One school of thought holds that the economies of India and China are complementary and together will create a mega-market of 2.4 billion people that could change the face of the global economy.
The reality is much more complex – certain portions of their respective economies are complementary, while others are not. But, perhaps most importantly, it is only these two nations that have the size, stability and closeness to compete and collaborate on a reasonably even footing.
At the start of 2006, Hetal Gandhi, now the president of private equity firm Tano Capital Investments, led a fundraising delegation to Japan, where he found investors eager to enter India.
"We have no choice because we want to balance our investments in China," was the rationale.
Within Asia’s developing economies, India remains the only feasible makeweight for China, and the consistently rapid growth figures expected to come out of Delhi only serve to reinforce this.
"I think it’s the size of the market, it makes it attractive for everybody," said Gandhi. "India is going to be a US$1 trillion economy next year and, when you talk about that base, it’s like adding a Philippines or a Thailand every year."
India began to seriously look outside its borders with the launch of widespread economic reforms in 1991. With import tariffs as high as 50%, the country had been sidelined from the growth spurt that powered other Asian economies.
Trade between China and India was virtually nil.
Since then, Delhi has slowly moved to simplify investment procedures, promote foreign direct investment, liberalize exchange controls and rationalize taxes. Tariffs are down to a maximum of 10%.
In 2006, trade between India and China topped US$25 billion, a year-on-year jump of 32%. Considering their respective sizes, though, this is still small. While the US took 16.8% of Indian exports last year, China came in third on 6.5%, behind the United Arab Emirates.
Like many other countries, India’s principal imports from China are manufactured goods, particularly textiles and consumer durables.
Industrial raw materials head in the opposite direction.
Indian companies now also export expertise in software and financial systems while tech-savvy Chinese companies are also looking to cash in on India’s need to develop its infrastructure.
"We are integrating," said S. Ramachandram, director-general of the India-China Chamber of Commerce and Industry. "That’s why we refer to India and China, not India versus China."
Stronger and savvier Indian industry, aware that global integration is a prerequisite for success, has also contributed to rendering the India-China cooperation or competition argument virtually meaningless. It still surfaces occasionally, but more as an intellectual or political exercise than a factor for business.
Basanta Pradhan, a professor of economics at Delhi’s Institute of Economic Growth notes that, just as multinationals assume a non-country-specific approach, so smaller, national-level firms in India and China are increasingly eager to take advantage of regional growth rather than worry about where the money is made.
Indian companies – like Tata Consulting Services, which has a training center in Hangzhou and is creating a foreign exchange trading system for Bank of China – look to China to find room for expansion, knowing they have much to offer in terms of experience and technology.
Meanwhile, Chinese firms such as Haier and Huawei hope to capitalize on their manufacturing expertise in India.
"China and India complement each other. It’s not China and India or China versus India, it’s something in between," said Pradhan. "Both are expanding at a phenomenal rate, so there is not much sense in competing against each other."
Growing interaction between the two Asian goliaths is also boosting both markets across the region.
As it is, India is creating bilateral trade deals with regional partners and looking to participate more fully with the Association of Southeast Asian Nations. The idea of a free-trade agreement (FTA) with China has also been floated – while unlikely in the short term, by the time it is viable it may have been superseded by pan-Asian agreements.
Pradeep Wig, owner of Kwality Ice Creams (India) and chair of the agriculture and food processing committee at the Association of Chambers of Commerce and Industry of India, sees trade becoming freer.
"Everybody is going to have an FTA with everybody. With Singapore we already have a very strong one. We have one with Thailand. And then we are discussing with the European Union. And what does that leave? The US and China. … Then everybody can open the doors."