Opportunity beckons

Updated: Dec 16, 2010, 00:22 AM IST

Reema Sharma

India, in the last few months of the decade, has witnessed quite a few high profile state visits. First it was the US President Barack Obama, followed by French President Nicholas Sarkozy and now the Chinese Premier Wen Jiabao. Though political relations between India and China are bound to be the focus, Wen’s visit will not leave India Inc untouched — the Chinese premier is bringing along the largest trade delegation from his country.

The three-day visit (December 15-December17) will see USD 20 billion worth of bilateral deals being inked.

Both India and China are expected to sign a series of agreements covering the ambit of trade, renewable energy, infrastructure and finance. Speculations are also rife that the recent deal between Reliance Power and China’s Shanghai Electric Group would also be formalised. Before Wen completes his tenure in 2012, bilateral trade will see humongous growth.

Official Chinese statistics show that two-way trade between India and China grew from USD18.7 billion in 2005 to USD 51.8 billion in 2008. However, the global economic meltdown affected bilateral trade. According to China’s National Bureau of Statistics, bilateral trade between India and China came down by 30.4% on year-on-year basis to USD 13.07 billion during 2009 (period from January to April).

Bilateral trade, which crossed USD 49.84 billion in October this year, is on track to touch USD 60 billion. But the balance seems to be more in favour of China — especially in terms of exports — given that Indian exports amount to USD 17 billion, while China continues to rule with exports worth USD 32.87 billion. India`s trade deficit with China between January 2008 and December 2008 amounted to USD 11.2 billion. The financial year ending March 2009 reported a USD 119 billion trade deficit (exports worth USD 168 billion, covering USD 287.75 billion in imports).

But expectations during Wen`s visit are that there will be a reduction in trade deficits. Both countries, which have met 10 times in the last six years, have promised to agree on a joint feasibility study for a bilateral Free Trade Agreement. It is also true that improvement in relations between the neighbours will mirror China opening up its markets for Indian goods. Officials, on several occasions, have pointed out the market access problems that Indian traders frequently face in the export of agricultural products to China.

Conversely, profits for Indian Inc cannot be ruled out since a huge chunk of investment in power, technological borrowing, real estate, etc is dependent upon the Chinese market. But India’s position on the trade deal with China, which is the country’s largest trading partner, must demand a reduction in non-tariff barriers. The fact that the Chinese economy has eclipsed the world market by keeping the Yuan undervalued and providing cheap labour has meant that markets here have struggled to keep pace. However, both countries have identical views in terms of the Doha round of trade talks, demanding reduction in protectionist measures by the West.

According to projections, by 2050, India and China will be the two leading economies in the world. Indian companies could enter the Chinese domestic market by using the latter as a production base. The export of iron ore could help India penetrate the USD 615 billion Chinese market. Apart from constituting 53 per cent of total iron export to China, India can also potentially export marine products, oil seeds, salt, inorganic chemicals, plastic, rubber, optical and medical equipment.

The main focus for India during Wen’s visit should be the Free Trade Agreement. China has time and again faced the allegation of dumping goods in Africa, India and other Asian countries. Reportedly, India had initiated 42 anti-dumping investigations at the WTO in the second half of 2008 and 17 of those were against China. A comprehensive, equitable Free Trade Agreement is a good way to solve the problem.