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LEG UP FOR TRADE

A prime ministerial visit does not directly boost trade and economic relationships between two countries. However, any improvement in the political environment (and this is implicit in some progress on the border dispute and mutual acceptance of Tibet and Sikkim) has positive effects on trade. For instance, although trade across the border is constrained on both sides by inadequate transport infrastructure, the importance of a third entry point via Sikkim cannot be denied. More important, trade is often constrained by lack of information and business delegations like the present large one that accompanied the prime minister, help remedy this. It must also be remembered that “Made In India” exhibitions will follow in China. The bilateral information base has indeed improved and other than direct flights, this explains why Sino-Indian trade has shot up. There is a slight anomaly in Indian and Chinese figures. But bilateral trade turnover is possibly around $5 billion now and given the low base, should increase to the targeted 10 billion in 2005. While the balance of trade has usually been against India, India’s exports in 2002-03 have grown by 96 per cent, compared to an increase of 38 per cent in Indian imports from China. But unlike the Chinese export basket, the Indian one is still fairly narrow and concentrated in low value segments.

Compared to a few years ago, the paranoia about India being deluged by cheap manufactures from China seems to have disappeared, although half of India’s anti-dumping investigations in 2002-03 concern China. Quite clearly, transaction costs are lower in China and this also explains why economic relationships have transcended trade and Indian investments in China have increased, including in information technology and pharmaceutical industries. The splicing of Chinese hardware and Indian software, with the Beijing Olympics in mind, is another angle. There have not been significant Chinese investments in India yet, and greater information exchanges following the visit may help such flows. The message is one of sidestepping irritants and taking forward the relationship in areas that are not constrained. Other than greater maturity, this signifies acceptance by the Chinese of India’s growing economic clout, their economic clout having already been accepted universally. Cooperation within the World Trade Organization is also hypothetically possible, since the Chinese have not yet bucked the Indian line on any major issue. There is therefore no longer any need to project China as India’s greatest enemy, at least in the economic domain.

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