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As India struggles to narrow a whopping $41 billion trade deficit with China, Chinese premier Li Keqiang today said his country does not want trade surplus with India.
"We do not want trade surplus with India but our aim is a dynamic trading relationship that we need to scale up. We urge Indian companies to explore the Chinese market for more competitive goods. Likewise, I want Chinese firms to invest into India," Kepiang said at a function organised by the Federation of Indian Chambers of Commerce and Industry and Indian Council of World Affairs here.
Yesterday, both the countries had set a target of $100 billion bilateral trade by 2015 from $67.82 billion in 2012-13. But the larger issue is how much would be trade deficit against India in the overall trade.
In 2012-13, imports to India constituted $54.30 billion, accounting for 80.06% of total trade. Exports to China, on the other hand, stood at just $13.52 billion. If this trend continues and the bilateral trade reaches the targeted level by 2015, imports would constitute $80.6 billion and exports $19.4 billion, leaving a gap of $61.2 billion.
According to experts, the problem lies with very limited knowledge about the Chinese market by Indian exporters. While Chinese export to India mainly consist of manufactured items that are required for India’s ever-expanding telecom, power and manufacturing industries, India exports raw material and intermediary products.
“This shows the demand for China-made goods by the consumers here. This shows that the market needs something else. Our economy is tied with theirs, no matter how much perception problem we suffer from. And sooner or later we have to have a preferential trading arrangement with them for the larger interest of BRICS (Brazil, Russia, India, China and South Africa),” highlighted Biswajit Dhar, director general, Research and Information System for Developing Countries (RIS).
In the middle of 2011, the ministry of commerce and industry even launched a strategy paper with much fanfare to fight the trade imbalance problem with China but nothing happened after that.
Indian heavy industries significantly rely on raw materials and finished goods from China. The top five items of import from China are electrical machinery and equipment ($ 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).
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.
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.
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.
