Saturday, 4 May 2013

India-China trade may suffer (PO)

M D Nalapat

Saturday, May 04, 2013 - India and China are the two most populated countries in the world, together accounting for 2.5 billion people. While Beijing has been much more successful than Delhi in promoting economic growth, the inherent strengths of India give promise that better governance would witness double-digit development. India has a young population that is

hungry for education and achievement, and which is much less susceptible to sectarian calls and medieval attitudes than their elders. Although governments in India sought to deny knowledge of the English language to the poor for half a decade after independence in 1947, public pressure has forced the elites to provide instruction in the language even in government schools across India.

Access to the international link language will sharpen the skills of young Indians and make them better prepared to take advantage of global opportunities. An example is Information Technology, where the industry has been growing despite several policies designed to dampen its development. Indeed, the Manmohan Singh government in particular, dominated as it is by Sonia Gandhi, has been relentless in hobbling domestic industry to benefit foreign companies, especially those based within the NATO bloc. Since 2004,it has become a hell on earth for local industry, even while benefit after benefit has been given to foreign suppliers of equipment that could easily have been produced in India, had the government followed the international practice of helping its own companies rather than outsiders.

The fact is that both the US as well as the EU will find it impossible to escape from their economic woes unless they turn to India, especially in the sourcing of services, including in IT. An example is Healthcare in the US, where President Obama’s goal of universal coverage will bankrupt the treasury as surely as President George W Bush’s reckless adventures in Iraq and Afghanistan have. Unless Barack Obama turns to India for pharmaceuticals and other healthcare services, there is no way that hi country will be able to meet the objective of universal coverage without going bankrupt. In Europe as well, there is an economic need to source significant sections of the knowledge economy to India, rather than rely on intra-European providors, especially in IT software. Wisdom is finally dawning on EU companies, who are increasingly turning to India to meet their IT needs. According to press reports, more than twenty European companies have set up Research and Development hubs in India, following on from the more than 800 already here. Indeed, a huge opportunity exists in smaller cities in India, which are rich in human capital while having low-cost infrastructure. Given the slowdown in Europe and the pause in expansion of the US, several Chinese companes have lost their market and are piling up unsustainable levels of inventory. Should growth in China fallk below 8% annually, there will be severe effects on internal stability. Indeed, there is a danger of growth falling below 5%,unless China makes use of the opportunities offered in the less developed parts of the world, primarily India. The sectors of Telecom, Energy and Infrastructure offer $100 billion markets each for China, even as there is huge potential demand for the products of China’s enormous financial services industry. On the other side, China can offer a huge market for IT products, pharma and other offshoots of the knowledge economy, while 500,000 Chinese tourists to India can help reduce the gap between India’s exports to China and its imports. Overall these are the two giants of Asia. Together, they can bring prosperity to all their citizens, besides forming the vanguard of a rising Asia. Small wonder that such a prospect is becoming a nightmare for China’s competitors in the NATO bloc and in East Asia ( Japan and South Korea)

Howevere, it seems as though the collective prayers of the EU, the US, Japan and South Korea have been answered. On April 15, a platoon of PLA soldiers crossed into territory that has been held by India since 1947 and set up four tents there, thereby provoking a media storm in India. So high decibel is the public anger at what is seen as an act of aggression that has been politically a disaster for the Manmohan Singh government (which is the least assertive of any government in India, barring that led by Jawaharlal Nehru, which was as forgiving of outside provocations as the present UPA coalition is). The tide of protest at the action of the PLA is likely to result in Chinese companies being barred from doing business in India, and in those already functioning in this country being told to pack their bags and return home. Huawei would be an early target. The company has already been barred from the US market, and the loss of India is likely to be followed by similar exclusion from the EU, thereby crippling its growth. The sale of Chinese electrical and other equipment is likely to be halted, thereby choking off a huge market. Although there are pressures on the government to respond militarily to the entry of PLA troops into a region close to the Daulet Beg Olkdi airstrip, what is more likely is that there will be an economic boycott of Chinese suppliers and manufacturers first, before shooting commences on the border. Such a scenario would work against the interests of both India and China, but seems difficult to avoid, given the reality that Beijing does not understand the depth of the efforts by certain countries to poison ties between it and Delhi. The Chinese soldiers huddling in tents near the airstrip are going to have unfathomable consequences on Sino-Indian economic relations, sending them back to the Deep Freeze. This will be good news for a lot of countries.

Those who have worked for years to bring about a strong relationship between China and India are hoping that the status quo will get restored before or during the May 9 visit of External Affairs Minister Salman Khurshid to China, so that Premier Li Keqiang’s trip two weeks later will be marked by the signing of several major economic and other agreements designed to ensure that India and China better tap their immense synergy. Those capitals interested in a Sino-Indian rupture will be praying that the PLA soldiers remain where they entered on April 16, thereby forcing the Government of India to protect its political future by sharplky reducing trade with China.

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