Building bridges

The India-China relationship is a subject of particular interest for India’s industrialists. Sunil Bharti Mittal, chairman and group CEO of Bharti enterprises and, as of last month, the new president of the Confederation of Indian Industry (CII), told CHINA ECONOMIC REVIEW how the increasingly significant economic relationship between the two countries may have a positive impact on the global economy.

Q: India-China trade beat most expectations in 2006. What are the most important factors driving trade?

A: The two neighbors are among the fastest growing economies in the developing world and are considered engines of regional economic growth. The average annual growth rate in trade between 2003 and 2006 has been 57% as per statistics released by the Ministry of Commerce and Industry. Various factors contributed to the sharp upward swing in trade ties. The political engagement at the highest levels provided the much needed impetus and business on both sides responded favorably. Investments by companies in each other’s countries have also helped push trade further.

Q: How would you go about describing the trade relationship between India and China?

A: The trade relationship between the two countries is evolving and maturing, though we are far away from the true potential. There are enough complementarities on both sides to work together and that should be the focus. There are also many areas where the two may compete but it already is and should continue to be healthy competition. The two sides need to identify areas where they can work together and I am sure that this strategy will evolve in the coming months and years.

Q: What role does the CII play in this unique relationship?

A: CII has always looked at China as an important and valuable partner for Indian industry. That is why we have set up our office in China to interact and build greater partnerships with counterpart organizations and the government. CII has organized several high-powered business delegations including CEO missions, delegations from several Indian states and various sectors. CII has developed partnerships with various trade representative bodies like the China Council for the Promotion of International Trade, the All China Federation of Industry & Commerce and the Ministry of Foreign Trade and Economic Cooperation to facilitate bilateral exchanges and interactions. CII organized visits by over 20 business delegations from China to India in the last year.

Q: China had a trade surplus with India for the first time last year. Is this significant? What does it mean for Indian businesspeople?

A: Trade volume between the two countries surged to about US$25 billion in 2006 from only US$2.1 billion in 2000, making China the second biggest trade partner of India. Trade between India and China comprises mainly of commodities relating to extractive or basic industries. India’s exports to China comprise mainly of iron ore, chemicals and engineering products, which together accounted for 79% of the total exports during 2006. In terms of imports, India imported electronic goods, electrical machinery, textile yarn, synthetic fabrics, machinery and coal, coke and briquettes from China. These figures show that low-value, primary products overwhelmingly dominate India’s exports to China, with a huge reliance on iron ore. Indian industry feels there is a need for diversification of the Indian export basket to China, especially manufactured items and processed products. The diversification of the trade basket could impact not only the volume of trade but would also result in qualitative shifts which would be mutually beneficial.

Q: A lot of the services Indian companies provide are not included in the trade statistics. What is the impact of this sector of the economy on the trade relationship with China?

A: Many top Indian companies like Sundaram Fasteners, NIIT, L&T, TCS, Infosys, Reliance, Dr. Reddy’s, Ranbaxy, TVS Motors, and Asian Paints have invested in China and are considered to have gained good success in their operations. Over the years the contribution of these companies will be fully reflected in trade and investment figures.

Q: What are India’s strengths and weaknesses going forward? Are there any main up-and-coming sectors?

A: India’s strength is in its ability to engage with important trade partners. Its large domestic market is an attraction for most trade partners including China. Its only major weakness today is lack of adequate physical infrastructure. India is already a major power in information technology (IT) and IT-enabled services. Several sectors in the manufacturing and services sector are up-and-coming and some of the major ones would be biotechnology, information and communication technology, hospitality, engineering, etc.

Q: How does Indian industry view China? Is it a threat? Is it an opportunity?

A: China is both a challenge and an opportunity for Indian industry and that is what will bring business on both sides closer to each other since they will want to understand and work with each other better.

Q: What are the main obstacles to trade? Any particular hurdles on the Indian and Chinese side that industry would like to see eliminated?

A: A great deal of attention needs to be paid to trade facilitation. Reduction in the present level of high transaction costs could lead to further strengthening of India-China economic linkages. There are several steps that could be considered including streamlining customs procedures and moving towards a more comprehensive electronic data interface in customs administration and information exchange; a bilateral pre-shipment inspection agreement; mutual recognition agreements on standards; harmonization of conformity assessment procedures; and various non-tariff barriers should be identified, addressed and removed.

Q: What impact will the relationship have on the world economy?

A: Two large economies growing at a good pace will certainly have a very positive impact on the world economy. The two will provide enough opportunities to each other and to other nations to tap their markets and import goods and services from them. They may also help increase the purchasing power of the world population in the coming years by bringing more and more people out of poverty through inclusive growth.