The industry body cautioned that if there is a shakeout, a slew of sectors in the global markets, which get their sizeable chunk of revenue from China-tourism, hotels, education, health, etc. will feel the immediate impact.

In such a scenario, it said, the kind of cost competitiveness which the Chinese companies provide to several manufacturing, semi-process industries like electronics, electrical, telecom equipment, will go missing from the global supply chain.

"The so-called decoupling for India had proved to be an illusion. We as an economy are not at all de-coupled with close to USD 1 trillion of our global engagement in goods, services and investments," Assocham Secretary General D S Rawat said.

The Assocham paper said in none of these industries, the space vacated possibly by the Chinese companies can be occupied by India which has not so far invested seriously in these sectors and several other manufacturing verticals.

"Even if the Chinese get temporary jerks, they are not going to disappear from the scene. Their capability to impair is good enough to stage a comeback.

"The Indian enterprise, as of today, has its own problems of large debts, aggravated by high interest rates, slow demand, inability to pass on the costs and a big pressure on profit margins," it said.

The Indian IT sector which is fast reaching the crucial USD 100 billion mark in exports in the near future, would also be impacted by the jerks in China.

Bulk of the revenue for the Indian IT companies comes from the US which is so closely linked to the Chinese economy, the analysis by Assocham found.

However, the paper sounded only caution and did not indicate any of the so-called de-coupling impact as some analysts in the stock markets might suggest.

PTI