Column: The elephant can tango with the dragon

Oct 24 2013, 02:52 IST
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SummaryIndia and China stand to gain a lot geostrategically from a strong and sustainable economic relationship

Prime Minister Manmohan Singh’s visit to China, reciprocating Premier Li Keqiang’s 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 Li’s 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 Partnership—the proposed trade area covering most of the Asian economy—forward. 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, India’s 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 China’s 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

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