Economy of India

India too slow to tango with dragon

PUBLISHED : Tuesday, 21 December, 2010, 12:00am
UPDATED : Tuesday, 21 December, 2010, 12:00am

The visit by Premier Wen Jiabao to Delhi last week underlined the importance yet the immense diversity between the world's two once and future superpowers. China and India are neighbours, the giants of the world, its fastest growing economies, home to 35 per cent of the planet's population, and are at the same time the great hope for its future growth and the potential great peril that could plunder and destroy the earth's fragile resources.

Wen came and left with great fanfare, as if trying to prove that anything that the US, France or Britain could do, China could do better and bigger. All four countries have paid court to India in recent weeks looking for business deals. President Barack Obama took 215 business leaders with him. Nicolas Sarkozy led more than 60, and David Cameron was accompanied by 40 British business executives. Wen took 400 executives, including bosses from Shanghai Electric, SinoSteel and telecoms firms ZTE and Huawei.

'The dragon and the elephant should tango,' declared Wen, suggesting he also had a better line in colourful slogans. When he left after a packed three days, China and India had signed about 50 deals for power, steel, wind energy, telecommunications, as well as food and marine products, altogether worth about US$16 billion, much bigger than the US$10 billion in deals Obama and his business leaders left with. The two neighbours also agreed to lift their trade from US$60 billion this year to US$100 billion by 2015.

So the wrapping paper on the talks was appropriately festive to match Wen's beaming smile wherever he went. But if you get beyond the bonhomie and the blah blah blah of the official speeches and the communique promising ever-closer relations, the two countries failed to come to grips with real issues dividing them, which could still undermine their promise of better ties.

China and India are divided by the icy Himalayas, which also symbolise their often frosty relations. The countries are similar in that they were both victims of colonialism in past centuries, India a direct colony of Britain, China kicked around by several colonial powers over a long period. When they regained their freedom, both retreated into effective economic isolationism in different ways.

China physically closed the door on the outside world with disastrous economic results until Deng Xiaoping opened it up in 1978. India was always open but in pursuing an economic autarchic policy, it condemned itself to the 'Hindu rate of growth', barely above the rate of population increase. India's attempts at self-reliance went far beyond the infamous 'commanding heights' of the economy. On my first visit to India years ago I remember radio jingles with children trilling, 'Mummy, Mummy, Modern Bread,' which was one of the many products in India Inc's nationalised portfolio.

India did not follow Deng's opening of the door to the outside world. Indeed, it was not until the then finance minister Dr Manmohan Singh found himself with only enough money in the kitty to pay for two weeks of essential imports in the early 1990s that India reluctantly began opening up its economy.

Singh in those early days asked if a nationalised industry was profitable, why shouldn't the people be allowed to share in the profits. The fatal flaw in the logic that the nanny state knew best how to direct the finer details of the economy was that the many underpaid underlings of nanny saw their opportunities for making money out of the proliferation of permits required to start a business, employ people, get power and water supplies and have access to finance. India's so-called 'permit raj' played into the hands of corrupt officials and the big industrial groups that knew how to use them to thwart competitors.

India remains a difficult place in which to do business, according to the World Bank Group's annual report Doing Business 2011. It languishes in 134th position out of 183 economies ranked, up by a single place on the previous year's study. China is in 79th place, down one. Both India and China score poorly on the aspects of starting a business - India in 165th position, China in 151st - and dealing with construction permits - India comes 177th, China 181st.

China and India also diverge significantly in the importance of trade to their economies. China is a trillion dollar exporting giant that took over from Germany as the world's biggest exporter last year, with exports of US$1.2 trillion, 9.6 per cent of global exports and a trade surplus of almost US$200 billion. On the other hand, India is in 21st place on the world export league with only US$136 billion in exports last year, 1.3 per cent of global exports, and a considerable trade deficit of US$114 billion.

Trade between China and India has increased by leaps and bounds in recent years and will top US$60 billion this year, making China India's biggest trading partner. As it has in the West, China has made big inroads into India's consumer markets for all sorts of goods from shoes to toys, electronics and computers.

India has not had anything like the same success in selling to China because its long-protected manufacturers cannot turn out goods cheaply enough. Iron ore alone makes up about half of India's exports, and the rest consist mostly of basic commodities. Delhi has long complained that China doesn't play fair in terms of market access, and has launched a string of anti-dumping cases against Beijing in the World Trade Organisation. In addition, Indian companies complain China only opens the door reluctantly when they try to set up operations. As a result, Beijing's surplus on trade with India will probably reach US$24 billion this year.

Wen vowed China took the trade imbalance 'seriously' and would offer better access for India in promising areas like drugs, agriculture and IT. But cynics say the Chinese promises are not firm commitments and were only made after India agreed to relax barriers against China's banks.

Leading Indian commentators noted that little had been achieved on the big political issues that divide the countries, such as Delhi's wish for a seat on the UN Security Council, its worries about China's plans for dams on the Himalayan and Tibetan rivers that flow through India and Bangladesh, and terrorism sponsored in its other neighbour Pakistan. The Deccan Herald complained that in spite of 'strong personal chemistry' between Wen and Singh, the two leaders 'engaged in parallel monologues, with the Chinese leader more keen to talk about banalities'.

Wen flew on to Pakistan, a country with only 15 per cent of India's population and trade with China worth US$6.8 billion, and there wrapped up deals for US$35 billion. He also praised Pakistan's brave stand against terrorism and promised strategic partnership and economic co-operation - all of which have made Indians wonder how much Wen's warm words for them are really worth.

Serious money

Trade between India and China amounted to US$60 billion this year

By 2015, Delhi and Beijing have agreed to lift their trade, in US dollars, to: $100b