Enter the Dragon

With Asia already emerging as a global growth engine, in spite of a temporary business blip in both India and China, both the countries have paramount part to play in a new business order in the emerging trade scenario

India’s bilateral trade in 2012-13 was in the region of $791.1 billion comprising $ 300.4 billion worth of exports and imports valued $ 490.7 billion.  India has been able to forge trade relationship with its proximity neighbors especially China.  From a mere $ 2.2 billion in 2000-01, it has swelled to $ 65 billion in 2012-13 and expected to go up to $ 100 billion by 2015.

            Even though the bi-lateral trade between India and UAE is around $ 75.4 billion, while to China it is $ 65.8 billion, the balance of payment in favour of China is $ 38.6 billion meaning the Trade is having leaning in favour of China. Indian exports to China between April-November 2013 touched $9 billion against imports which totaled $ 34.5 billion. During the current fiscal, it is estimated that Trade deficit with China may well cross over $ 40 billion. Only against United States of America we have a favourable Balance of Trade with a surplus of $ 11 billion in the total bi-lateral trade of $61.4 billion. China contributes to 10.6% of India’s total imports of $ 490.7 billion, while it accounts only for 4.5% of India’s total export of $ 300.4 billion during 2012-13.

            “Made in China” goods from power making equipment to small batteries and from laptops to crackers- continue to flood the Indian markets. China has moved from being India’s seventh largest source of Imports a decade ago to becoming its largest source. Machinery and machinery making appliances, chemicals and chemical products, base metals and products account for three-fourth of India’s import from China.

            India’s early years of trading Reforms, India was mainly concentrating on trading with the West. We did not think our neighbours who were in the peripheral proximity could assist us in improving our export capabilities. China has emerged as India’s Second largest trading partner, trailing behind UAE (total bi-lateral trade of $75.4 billion) and ahead of America ($61.4 billion) in 2008. China would lead the list, if one were to include India’s trade with Hongkong. The advantage of the trade between India and China is in China’s favour wherein the Balance of Payments which was less than $ 1 billion in 2000-01 ballooned to $38.64 billion in 2012-13. At that level, China accounted for a fifth of India’s global trade deficit and half, if India were to exclude oil imports.

            If Indian trade has to grow, and achieve trade surplus, then there is a need to explore avenues to bridge the insurmountable trade gap between the two countries.

            India does not produce what China fancies buying. Our exports mainly centre on Base metals and products, Textiles & Products, Mineral products (iron ore). These dominate as our exports to China. India was exporting iron ore to China but iron ore mining has been banned which has put at rest our foreign exchange income from export of iron ore. India exports lower grade iron ore, destined to feed Chinese steel mills, but halt in mining in Goa and Karnataka has dried up that source.

            China was early to adopt an export oriented strategy in accordance with its abundance in labour way back in 1980. India switched from inward oriented controlled regime only in 1990. The late development of an export oriented pro development strategy partially results in India’s relative lower export level volume today.

            China exports more complicated and sophisticated products than India, and high technology products to the rest of the World in terms of value and relative export market share. The situation reflects the importance of processing Trade rather than ordinary trade. China is setting up Ports in Sri Lanka, rail tracks through Myanmar to take back oil, and donating in billions to African nations such as Ethiopia. China’s purpose in taking investments to Ethiopia is to take on US whose investments in Ethiopia is considerable.

            India should adopt a suitable trade Policy to make effective inroads to Chinese markets. India also needs to restructure its export orientation to meet the specific import requirements of China so that it can have wider access to its domestic market. If product restructuring is not possible in the export basket, it has to reduce is pressure on bi-lateral imports so as to normalize its trade balance in the medium term.

            It should not be difficult for India to focus on more access to Chinese market for its value added products including IT enabled service enhancement of procurement of pharmaceuticals.  China has enormous capacity in manufacturing. India has developed enormous capacity in Information Technology. Chinese needs to provide opportunities to India to find more hospitable environment to do more and more business in China.

            India is also looking at attracting large FDI inflows from China. India to open to accommodate a group of Chinese companies to invest and often the products to Indian Domestic market through an operational Chinese Industrial Park to be set in India. Different delegations have scanned different areas identified by India for the Park.

            60,000 MW plus of imported Chinese equipment for the power sector will be available to India to fulfill its power needs. China’s biggest power companies will set up permanent presence in India by opening power equipment Service centers.

            India needs to concentrate on accelerating export of Indian pharmaceutical products, linoleum, plastics, and auto components to China so as to derive better its export increase to China.

            Enhanced fund flows can go a long way in facilitating, promoting, sustaining the economic relations between two of the World’s largest populated nations.

            When India’s trade blooms, the role of Dr Manmohan Singh, the Indian Prime Minister who had for the last one decade scuttled to various countries in pursuit of his trade agenda, enhance trade and business opportunities, played a decisive role to push bi-lateral and multilateral trade, by his exquisite scholarly Trade philosophy which had seen successful fruition. When India’s trade history will be unveiled, the saga would acknowledge his frontal role in leading India to a super economic and business power.