Weakening rupee pushes India to settle with China in yuan
India’s rupee has plunged to a fresh record low against the greenback recently. China-India trade is mostly settled in dollars since there is no direct convertibility between the rupee and the yuan.
By paying China in yuan, New Delhi seeks to reduce escalating costs because of the rupee drop. India is a net importer of oil, and wants to save on dollars to pay soaring crude costs. This fiscal year, India will have to pay a record $125 billion for oil, or 8.8 trillion rupees, the highest in rupee terms since 2001.
For Beijing, the move is set to boost the influence of renminbi globally. The BRICS group of emerging economies, Brazil, Russia, India, China and South Africa, have already discussed switching to yuan in trade.
As the trade war between China and the United States escalates, India has been able to fill in the gap in trade between the world’s two largest economies. Between April and August, India’s exports to China grew an average 52.9 percent year-on-year, highest in the past few years. This has helped India to reduce its trade deficit with China, which stood at $63 billion last year, by $2.8 billion.
India plans to further cut the deficit by increasing agricultural exports such as soybeans and cotton to China, which are at the centre of Beijing’s trade war with Washington.
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