Mutual investments provide dynamism to Sino-India growth

India’s trade and investment ties with China have expanded significantly in recent years. Today, China is India’s leading trading partner with a bilateral trade in goods of about $ 70.73 billion in 2015-16, down from $72.34 billion in the previous fiscal.

There is a need to find sustainable ways to correct the rather large imbalance in the bilateral trade flows. Mutual investments are providing the added dynamism to bilateral interaction among business communities from both sides. 

India's trade deficit with China has increased to $52.68 billion in 2015-16, from $48.48 billion in the previous fiscal. Increasing trade deficit with China can be attributed to the relative demand for imports in India and China for each other’s goods. 

The major imports from China are products such as telecom instruments, computer hardware and peripherals, fertilizers, electronic components/instruments, project goods, organic chemicals and drug intermediates, consumer electronics, electrical machinery and equipment, iron and steel etc. India’s export to China comprises ores, slag and ash, iron and steel, tin and articles thereof, tools implements of base metal; raw hides and skins  and leather; plastics, organic chemicals and cotton etc.

To bridge the gap of trade deficit, India has been keen to pitch to the Chinese government and industry, to invest here in the backdrop of Chinese multinational companies shifting their bases outside the mainland on account of increasing labour costs and excess capacities.

India and China officially resumed trade in 1978. In 1984, the two sides signed the Most Favoured Nation (MFN) Agreement. India-China bilateral trade which was as low as $ 2.92 billion in 2000 reached $ 51.8 billion in 2008, making China India’s largest trading partner in goods, replacing the United States of America. By the end of 2009, as a result of the world economic downturn, bilateral trade dropped to $ 43.27 billion (a decline of 16.54%). However, in 2010 bilateral trade reached $ 61.74 billion, a growth of 43% compared with the same period last year.

Strategic and Economic Dialogue

In December 2010, both countries agreed to set up the India-China Strategic and Economic Dialogue (SED). The SED is a forum for both sides to discuss strategic macro-economic issues impacting both nations as a result of the changing international economic and financial landscape, to share their individual best practices and in handling challenging domestic economic issues and to identify specific fields for enhancing cooperation, learning and experience sharing.

The first India-China SED meeting took place in Beijing on September 26-27, 2011. The two sides decided to constitute five working groups on policy coordination, infrastructure, energy, environment protection and high-technology. 

During the second SED meeting, held in New Delhi on November 26, 2012 the two sides discussed a wide range of topics including greater cooperation at the global level, strengthening communication on macro-economic policies, deepening and expanding trade and investment and promoting bilateral cooperation in the financial and infrastructure sectors. The two sides signed a total of four Government-to-Government (undertaking joint studies, enhancing cooperation in the field of energy efficiency and enhancing technical cooperation in the railway sector) and seven business MoUs (enhancing cooperation in the IT/ITES sector) during the meeting.

In the third SED, held in Beijing on March 18, 2014, five working groups were formed pertaining to energy, infrastructure, electronic manufacturing, resource conservation, and policy coordination. These working groups will have Indian representation from the Ministry of Petroleum and Natural Gas, Ministry of Railways, Ministry of Electronics and Information Technology, Bureau of Energy Efficiency, and NITI Aayog, respectively.

The fourth SED was held in New Delhi on October 6-7, after a gap of two years. It was felt during the interaction between the two nations that there is a need to pursue the strategy of investment of China and ‘Make in India’. Highlighting areas of cooperation, NITI Aayog said that China was a manufacturing powerhouse of the world and India was the IT and services hub; hence the two should be leveraged to accelerate the pace of bilateral trade and investment between India and China.

India needs to grow its manufacturing and infrastructure sectors rapidly and China had expertise in both the areas. These areas could be explored for cooperation and India can learn from China in many others spheres. There was a need for deeper economic engagement and developing regional cooperation. Around 16 agreements of cooperation were exchanged between industry players representing India and China respectively during this meeting.

The government will play the role of the facilitator but industries on both sides will have to be the key drivers of the growth process. India and China represent two bright spots in an otherwise sluggish global economy. As large developing countries and major emerging economies, both India and China are uniquely poised to lead the global effort towards the realisation of the Sustainable Development Goals and contribute to the improvement in the lives of 2.6 billion of their people.