India's China menu keeps growing

China accounts for a fifth of India's total trade deficit of $190.9 bn with the world. If oil is excluded, it accounts for almost half, notes Nayanima Basu

Even as new Chinese Premier Li Keqiang is visiting for the first time since taking over the present portfolio, old problems continue to plague Indo-Chinese bilateral trade relations.

Problem of a huge trade imbalance against India even as both exports and imports declined in 2012-13 year-on-year still remains a severe challenge even to this day.

And no matter what measures the government claims to be taking, trade deficit against India continues to bloat, experts say.

Exports to China have increased 62.5 per cent from $8.32 billion in 2006-07 to $13.52 billion in 2012-13 while imports rose 210.81 per cent from $17.47 billion to $54.30 billion in the same period.

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As a result, the trade balance swelled 345.68% from $9.15 billion in FY07 to $40.78 billion in FY13.

China accounts for a fifth of India total trade deficit of $190.9 billion with the world.

If oil is excluded then it accounts for almost half.

India and China had established a joint study group in 2003 which was mandated to make a detailed analysis of the economic gains both countries will have if they traded on most favoured nation tariffs.

In March 2006 the group met for the first time under the aegis of the ministry of commerce and industry and China's ministry of commerce. In 2006 during President Hu Jintao's official visit to India, both sides announced the target to complete the study by 2007 under a joint declaration.

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The report was submitted by the group to respective governments in 2007, which recommended both sides to have a Regional Trading Arrangement but that was hushed up due to severe backlash from the Indian industry, which feared dumping and flooding of Indian markets by the Chinese companies.

But imports from China continue to rise unabated.

According to experts, the problem lies with very limited knowledge about the Chinese market by Indian exporters.

While Chinese export to India mainly consist of manufactured items that are required for India's ever-expanding telecom, power and manufacturing industries, India exports raw material and intermediary products.

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"This shows the demand for China-made goods by the consumers here.

"This shows that the market needs something else.

"Our economy is tied with theirs, no matter how much perception problem we suffer from. And sooner or later we have to have a preferential trading arrangement with them for the larger interest of BRICS (Brazil, Russia, India, China and South Africa)," highlighted Biswajit Dhar, director general, Research and Information System for Developing Countries.

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In the middle of 2011 the ministry of commerce and industry even launched a strategy paper with much fanfare to fight the trade imbalance problem with China but nothing happened after that.

On the contrary, the trade deficit reached a new peak of $40 billion by the end of the fiscal which has now soared to $40.78 billion last fiscal.

Indian heavy industries significantly rely on raw materials and finished goods from China.

The top five items of import from China are electrical machinery and equipment ($ 11.86 billion), mechanical machinery and appliances ($7.7 billion), project goods ($ 3.2 billion), organic chemicals ($3.85 billion) and iron & steel ($1.99 billion).

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In the last couple of financial years, import of power and telecommunication equipment has seen a huge rise.

In 2010-2011, import of mobile phones and other kinds of wireless phones have reached $4.07 billion, up 60.10% year-on-year from $2.54 billion in 2009-10, similarly, import of project goods topped $3.17 billion last fiscal from $2.06 billion in 2009-10, up 54.08%.

"There are very limited areas where we can increase our exports to China.

"The government has not been able to give the necessary push for the exporting community to explore the Chinese market in a detailed manner but rely on international studies.

"We do not encourage Chinese investments, which is another problem," said Mohammed Saqib, secretary general, India China Economic and Cultural Council.

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Recently, during an interview with Business Standard, commerce and industry minister Anand Sharma admitted to the growing problem and that investments from that region had been low.

However, investments from China continue to remain subjected to severe scrutiny.

Minister of external affairs Salman Khurshid, who recently visited China earlier this month, said how India is now planning to gain more access to the Chinese market through India's booming informational technology and pharmaceuticals, both of which has not been much successful so far.

In pharmaceuticals the problem remains with the delay in approvals as the industry there is in nascent stage coupled with the dominance of traditional Chinese medicines.

A lot of potential indeed lies in the IT segment but that continues to reel under problems because the Chinese public procurement laws continue to be very rigid.

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The services trade between India and China continues to remain very minimal. India has a presence in sectors such as IT, trading, banking and education by companies such as NIIT, Infosys, Wipro, Mahindra Satyam, Reliance Industries, State Bank of India, Canara Bank and Bank of Baroda.

Around 100 Chinese companies are present here mostly in the telecom and manufacturing sectors by ZTE, Huawei Technologies, TCL and Haier.

According to Dhar, India should encourage investment-led Chinese trade here as increasingly China is becoming a costly location so companies are looking at India to relocate their operations. "We have to address the issue on war footing," said Dhar.