With the western markets for goods and services likely to stay tepid for some years ahead, India is looking at China to keep the pace of its export growth. The government would soon set up a high-level inter-ministerial group comprising trade and strategic experts to firm up the policy on Sino-India trade, official sources told FE.
The move ? which looks like a strategic shift although the officials are reluctant to call it so ? comes at a time when China, facing the West’s ire for fostering global currency tensions, is expected to show greater interest in markets other than the US and EU to sustain export growth. China is also aware that in creating the aggregate demand for its goods and services, its own domestic market would have to play a larger role in the coming years.
According to the sources, New Delhi believes that without further straining its trade deficit with Beijing (which was $16 billion in 2009-10 and expected to touch $20 billion this year), the two countries could expand trade between them exponentially if barriers are removed on either side. This also marks a rethink on the part of India, which issued a demarche to China this January for its restrictive trade policies vis-a-vis India. Lately, import of Chinese telecom equipment was facilitated by relaxing security-related guidelines, in what would enable Chinese vendors to participate in tenders floated by state-run companies like BSNL and MTNL.
India?s merchandise exports to China stood at $11 billion last year, while China exported goods worth $27 billion to India.
From India’s perspective, the situation is actually worse than what these figures suggest. While a large chunk of Chinese exports comprises heavy engineering goods like electrical equipment, more than two-thirds of India’s exports are that of raw materials like iron ore. Yet, India is confident that a further opening up of trade with China, if reciprocal benefits are ensured, could serve India’s interest. India is particularly pinning hopes on the largely untapped potential to export services to China.
?The Indian government views the global economic trend as an opportunity to boost trade with China as the move would eventually reinforce India’s economic importance for China. Over a period of time, stronger trade ties would only help India negotiate more strongly and effectively with China on a host of issues,? a senior government official told FE. The new interest in Chinese market, however, would not change India’s decision not to have a regional or free trade agreement with China anytime soon.
?One thing is for sure; the trade potential between the two countries is immense, but with an FTA between the two countries ruled out, the two will have to see how to increase trade without straining trade deficit,? Rajan S Ratna, professor, WTO centre, Indian Institute of Foreign Trade, said.
In spite of the enlarged trade deficit, India views the current global economic condition where it can effectively bargain with China over better terms of trade. The trade between the two is expected to touch $60 billion by the year end.
The move comes as part of a series of the government’s efforts to promote India’s economic interests in growing bilateral trade. Recently, the government had decided to set up an economic wing in its diplomatic mission in Beijing.