Trade and Trains to Top Modi’s Economic Agenda in China

New Delhi: It’s time for a reality check for Prime Minister Narendra Modi as he embarks upon a three-day China visit in which economic engagement and trade will be high on agenda. Modi’s biggest challenge will be to get market access for Indian goods, including IT, entertainment and pharma to the Chinese market and also to reduce the highly skewed trade imbalance with Beijing which has now touched a whopping $48 billion in favour of China.

To contain the rising trade deficit between India and China, the Confederation of Indian Industry has suggested urgent measures to reduce non-tariff barriers in these sectors. In addition to this, Modi will also have to ensure that the $20 billion investments announced by the Chinese president during his visit to India last year take concrete shape as nothing much has moved after his announcement.

During his visit, India and China will also discuss ways to accelerate work on a multi-billion dollar rail link from New Delhi to Chennai. China, which is conducting a feasibility study into a $36 billion high-speed train project from the capital in the north to Chennai in the south, has asked for work to begin on a pilot project covering part of the route. The two sides have also agreed to speed up implementation of a shorter high-speed rail corridor from Chennai to Bengaluru, as China seeks to cash in on Modi’s vision of modernising a creaking network that 25 million people use daily.

A railway official on Wednesday said India was considering a Chinese proposal for a pilot project on the Delhi-Agra stretch of the proposed 1,754 km high-speed corridor to Chennai. Officials said some agreements on rail projects are expected to be signed with China during the Prime Minister’s visit. “China has been asking that they start work up to half-way along the line even while the feasibility study is going on. A memorandum of understanding could be signed during PM Modi’s visit,’’ a senior official said. China has offered to provide India financing for building the high-speed network. A Chinese delegation from its national railway bureau visited India from April 25-29 at the invitation of New Delhi to talk about accelerating the Sino-Indian railway cooperation document.

Specific non-tariff barriers

In its memorandum, CII pointed out that although bilateral trade rose at a Compound Annual Growth Rate of 15 per cent since 2007-08, the trade deficit has been burgeoning in an unsustainable manner. In 2014-15, the deficit touched $48 billion. According to CII, India is emerging as one of China’s fastest growing markets and the trade deficit is likely to widen further. Regarding the IT sector in China, the memorandum points out that Indian firms have had limited success with contracts from State Owned Companies (SOEs). This is largely due to their inability to meet qualifying norms and certifications needed to bid for SOE and government projects, insistence on local entities in some provinces availing subsidies thus reducing competitiveness, challenges in staff mobility amongst provinces due to the ‘hukou’ system, necessitating local offices in each project area, etc.

In the pharmaceutical sector, Indian companies face time-consuming and expensive approval processes and complex post-registration steps including pricing, provincial tendering and hospital listing. Marketing and distribution also pose significant challenges given the large and diverse geography. CII has suggested according recognition of international approvals from agencies such as the USFDA, UKMHRA etc. The above ‘fast track’ initiative should be focused especially for specific molecules which are not available in China but can be provided by Indian companies at a competitive price.

Finally, the CII has also suggested government support to marketing efforts by Indian industry to organize industry seminars, trade fairs, award ceremonies, etc. in collaboration with relevant industry bodies. This may include fast tracked visas for relevant personnel organizing/ participating in these initiatives, fast tracked approvals for events, etc.

Ironically, Indian industry has raises similar points before all bilateral summits in recent years without the situation changing on the ground.

The latest data from the Ministry of Commerce shows that between April 2014 and February 2015, India imported goods worth $55.8 billion from China but exported goods worth only $11 billion. This took the merchandise trade deficit to $48 billion in the last fiscal year. For the full fiscal year, the deficit may rise to almost $50 billion. This $48 billion trade imbalance accounts for more than a third of India’s overall merchandise trade deficit during this period. It is larger than India’s exports to the United States ($39.1 billion) or as much as India’s imports of gold and mobile phones during the 11-month period.