Column: The elephant can tango with the dragon

Written by Chandrajit Banerjee | Chandrajit Banerjee | Updated: Oct 24 2013, 08:22am hrs
Prime Minister Manmohan Singhs visit to China, reciprocating Premier Li Keqiangs trip to India earlier this year, will seek to further reinforce the friendship of the two ancient neighbors and giant emerging economies. Trade and economic relations are high on the agenda, and industry looks forward to the outcomes of the visit.

Economic cooperation between the two nations has deepened in many new areas over the last decade. While trade in goods is one such, other areas of mutual interest include trade in services, mutual investments, infrastructure projects, and collaboration in other international markets. China and India have also actively worked on several multilateral forums such as the East Asia Summit, the BRICS platform and the Bangladesh-China-India-Myanmar grouping. Premier Lis May visit resulted in the Strategic Economic Partnership that includes macroeconomic coordination and dialogue on areas such as power, environmental conservation and renewable energy. The leaders also committed to taking the Regional Comprehensive Economic Partnershipthe proposed trade area covering most of the Asian economyforward. These initiatives are very encouraging and offer many new opportunities for business.

Bilateral trade has magnified manifold in the last decade, from below-$5-billion in FY03 to over $65 billion in FY13, although the trade balance is heavily skewed towards China. In January-August 2013, as per Chinese sources, Indias exports to China dropped significantly by 27%, while its imports from the country expanded moderately. Thus, in the first eight months of this year, the trade deficit rose to $22 billion compared to $17 billion in the same period in 2012.

India would need to work hard to increase its exports to China and ensure that bilateral economic engagement is more sustainable and mutually beneficial. China is a strong link in global value chains (including those involving South East Asian and advanced-countries markets), sourcing low-cost, mass-produced items for its electronics, machinery and garment exports to the West. India can effectively plug into these supply chains, especially as both countries have inked free trade agreements with ASEAN.

Our basket of goods has been dominated by commodities, primarily iron ore, and Indian industry must explore value-added manufactured items for Chinas vast markets. Among these are pharmaceuticals, auto components, organic and inorganic chemicals, plastics, and iron and steel products. Agri and dairy products, too, have large potential. It is important to undertake a detailed study of exportable goods along with the issues that should be addressed in each sector at the policy level.

Indian companies have found it challenging to surmount the language and information barriers and deal with differing business regulations across provinces of China. Business visas, too, are not easy to come by. Moreover, a recent step of the Chinese government, mandating social security contributions from foreign employees, has added to the cost of doing business in the country. Global companies have devised effective business models for China, which Indian enterprises must replicate for success.

At the same time, the two large markets offer exciting emerging areas of cooperationpower and renewable energy will gain from governmental cooperation, as will Indias climate change mission, with new vistas opening up for green products, energy-efficient manufacturing solutions, and machinery and equipment for wind and solar energy plants. China has done well on creating capacity in these areas, while India has proactively promoted sustainability and made rapid progress in construction of green buildings.

Both countries are also moving fast towards urbanisation. This means their demand for urban mass transport, water and sanitation, housing, etc, is going up rapidly. Chinese mega-cities such as Beijing and Shanghai have developed high-quality infrastructure and urban governance that India can learn from for its upcoming industrial townships. China can also look at partnering in the Delhi-Mumbai Industrial Corridor which promises to be a hub of manufacturing activity across the western part of the country.

Knowledge industries too can reap benefits from bilateral cooperation. Our pharma and life-sciences industries have entered global markets in a big way, in both advanced and emerging market economies. India is home to large centres of design and R&D established by multinational companies which are leveraging our innovative and highly-skilled manpower. Our time-to-market for new product development is compressed and cost-competitive, relying on new-age information technology and cloud computing. India is Chinas second-largest market for such projects with Chinese companies working on almost $60 billion worth of these (mid-2012 figure).Chinese projects in India would benefit from deploying Indian IT for greater efficiencies and competitiveness.

Clearly, the investment route in both directions can be the way forward, and both countries must work on facilitating increased fund flows. At a time when the global economic nexus is shifting to Asia, a strong and sustainable economic relationship of the elephant and the dragon can redefine geostrategic equations not just in the continent but in the world at large. Prime Ministers visit to China will be a bold step towards this goal.

The author is director general, CII