The lights on Delhi’s streets this Diwali were mostly shipped out of China’s Shanghai port and many of the plastic images of Goddess Lakshmi, the Hindu godess of wealth, being sold in its bazaars, were made out of dingy factories in Guangde in South China.
The cheap lights and shiny images may bring cheer to many Indian homes, but for its policy makers led by prime minister Manmohan Singh, they are a pointer to the dilemma Singh will face in Phnom Phnem next week. Those trinkets imported from India’s largest trading partner, have already driven thousands working in small scale lighting and decorations factories in western Uttar Pradesh into the ranks of jobless over the last decade-and-a-half.
Rising Chinese imports and falling Indian exports have meant that in the first ten months of this calendar year, India has already run up a trade deficit of $ 23 billion. India imports finished goods ranging from cheap lights and mobile phones to stainless steel and consumer durables to electricity plant gear from China, but mostly sells raw materials like iron ore, chrome, lead, copper and cotton to its northern neighbour.
At the Cambodian capital, Singh will join leaders from China, Asean and East Asian countries in talks to create the RCEP – or Regional Comprehensive Economic Partnership – an Asia-wide trading bloc which China wants to forge as a counter to US President Barack Obama’s Trans-pacific trade bloc which shuts out China and draws Asia closer to the Americas in a trade partnership.
Till now, for nearly a decade, China had sought to keep a trading bloc it sought to create, restricted to East and South East Asia, by involving Asean, Japan and Korea, while shutting out India, Australia and New Zealand. India and Japan on the other hand had long been resisting China’s attempt to forge a trade pact, which it would dominate, by demanding a Pan-Asian trading block of Asean + 6 (Asean, China, Japan, Korea, India, Australia & New Zealand).
Possibly to trump Obama’s proposed trade block, China has suddenly changed tack and adopted the Indo-Japanese proposal as its own. With this comes India’s and many other potential RCEP members’ dilemma.
If they do not join in, they could lose a first mover advantage to be part of the world’s most powerful trading block which would control nearly 30 per cent of the global GDP. However, joining it could mean reducing tariff walls and letting cheap Chinese imports flood local markets killing off domestic industry.
Analysts say Chinese industry benefits from dirt cheap finance, almost no labour laws, hidden subsidies by way of capital costs often underwritten by provincial or central government besides unfair price under-cutting.
The Indian government’s Standard Board of Safeguards will hold a meeting on November 15 to decide whether China is dumping stainless steel products in India, causing huge losses for Indian manufacturers, acting on a complaint by Jindal Stainless Steel. The Directorate General of Safeguards has already supported Jindal’s case. India had earlier too been forced to raise import duty on steel to protect domestic manufactures from dumping by Chinese steel firms.
Last year in a speech, Eximbank President Fred Hochberg had pointed out “In India, (Chinese telecom equipment maker) Huawei grew to $2.5 billion in sales from $50 million in one year. Folks, that kind of growth takes more than just good sales and marketing strategies", and went on to blame Chinese "state-directed capital" for that growth. It's well known that telecom operators and private power plant owners in India ordered Chinese gear after availing of extremely low cost loans from Chinese banks.
The result has been disastrous for our industry. Latest industry data shows India’s capital goods sector contracted 12.2 per cent in September, a fact which has caused considerable alarm in North Block and Udyog Bhawan home to India’s finance and Industry ministries which for long have been beset by representations from India’s top chambers cautioning against dumping of capital goods by China.
On the other hand, these chambers also complain of non-tariff barriers are shutting out their exports of manufactures from China’s markets. The challenge this `unfair’ trade poses was best summed up by commerce minister Anand Sharma in an interaction at last week’s World Economic Forum “We will continue trying to create a balance because there is an adverse balance of trade and we are seeking market access for Indian IT companies and pharmaceuticals and I hope it will come … we have talked to the previous (Chinese) Prime Minister. We would continue our dialogue and engagement. China is an important partner for India."
4 comments:
When India's Economic History is written with research it will come to light that from 1987-91 Op Pawan in Sri Lanka cost India USD 3.5 bill with 50% being in FFE for oil and defence imports. India went broke for FFE and IMF gave USD 2.5 bill to bail India out.
Now by importing USD 30 bill of defence wares and setting up no defence or other Industries another crisis looms. China has killed many trades including artificial jewelery. It is an industrial power with deep pockets and big appetite to lead the world..
jayanata, nice work..
you know i am an accountant.. juggling with figures is my bread and butter.. rather non hydrogenated vegetable oil butter substitutes :) :)
with reference to the chart you have embedded.. trade deficit in currency value has indeed moved up from 23 bil1 in 2008-09 to 39.5 in 2011-12. however, if i analyze the difference in terms of percentages.. in 2008-09, india's export to china, as compared to imports from the same country was 28.92%. corresponding figures of 2011-12 this percentage stands at 31.30%. which is marginally higher.. to me that indicates we are not laggards.. but china is growing much faster than us.. we need to do some catch up work.. and pretty fast at that.. am not suggesting that we give labor laws the boot.. but surely we can liberalize our finance sector than the present case scenario.. that way, at least we can provide better opportunities to our domestic industries to become more competitive and withstand the chinese invasion.. what do you say??
Thanks for your comments - Commodore Rai & Debasish. 1980s was a different time. I agree with your analysis that a mere $ 2.5 billion spend in the Lanka action helped push towards forex troubles. Now with reserves of $ 300 billion or so at any given time, we dont exactly face the same situation. But still, I agree with the Commodore, that if we keep buying arms from abroad without building our own armament industry, we will face great financial heat. For a billion dollars of arms is not just that, it often costs 1.5 times as much in forex to buy spares, ammo and refurbishments. We need to do what the Chinese have done - do copy-cat manufacturing - first of parts, then when we move up the learning curve, of whole aircraft, missiles etc. (slight modifications will take care of patent rights and nobody is going to bring suits against the biggest arms buyer of the world, because they will still hope to sell to us). We tried doing that with some succcess ion the 1960s, when US and UK banned arms sales to us for being `naughty boys' by fighting back a Pak attack on Kashmir and Rann.
Debasish - its not just finance, we need to give them faster clearances, less red tape, and encourage them to go up the value chain by investing in R&D to see them retain a competitve edge with China.
Also if we want to save on precious forex outgo, we need to buy up more energy equity - shares in oil and gas fields, coal mines etc. You can then bring back your returns in kind and save forex outgo. In time, we may even have to think of acquiring farms abroad to grow crops for our people!
Ιt's not my aim to be a pain, I think you can write better than this. More detail would be a start.
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