Many mountains still to cross in Sino-Indian relations

As Singh era comes to an end in India, its relations with China are troubled by a trade imbalance and continuing border tensions

PUBLISHED : Wednesday, 07 May, 2014, 11:33pm
UPDATED : Thursday, 08 May, 2014, 4:22am

It would be reasonable to expect an Oxford-educated economist like Indian Prime Minister Dr Manmohan Singh - architect of India's economic reforms in the 1990s, which put the country on a high-growth trajectory - to leverage trade with China to his country's advantage.

With the world's largest democracy embarked on its five-week general elections that end on Monday, one of the biggest disappointments of Singh's decade-long term will undoubtedly be his failure to establish a balance between economic transactions with India's largest trade partner.

While Chinese exports to India surged to US$48.44 billion last year, Indian exports to China remained a third of that, at US$17 billion.

"The ballooning deficit in China-India trade has come to be Singh's most formidable challenge in the last few years," said Kanwal Sibal, India's former foreign secretary.

This asymmetry was responsible for nearly 50 per cent of India's current account deficit - the amount imports outweigh exports - which was hampering growth, he said.

China was sitting on huge cash reserves, Sibal said, and could boast advantages in many industries, including manufacturing and the construction of infrastructure.

"Attracting more Chinese investment can be transformative for India's economic architecture. But there's no visible political will to do that," he said. "It's almost as if in our eagerness to engage with the Chinese, we're working to their agenda rather than our own."

For years, the imbalance has overshadowed trade talks. When Premier Li Keqiang visited New Delhi last May, he promised to assuage Indian concerns by creating markets for China's information technology, pharmaceuticals and food. But little of substance emerged from the numerous pacts they signed.

The Times of India commented that the companies represented in Li's delegation "seem bent on selling instead of buying in the Indian market".

Under pressure from the media and a strident political opposition, Singh reminded Beijing officials about the issue during his three-day visit to China last October, saying India faced an "unsustainable imbalance" in its trade with China.

But his efforts have yet to bear fruit. At this rate, economists say, the US$100 billion target for bilateral trade set by the nations' top leaders for 2015 seems beyond reach.

Ironically, both Indian and Chinese companies are cognizant of the large markets that lie beyond the Himalayas.

While Chinese manufacturers have managed to gain a toehold in India - even in sensitive sectors like power and telecoms, fuelling Delhi's insecurities - India hasn't made much headway into Chinese terrain.

Worse, Chinese investments in India remain far smaller than those in many other Asian countries because of India's opaque regulatory regime.

"The trade issue has wider ramifications," said Pramit Mahajan, a specialist in international trade at New Delhi's Institute of Economic Growth, a research centre.

It’s almost as if in our eagerness to engage with the Chinese, we’re working to their agenda

He said the weak spots in the bilateral economic engagement were not only intensifying historical problems, but also making future challenges appear more daunting.

Observers say that while India's recent growth has stagnated, and its political establishment is in disarray due to corruption scandals, China has enjoyed a consistently impressive economic performance until recently. And Beijing's seamless political transitions also help make China Asia's dominant player.

"This diminution of India is something that the country's intelligentsia finds hard to fathom in their engagement with China, triggering frequent showdowns in bilateral relations," Mahajan said.

Another issue where Singh has consistently played a weak hand, analysts say, is along the border. Tensions along the 3,500-kilometre boundary between the world's two most populous countries have often strained ties.

China claims about 90,000 square kilometres of territory that India insists falls within its sovereignty. The border between the northern Indian state of Jammu and Kashmir and Tibet, which China claims, has been the flashpoint for a series of recent stand-offs between the PLA and the Indian army.

China also claims some portions of India's northeast, near Bhutan and Bangladesh.

On July 16 last year, 50 members of the PLA on horses and ponies rode into the Ladakh, a northern territory claimed by India but where both armies patrol.

A week before that, Chinese military helicopters had violated Indian airspace in the same area.

Incursions by China into areas India claims have increased since last year, raising concerns that the military posturing could lead to armed conflict.

As recently as March 16, Chinese troops made fresh attempts to encroach on the border in the Chumar area in Ladakh, and retreated only after Indian soldiers formed a human wall. China claims Chumar as its own territory, and has made helicopter incursions almost every year.

There has been little official explanation as to why India has repeatedly been caught napping in an area where China has been known to encroach.

Singh signed the Border Defence Co-operation Agreement last year, which provides soldiers of both countries along the border with clearer rules to avoid or limit confrontations. Yet the risk of clashes is growing.

During the past decade, Singh took steps to strengthen India's defence and surveillance capability along the Himalayan stretch of the border by building roads and infrastructure. In the northeast, one of his important initiatives was to build a huge two-lane highway - the trans-Arunachal - and strengthen border security.

But until India has a stable government, China will continue to press its claims. And with Singh's corruption-tainted government teetering on the brink of collapse, China's position has only been made stronger.

But a senior official in the ministry of commerce said that Singh's handling of prickly issues - such as the unequal trade balance and the border disputes with China - could have snowballed into ruinous problems, but were handled with diplomacy and restraint.

"It would've been very easy for the UPA [India's ruling coalition] government to constantly keep squabbling with Beijing and achieve nothing, either diplomatically or in terms of trade," said the official.

"Instead, Singh's constructive engagement with China not only prevented the border dispute from blowing up into a warlike situation, but with his forward-looking policies, we were able to set in motion policies which will soon see the trade imbalance improving as well."

But a senior member of the opposition Hindu-fundamentalist Bharatiya Janata Party sees room for improvement. He says India's approach towards China needs to be "holistic rather than episodic or sporadic, as it has been with Singh".

"What is needed is a firmer hand to settle rival claims to the border territory, not just to manage clashes," says the opposition member, whose candidate, Narendra Modi, is considered by some to be the front runner.

Topping Modi's list of promises is an early resolution of the border disputes with China. He has blamed Singh for being "weak" on national security, a point Sibal agreed on.

"Not only is there no satisfactory resolution of the issue, on the contrary, the Chinese have stepped up their activity on the border," Sibal said.

On the campaign trail, Modi has exhorted Beijing to shed its "mindset of expansionism".

"I swear in the name of the soil that I will protect this country," Modi said last month at a rally in the northeastern state of Arunachal Pradesh - a region claimed by China.