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Mr Xi and Mr Modi

What to keep in mind as the two leaders meet

Business Standard Editorial Comment  |  New Delhi 

The president of the People's Republic of China, Xi Jinping, will land in Ahmedabad on September 17, beginning his first visit to India in the town ruled by Prime Minister Narendra Modi till this May. This is not the first time the two leaders are meeting; they met at the BRICS summit in Brazil in July this year. But it is President Xi's first visit to India, and will be closely scrutinised for signs of where the relationship is heading. Both Mr Xi and Mr Modi are stronger and more unchallenged leaders than either country has had for some time; their predecessors were both criticised for putting off essential reform. Mr Xi, like Mr Modi, has concentrated power at the top, reversing a process of diffusion over the past 10 years. Given this, expectations from the summit are naturally high.

The intention of Mr Modi and his officials is clear: to ensure that China's savings glut can be turned to India's advantage. On paper, it looks like a match made in heaven: China has excess savings and infrastructure firms that are experienced in handling super-sized projects; India has an enormous infrastructure deficit. To top it all off, Japan has clearly been attempting to woo India with funds and investment, which means that the Chinese do not want to be left behind - thus, the promise of $100-billion investment, almost certainly calculated to grab the headlines as being three times Japan's promised involvement.

However, caution must be exercised. First of all, expectations of investment must be moderated by the understanding that only a fraction of promises translates into reality. Second, there is a larger strategic question to be kept in mind. Already, India has a neo-colonial relationship with China, one not so different from most African countries. Its enormous trade deficit with China - a quarter of India's total trade deficit - is caused mainly by manufactured goods. Manufactured goods from China are 11 per cent of India's total imports. Meanwhile, India exports practically nothing to China except raw materials - Indian iron ore helped China build up its steel industry in the 2000s. This is the very definition of the core-periphery economics that made up dependency theory. Whether India wants to enhance its economic dependence on a country with which it has a long and troubled border is a complicated strategic question, and should not be answered impulsively - one way or the other.

If anything, this should serve as a reminder of the importance of sweeping domestic reform. India today is 23 years into its reform process - the point China was at in 2001. Superficially, many indicators are similar, such as India's gross domestic product (GDP) per capita, if adjusted for inflation, exports as a percentage of GDP, and domestic physical investment as a percentage of GDP. But the decade since 2001 for China was a period of take-off and explosive growth - fuelled, it must be noted, by internal factors. Today, India is streets behind a country that once was imagined to be a strategic rival. In order to match Chinese performance in the 2000s, which propelled it into the strategic stratosphere, India will need solid domestic reform that can encourage a domestic investment boom. Drumming up foreign investment should be a secondary concern.

First Published: Mon, September 15 2014. 21:40 IST