CII outlines a 4 point Action Plan to Reduce Trade Deficit with China

The Confederation of Indian Industry (CII) has outlined a 4-point action agenda to reduce the growing trade deficit with China. Both governments recognize that strong efforts must be made to redress alarming trade imbalance. The needs of the two economies are complementary and CII suggests four measures to balance trade, said Mr Chandrajit Banerjee, Director General, CII.

The CII publication Report on Accelerating Indo-China Economic Engagement notes that bilateral trade between India and China has grown rapidly in the past decade. Bilateral trade crossed $65 billion in 2013 and $72 billion in 2014-15. Chinese imports have grown sharply relative to Indian exports resulting in a record deficit of $35 billion in 2013. Latest figures released by the Department of Commerce, India, reveal that trade deficit has expanded to $48 billion in 2014-15, more than four times India's total exports to China.

The report recommends a 4 point action plan. This includes:

Leverage India's importance as a market for Chinese products as well as an investment destination for Chinese companies

Push for market access in key sectors of China - Pharma, IT, Tourism, Media and Entertainment, Auto Components and others

Prioritise Chinese FDI in 18 identified industry sectors and establish a sovereign deal to attract investment in Indian infrastructure

Set up an institutional committee of Government and industry led by the Prime Minister's Office or Department of Commerce to direct and monitor the achievement of goals

The report recommends that to promote exports and investments:

India will need to push for specific actions in certain identified sectors like IT Services, Pharmaceuticals, Auto Components, Tourism and Entertainment

Across these targeted sectors, India has a potential to generate revenues in excess of US $10 billion in 4-5 years i.e. nearly 80% of the exports of India to China in 2013

Indian companies need to change their mindset towards China and invest for the long term by committing resources in terms of technology, capital and senior management and work in close co-ordination with the Indian Government, which has a critical role in enabling market access in China.

In order to promote Chinese investment in India, the two countries have agreed to set up two Investment Parks for Chinese manufacturing companies. Indian industry believes that this would be the right way to step up manufacturing investments in India and help Chinese companies leverage our cost competitive environment and skilled workforce. This also works well with the government's overall objective to promote the manufacturing sector in India.

However, these need to be prioritised in sectors which are mutually beneficial like power equipment, industrial machinery, apparel, footwear, API and Intermediates, etc., and specific propositions need to be thought through to attract Chinese investment in these sectors. The states will play a crucial role in this process.

The infrastructure sector is another area where India and China can work together. China has about $3 trillion in accumulated foreign exchange reserves which are mostly invested in US treasury bonds and some EU bonds. Even if a small fraction of that amount were to be invested in long term infrastructure financing bonds in India, with an assured rate of return in RMB over a 20+ year period, it would alleviate the resource crunch being faced in this sector.

According to the report, India has emerged as one of the key markets for China growing at a faster rate than most of the other key trading partners except Vietnam. Today, India's imports from China continue to be dominated by high-skill and technology intensive manufactured products and exports by primary commodities.

On the investment front, close to 100 Chinese companies have established operations in India. These companies operate in diverse sectors ranging from iron and steel to electronics, IT and hardware manufacturing. However, this is far below potential and investments from China in India totals less than $900 million from April 2000 to February 2015.

China, in turn, has presented itself as a good location for business for Indian IT companies. Several Indian IT companies have invested in China to cater to their clients in Asia-Pacific region. Indian manufacturing companies, especially in the automotive sector - both in OEM and component space - are investing in China to take advantage of the large domestic Chinese market.

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