After China’s entry into the World Trade Organisation in 2001, India-China bilateral trade increased sharply, but so did the trade deficit favouring China. Reporting on the growing concern of Indian business with the surge in manufactured goods imports from China, I ran a series of news stories in the Financial Express under the rubric ‘Enter the Dragon’. A few years later news reports trickled in of new business opportunities in China for Indian companies. Reporting these stories, I ran a new series titled ‘Beyond the Great Wall’.
While India-China bilateral trade and business relationship has grown impressively over the past decade and a half, the Indian concern with the yawning trade deficit that continues to favour China has persisted. In 2015, the trade deficit was up at $44.87 billion, with total trade being $71.64 billion. China’s exports to India were at 58.25 billion, while imports from India were a pitiable 13.38 billion. The numbers for China’s exports to India may in fact be higher if one accounts for the cross-border smuggling that has become a major menace.
Clearly the time has come for a new series that could be titled ‘Return of the Dragon’. After all, Bruce Lee did follow up his movie Enter the Dragon with Return of the Dragon! Ironically, the second movie was released in the United States with a different title—‘The Way of the Dragon’. Hopefully, this persistent trade deficit problem will not become the ‘way of the dragon’!
Indian trade ministers have consistently drawn the attention of Chinese authorities to this problem, going to the extent of suggesting that the huge trade deficit may become a major irritant in the bilateral relationship. Thereby suggesting that China ought to find political and administrative means to address the problem and not imagine that it was purely an economic issue representing differential levels of competitiveness of the two economies.
Indian business has two major complaints on this score. First, it draws attention to the many hidden subsidies at the provincial and municipal level that Chinese firms enjoy, enabling them to sell at prices way below the economically reasonable cost of production of similar items in India. Chinese authorities have consistently denied the existence of such hidden subsidies but have been hard put to explain the incredibly low costs of production of many manufactured goods.
Indian business’s second complaint is about explicit and hidden barriers to entry in China for Indian exports. From food products to pharmaceutical, Indian exports have faced a variety of non-tariff barriers that have made exporting to China a difficult business.
As India battles a sharp decline in exports and a rising trade deficit, China’s unfair trade practices have come into focus once again. Manufacturers across several sectors have been complaining to the government and seeking some form of protection. Their hopes are pinned on next month’s Union budget.
To cite just one example of the kind of issues being raised by Indian manufacturers, the Automotive Tyre Manufacturers’ Association (ATMA) has published a report titled, ‘Should Indian truck and bus tyre manufacturing be held hostage to indiscriminate Chinese import?’ Seeking the imposition of an anti-dumping duty on tyre imports from China, the fixing of a floor price for such imports and an increase in customs duty with a view to correcting the existing inverted duty structure that favours raw material producers and hurts tyre manufacturers, ATMA has called for a re-examination of India’s free trade and bilateral trade agreements.
Tyres are just one example. Indian manufacturing in general is concerned that the country’s trade, tax and tariffs policy is not adequately supportive of the prime minister’s ‘Make in India’ project. While some may dismiss these concerns as harking back to the days of inward-looking industrial policy, the current global economic context warrants fresh thinking on trade and industrial policy. The heart of ‘Make in India’ has to lie in ‘manufacture in India’.
