BY SUBHASHIS MITTRA
The signing of 11 Memorandums of Understanding (MoUs) during the second India-China Strategic Economic Dialogue in New Delhi envisaging investments of over $ 5 billion (about Rs 28,000 crore) marks the first step towards addressing the severe trade imbalance between the two countries.
Displaying enhanced trust, the two sides recently formulated a strategy for increasing trade and ensuring development and growth amid global economic slowdown. The agreements, when implemented, will give a fillip to the economic ties between the two countries. India’s trade deficit with China jumped 42 per cent to nearly $ 40 billion in the last fiscal year ended March 31, and was the largest contributor to the country’s overall gap between exports and imports.
Memorandums of Understanding
The first agreement was signed between the Planning Commission and the Chinese planning body National Development and Reforms Commission (NDRC) for undertaking joint studies in economic policy research and development planning. The MoUs were also signed to encourage cooperation between India’s Bureau of Energy Efficiency and NDRC. Another MoU was between Indian Railways and China’s Ministry of Railways for enhancing technical cooperation in the railway sector. Another agreement was between SCOM and China Software Industry Association for enhancing cooperation in the IT and ITES sectors.
In the private sector, MoUs were signed between Reliance Power and Guangdone Mingyang Wind Power Industry Group Co Ltd for a 2,500 MW renewable energy project envisaging an investment of US $ 3 billion with project financing from the China Development Bank. Lanco Group has entered into an agreement with China Development Bank for financing US $ 600 billion Anpara Phase-II power projects (4x660MW). The NIIT and Province of Hainan joined hands to set up an IT technology park in Hainan with an investment of US $ 800 million.
Ramkay Envrio Engineers Ltd and Sanfeng Environmental Industries Group Company Ltd would set up ‘Waste to Energy’ projects on ‘build, operate and transfer’ (BOT) basis in New Delhi, Mumbai, Hyderabad and Chennai at an investment of US $ 384 million. Uttam Galva Steel Ltd has given an engineering, procurement and construction contract for Phase II of 5,00,000 tonnes per annum steel plant to China Metallurgical Group Corporation Overseas Ltd. Lanco Enterprises inked a deal worth US $ 98 million with Zhejiang Feida Environmental S&T Company for Amarkantak Power project. In another such agreement, Zhongtian S&T Ltd Co will manufacture electric conductors and transmission lines at Sri City in Andhra Pradesh for US $ 20 million.
The MoUs envisaging Chinese investment are the best way to partly offset the balance of trade currently heavily skewed in China’s favour, feel policy makers. Indian Railways and its Chinese counterpart signed an MoU, marking the beginning of cooperation between the two public sector behemoths. Having started out with route length that was more than that of Chinese Railways, the Indian Railways has fallen behind and today is in urgent need of affordable technology for running high-speed trains and heavy duty freight trains. The IT major NIIT signed a $ 800 million deal with the Province of Hainan for setting up an IT technology park to add to its operations in China. Another agreement in this sector was signed between NASSCOM and China Software Industry Association for enhancing cooperation in the IT and ITES sectors.
Thrust on open trade regime
Most of these agreements indicate the shape of things to come. The two sides decided to increase their cooperation to cope with the global situation and pursue common interests in international monetary and financial systems, stabilise the volatility in global commodity markets, work towards sustainable development and climate change goals and ensure food and energy security. The Strategic Economic Dialogue saw successful deliberations on a host of issues of “greater cooperation at the global level, strengthening communication on macroeconomic policies, deepening and expanding trade and investment and promoting bilateral cooperation in the financial and infrastructure sectors.”
The Deputy Chairman of the Planning Commission, Dr Montek Singh Ahluwalia and his Chinese counterpart, Mr Zhang Ping discussed the outcomes of the working groups on policy coordination, infrastructure, energy, environment protection and high-technology set up at the first dialogue held in Beijing in September 2011. Concerned over the declining global growth trends and demand, the two countries decided to jointly strive to maintain continued economic growth through a slew of agreed measures. For expanding trade and investment, the thrust would be on an open trade regime by removing market barriers, enhancing business exchanges and improving transportation links, said Dr Ahluwalia. Bilateral trade would be enhanced from $ 74 billion to $ 100 billion, he said, adding that both were working to make it more balanced.
The two countries also agreed for greater financial cooperation by allowing financial institutions to set up operations in either country and expanding commercial operations and support enterprises. They also agreed on conducting joint studies on issues of mutual interest focusing on benefits of best practices and information exchanges and skills development, among other sectors.
India is, thus, pressing China to buy more of its goods - from pharmaceuticals to software - and taking steps to reduce Chinese imports as it grows increasingly worried about its widening trade gap with its Asian rival. India’s trade woes have become a serious economic threat for the nation. The country’s current account deficit - which measures the balance of trade with the world - was 4.5 per cent of gross domestic product in the quarter that ended March 31, an all-time high. That has contributed to a sharp depreciation in the rupee and has put enormous pressure on India to attract foreign capital. The trade gap is one of the many structural deficiencies that are plaguing India’s economy. The Commerce Minister, Mr Anand Sharma has said he is “very concerned” about the trade imbalance with China. Against this scenario, diplomats rightly point out that 50 years after the 1962 war, India has fashioned a pragmatic model of cooperation with China, placing economics above politics.