China and India must pull down the trade barriers

PUBLISHED : Monday, 03 February, 2014, 3:48am
UPDATED : Monday, 03 February, 2014, 3:48am

China and India, as neighbours with the world's most populous nations and among the largest consumer markets, should have thriving economic co-operation. Yet despite trade and investment ballooning in the past decade, levels are not in keeping with the countries' scales. Business people on both sides complain about barriers to financial progress. Chinese are especially critical of Indian red tape, visa problems and unfriendly politics.

Such problems are not unusual in developing countries. But given India's economic troubles - double-digit inflation that is the worst in Asia, a currency near all-time lows, a faltering stock market and scared-off investors - authorities should be making every effort to attract foreign capital. With GDP growth at 4.4 per cent, half the rates during the boom years of 2003 to 2008, officials acknowledge the economy has hit a rocky patch not experienced since the balance-of-payments crisis in 1991.

Tough reforms engineered by outgoing Prime Minister Dr Manmohan Singh, then finance minister, saved the day. But while circumstances now are markedly different, the same kind of thinking is necessary. A radical overhaul of the markets for energy, labour and land is sorely needed. Corruption and red tape remain rife. Infrastructure is largely poorly developed.

Reforms need to be far-reaching and will take time. Industrial exports have to be increased and that will involve strengthening the manufacturing sector. Part of the solution lies in India improving Chinese access to its markets and cutting the red tape that is hampering infrastructure projects and investment. Chinese local authorities could help Indian firms with setting up manufacturing bases and making it easier for them to get visas for their staff.

Trade volume between the two last year was only one-sixth of that between China and the US and one-third of that of China and South Korea. There is enormous potential for growth that both should tap into. India in particular can benefit by taking a more enlightened approach to the relationship.