From Chandini Chowk To China: The Business Divide

Posted on December 23, 2010 in Business and Economy

By Srishti Chauhan:

Existing in close proximity for thousands of years, India and China have had surprisingly little political interaction. The two countries haven’t yet been able to follow the “Love thy neighbour” philosophy. Disputes over borders, geopolitical competition for power, resources and markets has marked the history of Indo-China relations.

The recent visit of Chinese Premier Wen Jiabao has been the harbinger of a great many changes in the equation the two countries have shared over time.

India and China have had a history of dissonance arising from the fact that in the South Asian region India is the only country that can stand up as a strong competitor to China. Recognizing that strategic rival- India has size, might, number and above all-the intention to match it; China has been following the policy of aligning with the relatively small countries like Pakistan, Nepal and Bangladesh to counter India. One of the most important decisions that will mark the future of Indo-China relations is dissolution of trade barriers between the two developing economies. The main question that arises here is- Who benefits more from this? Should India allow Chinese products to flood its markets in exchange for a chance to expand the horizons of its business and trade dealings to the “Kingdom of the Dragon”?

The current proposed changes in the trade barriers between India and China will bring forth huge changes in the market structure of both the economies. Both countries have huge markets which guarantee mammoth increase in the demand for the other’s products. While India is seeking in China a huge market for pharmaceuticals, agricultural products and IT services, China is seeking to sell a wide range of consumer products in the world’s second most populous country.

According to leading economists of the country, the trade balance is tilted in China’s favour with India starting at a possible deficit of $24 billion this year. China is what is commonly called the lightweight industry. Selling goods such as T-Shirts and toys is what China is markedly known for. India, on the other hand, is what is popularly called the Heavyweight Industry. India is more inclined towards the manufacturing of skyscrapers, tanks and ships. The difference in the kind of products that each wants a market for in the other’s country is what makes this decision exceptionally crucial to make.

At the micro level, industries like Tata Steel are keen on disbanding of the trade barriers and double imposition of tax on traded goods as this gives them a chance to enlarge their trade and consumer base to countries yet unconquered. However, at the macro level, India seems to benefit a great deal less from this resolution than China.

A major article that affects the decision-making is that India has filed the largest number of patent violation cases against Chinese companies at the World Trade Organization. Chinese leaders feel that the main reason for this is that New Delhi refuses to recognize China as a free market economy. However, most western countries have taken the same stand saying that China highly subsidies its exportable products and cannot be regarded as free market economy. So will it be wise for India to allow China to surmount its market base with its relatively cheaper and hence, more demanded goods?

However, many factors which shall affect the decision include the colossal boundary dispute. The Chinese map still shows Arunachal Pradesh to be a part of China. Will this gigantic dispute be easy to ignore while we think about doing away with trade barriers? A similar problem regarding the possible diversion of River Brahmaputra by the Chinese is set to create major crisis. Brahmaputra is one of the largest rivers in India. Will India- a country where water crisis is on the rise and where irrigation to millions of small farms is solely dependent on the river in question- be able to take this so lightly?

Another major hurdle that stands in the way of amiable relations between the two countries is the aligning of Chinese and Pakistan army against India over any Kashmir battle and otherwise. These issues are enormous hurdles that India would have to be very ignorant to turn a blind eye to. What will happen remains to be seen. The question for now is whether India is willing to inflate its business sector at the cost of its agricultural and military sector.