Prime Minister Manmohan Singh?s visit to Beijing saw a medley of breakthroughs and setbacks. There are almost as many ostensible ?win-win? scenarios as real ?zero-sum? ones. And holding together the flimsy edifice is the roster of Eleven Protocols. And they cover virtually every facet of the two economies.
They begin with A Shared Vision for the 21st Century for India and China that commits them to peace and friendship. Based on the earlier agreement of 2005, rapprochement is topmost; the vision document says that the Indo-Chinese relationship should be based on ?friendship and trust?, and heed all ?concerns and aspirations?.
Secondly, a MoU for cooperation between Yojana Bhavan and China?s National Development and Reform Commission provides for mutual cooperation, improved information exchange, joint macro-economic management, and medium to long-term planning?initiatives to be underpinned by annual vice-ministerial (secretary) level dialogues.
There is also a MoU on cooperation between the railway ministries of both, while another is a MoU between India?s ministry of housing & urban poverty alleviation, and China?s ministry of construction. The latter supplies a framework for cooperation in housing, housing policies, technologies and construction standards. The Fifth Protocol is yet another MoU between India?s ministry of rural development and China?s ministry of land resources for cooperation in land resource management, conservation and utilisation. Then there is a MoU between the ICCR and the Chinese People?s Association for Friendship with Foreign Countries on India-China Joint Medical Missions. Young doctors, ten each from India and China, would jointly impart medical consultations, and treatment, in India and China in 2008.
The seventh is another MoU between the ICCR and China?s People?s Association for Friendship with Foreign Countries. Under it, both countries have agreed to cooperate in diverse fields of culture, including publications and seminars. The eighth is a MoU on cooperation between GSI and China?s Geological Survey in geo-sciences; they will cooperate in R&D projects. The ninth is also a MoU, between the Department of AYUSH (ministry of health and family welfare) and the State Administration of Traditional Chinese Medicine (SATCM) for cooperation in traditional medicine.
The tenth is again a MoU between NABARD and the Agricultural Development Bank, China?and the aim is to cooperate for sustainable, rural, agro-development in both China and India. The two sides will share appropriate information on innovations in banking instruments and climate change. Finally, the two sides signed a Protocol of Phytosanitary Requirements for the Export of Tobacco Leaves from India to China. Indeed, the PM has conceded that these were the easy agreements, and that it would take inordinately long to achieve the deeper breakthroughs that could settle the Sino-India boundary dispute. But what that also implies about the 11 Protocols is that they are mostly ?atmospherics?, have little to do with markets or investment, patent protection, or any other substantive pro-market initiative.
But the saving grace is that even such idealised posturings cannot arrest or roll back any of the developments that have already, and spontaneously, occurred in trade or investment.
Also, greater integration with China, arguably the world?s most competitive economy, is mercilessly exposing India?s structural inadequacies and non-market aberrations. That is a major reason why India?s exports to China continue to be low value-added in nature, while imports are just the opposite.
Some instances will suffice: India?s main export focus for China is on primary products, and iron ore accounts for 53% of the total: that is followed by marine products, oilseeds, salt, inorganic chemicals, plastic, rubber, optical and medical equipment, and dairy products. These items also suffer from low-price realisations?owing either to the inadequacy of value-adding, or to the absence of branding. Nor, usually, do they enjoy the sort of scale economies that might compensate for low prices by producing at even lower costs. Clearly, there is a need to shift away from such exports to others of a higher value-added nature. Those would comprise auto-components, cars, organic & inorganic products, pharmaceuticals, metal or metal products?alloy steel bars and rods, agro cash crops, marine foods, medical equipment and consumer durables. India also needs to tap the immense potential in biotechnology, IT & ITES, health, education, tourism, and financial sector?all of them knowledge-based sectors.
Only a shift like that would tend to lift Indian exports towards Chinese levels of value adding?Beijing?s main exports to India list items like electrical equipment, organic chemicals and iron & steel. Meanwhile, as long as it lasts, India?s export profile will remain the surest guarantee of ?unequal exchange? and under-realisation from exports. That also explains why it has been running a rising trade deficit against China since after 2004?and also why the process has, if anything, intensified.
Little of that emerges from the numbers that say that the sum of India?s bilateral trade with China notched up $38.6 billion over calendar 2007. Not only is that $4 billion more than New Delhi?s trade with the US, it currently makes China our biggest trading partner. And it is commercial dynamism of that nature which has occasioned a $20 billion upward revision of the $40 billion 2010 trade target, to $60 billion.
But there are worries as well?after trade surpluses until 2004, India is systematically running up mammoth trade deficits via-a-vis Beijing, and imports from China have gone up by eight-and-a-half times since 2001-2002 whereas imports from the rest of the world increased by just three-and-a-half times over the same period: a $12 billion trade deficit is expected by the end of this fiscal.
