Premier Wen Jiabao’s visit this week, predictably, raised a lot of political heat when it should have raised as much or more economic heat. An only achievement for India is its excluding any reference to Tibet or One China in the joint statement, in retaliation for China’s issuing stapled visas to travelers from Jammu and Kashmir.
Other than that, India failed to nudge its larger, and more powerful, neighbor on all political issues including the stapled visas, festering border disputes and newly emerging Chinese support to rebuilding of Pakistan-occupied Kashmir. In fact, days before Wen’s visit, Chinese ambassador Zhang Yan termed bilateral ties “very fragile,” pushing India firmly on the back foot. That remark caused the normally unflappable foreign secretary, Nirupama Rao, to lose her cool, and wits, and ended India’s strangely persistent bid to put a positive spin on ties with China.
But could India have achieved more on the economic front? It should have.
Trade between the two fastest-growing countries in the world is vital in itself and on account of the leverage it provides for political ties. China is happy to keep hot-button political issues on the backburner while winning Indian markets, and even pushing Indian business into dependency. Obviously, this is not in India’s interest.
Trade between the two is hopelessly lop-sided and India is no closer to addressing it than it was five years ago. In 2005, when India first sought to address the issue, its trade deficit was $1.5 billion on trade of $18 billion. This year, the deficit is an estimated $26 billion on trade of $60 billion, double the targeted trade level as trade grew 10-fold over the past decade.
India’s trade deficit is going to get a lot worse. On top of consumer greed for cheap Chinese goods, Indian businessmen are hungry for cheap Chinese capital equipment, especially in power and telecom. In fact, two of the $16 billion deals (both were announced much earlier) signed during Wen’s visit were for power equipment and finance by Anil Ambani’s Reliance group.
Given the record of the past decade and the potential for further expansion, the trade target of $100 billion for 2015 might be easily attained by the two countries. But the risk, from India’s perspective, is that the trade deficit may further balloon and its businesses would become more dependent on Chinese suppliers.
India exports mostly raw material (iron ore, for example) but not significant value-added goods. IT and pharmaceuticals are often cited as potential sectors with potential in Chinese markets. There is obviously a huge market for generic drugs but I am not so sure IT is there as yet. This is because our significant IT offering is services, not hardware or software with high-yielding royalty; and China is not such a well-developed market for IT services like the United States or Europe.
While we continue to agonize over the border issues with China, and the security threat from it, we need to focus on what else we can sell China and how.
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