India continues to fall behind China

By Frank Ching
March 26, 2014, In 2010, when China-India trade was on a roll, the two countries set a goal of US$100 billion in trade in 2015. Indeed, in 2011, trade rose to US$74 billion, a 23-percent increase over the previous year.

For the last two years, however, events have moved in the opposite direction, with trade levels declining year by year, falling by 2.7 percent in 2012 and by an additional 1.5 percent in 2013 to US$65.47 billion. Total trade dropped 11.5 percent over the two years.

Now, achieving the US$100 billion target in 2015 is looking increasingly difficult.

An even pricklier problem from New Delhi's standpoint is that while India's exports to China have been dropping, China's exports to India continue to rise so that, in 2013, the value of Chinese exports to India was almost three times that of Indian exports to China.

The Indian trade deficit with China reached US$31.4 billion in 2013, according to Chinese customs figures.

Indian figures show an even worse situation. Last week, Montek Singh Ahluwalia, deputy chief of the Planning Commission, said at the annual bilateral strategic economic dialogue that “India's trade deficit over the last three successive years has been in excess of US$35 billion per annum, which is not sustainable.”

While still holding onto the official target of US$100 billion in trade by 2015, he said that the deficit “needs to be reduced to sustainable levels by more exports from India to China.” Specifically, the Indian side proposed Chinese investment in Indian industrial parks.

The decline in Indian exports is attributable to several factors, including the banning of iron ore mining in several regions by India's Supreme Court as a result of environmental concerns, and the imposition of a 30-percent export duty on iron ore shipped abroad.

This has resulted in a major fall in iron ore exports from India, which used to be the world's third largest exporter of iron ore.

New Delhi has been asking Beijing to open up its market to more Indian products, such as pharmaceuticals and software technology. At the latest meeting, China promised to encourage the participation of Indian IT companies in the Chinese market.

Increasingly, both sides are looking at a substantial increase in Chinese investment as one way to ease India's trade deficit problem. Current Chinese investment in India is less than US$1 billion.

A press release issued after the meeting said that the two sides agreed to “pursue specific collaboration arrangements” to upgrade the existing railway network in India.

A task force is also being set up to enable Chinese companies to invest in industries and industrial zones in India. The idea is that goods currently exported from China can be manufactured in India in the future.

China has suggested the construction of a high-speed rail system in India but Ahluwalia said that India was looking at China to help increase the speed of its present railways, redevelop old stations and increase its capacity for hauling freight. India, he said, was not looking to China to build a high-speed railway network.

Instead, Japan is doing a feasibility study to build a high-speed rail network in India.

A lack of political trust is readily evident. For example, India doesn't want China to invest in sensitive regions, such as Arunachal Pradesh, a state whose territory is entirely claimed by China.

In fact, in 2009, when the Asian Development Bank was considering an Indian proposal to fund a flood-management project in Arunachal Pradesh, China objected and forced the bank to withdraw its support for the project.

India's suspicions of China were reflected only days ago in the international search for a missing Malaysian Airlines jetliner, which was carrying 239 passengers, 153 of whom were Chinese nationals. With the focus of the search shifting to the so-called southern arc, China asked India for permission for four of its warships to search in Indian territorial waters. India refused and explained that it was fully capable of conducting the search with its own ships and aircraft.

“We don't want Chinese warships sniffing around in the area on the pretext of hunting for the missing jetliner,” one Indian official was quoted as saying.

While India and China are both being hailed as rapidly developing emerging markets, the gap between the two countries is widening with India being left behind as China continues to power ahead. China's growth in 2013 was 7.7 percent while that of India hit a low for the decade of 4.5 percent in the 2012-13 fiscal year.

Frank.ching@gmail.com