Modi-Xi meet: Minimising trade disparity, lifting restrictions are vital

Modi-Xi meet: Minimising trade disparity, lifting restrictions are vital
Saurabh Bhattacharya | Sep 18, 2014



Prime Minister Narendra Modi receiving President Xi Jinping at Ahmedabad. PTI

While border issues have been used as a tool to irritate India, China may be slightly wary this time while meeting Prime Minister Narendra Modi this time. Prime Minister Modi’s Japan visit and Australian Prime Minister Tony Abbott’s State visit have been clear indicators. Infrastructure development along the LAC bordering China has also driven home some messages. Though China has tried to continue with its own tactics, which is routine before the visit of their President or Premier, India has sent equally strong messages this time.

The India-Vietnam off-shore exploration deal may not be a mega project, but it surely has sent messages underlining the problems Xi Jinping may be facing in South China Sea with the string of pearls islands. Many of the East-Asian nations have protested to China’s strong arm tactics but emergence of Narendra Modi-led decisive Government in New Delhi has raised some hopes.

With economy going sluggish in China, raising bilateral trade and minimizing trade deficit with India is a high priority for President Xi. In last quarter of 2012 their growth rate had fallen to 7.7 per cent and for the entire 2013, Government maintained that the rate continues to be the same but international experts believe it could be lower. While India-China bilateral trade is desired to be pushed up to $100 billion annually, it has been hovering at around $ 35 billion.


There has been immense trade imbalance between the two nations. While Chinese exports have grown by almost 40 per cent since 2001, according to a Mumbai Mirror report, Indian import has remained quite low. China needs India but it has also imposed trade ban on Indian pharmaceutical products and restrictions on IT sector. This is primarily because Indian IT sector is one of the best in the world and China wants to protect its industry.

Similar protectionism is not followed by India and nor is it healthy for a free market environment. Challenge for Narendra Modi-led Government would be to create an environment where Indian produce can match the price tags of goods made in China. In terms of raw materials, China does buy iron ore and cotton, but the prices it offers are much lower than what its own farmers receive. Mumbai Mirror also adds that –

“China is already running into labour shortages, and increasing labour costs. As it loses the 30-year advantage of low labour costs, industry will start migrating out to places like Bangladesh, Vietnam, and maybe India too.”

Is it one of the reasons why China wants to move the major thrust of its economy from manufacturing to service sector? They are probably looking at opportunities of investing in India since this is one of the better and safer markets and could help bolstering its own economy. Xi knows that India would be a lucrative destination of many western countries including the US. Not a single penny is Xi going to spend without ensuring returns.

The big challenge for Narendra Modi would be to extract a better deal from Xi this time. Take advantage of Chinese investments and low cost technology to develop infrastructure, ensure that trade imbalance is reduced, though expecting parity is out of question. Best case scenario would be to bargain for certain degree of peace along the border. Chinese investment stuck in India would also mean that there could be a certain degree of positivity in future intearctions.