Amit Goel
Often the potential of a lateral relationship between India and China is lost in rhetoric, and consequently, a meaningful discussion fails to take place. The rhetoric could come up during bilateral negotiations between diplomats or in media.
Aksai Chin, Arunachal Pradesh, Tibet and river disputes are matters of prime importance between India and China that need to be resolved soon. Both countries have been constantly raising these issues and the Governments on both sides are aware of the intricacies and complexities that involve these affairs. They are conscious that resolving these problems is an uphill task replete with road blocks.
Both sides need to agree to an amicable solution and move ahead. Often, when it comes to China, we make little progress because of the highly charged atmosphere that accompanies the equation with our neighboring country. The $40 billion trade deficit that we have with China becomes a sensitive matter. It is over-emphasised because of the bitter legacy of the 1962 war. Repeatedly, we look at each other with suspicion and mistrust, thereby, shutting the doors on the prospects of economic cooperation between two great civilisations.
Frankly, the responsibility for this huge deficit lies more with India than China. India has a trade deficit with 15 of its top 25 trading partners, including China. Thus, to make China an exception and put the blame entirely on it, is a wrong step. In India, the manufacturing scenario is grim as we produce poor quality products that have no market abroad. This is because of bad infrastructure like power, roads, ports, railways as well as complicated labour laws and land issues that make our industry sluggish and incompetitive.
India needs to put its house in order. Our import bill is always higher than our export earnings and will continue to be so if we do not sit up and take notice. Our over-dependence on imported petroleum products is another factor for our high trade deficit vis-à-vis the world. As much as 80 per cent of our oil requirement is imported. In addition to oil, we have high gold and auto-component imports which add to the fiscal burden. Our defense and commercial aircraft requirements also result in foreign exchange drainage.
Thus, to blame China for the sticky situation that we are in, is unwise and uncalled for. The way forward would be to first get our manufacturing sector in order. While substantial work in this regard has been done in the last 60 years, we are still far from where we aspire to be. At this juncture, Prime Minister Narendra Modi’s Skill India and Make in India programmes are promising and should not be dismissed as mere sloganeering. These are perhaps possible solutions to India’s financial woes.
What Dilip Piramal said at the recent Women Economic Forum in Goa is perhaps the stark reality that stares us in our face today. According to him, on one side we have a gigantic youth force looking for jobs and on the other side, when the industries go searching for skilled labour, they are disappointed. This yawning gap between what the manufacturing sector wants and what is actually available jeopardises our industry and economy. China has successfully bridged this gap at home. Thankfully, today there is an emphasis on a well-trained work force in India as well, through the Skill India initiative. Soon, we will have the skilled labour force necessary for Make In India.
Mega cities and bullet trains are two other areas which have the potential to attract foreign investment. These two sectors have caught the imagination of the world and many countries are looking to invest in India. Modi has succeeded in making the world sit up and listen to him – whether it is Russia, Japan, America, China, France, the UK or Germany. He has repeatedly stressed on strengthening the manufacturing sector so as to attract direct foreign investment and bridge the gap we have with the world. China has already illustrated to the world through its Make in China model which we need to replicate through Make in India.
China has become the world’s manufacturing hub and today is the ultimate link in the chain of manufacturing and producing quality goods. It imports components, assembles them and re-exports them. In India, we are striving to do so but are still not re-exporting finished products after importing the components.
The auto-car industry is a good example. All leading car manufacturers of the world have set up factories in India. We import auto components and re-assemble them. But the finished products are sold only within India. If they were to be exported, India would be earning the foreign exchange spent on importing the components. Apple iPhones is another example. China is manufacturing hub for iPhones. It imports the phone components from South Korea, assembles and exports them. According to an article in Forbes magazine, for every $190 iPhone that China exports, its net foreign exchange earning is six dollars. India needs to achieve this level of leadership.
Blaming the world for its trade deficit and expecting it to resolve it is not going to help India. Unless the government revamps manufacturing facilities, making it worthwhile for foreign companies to make in India and then supply to the world, we will not be able to compete with China. A systematic and futuristic approach will reduce the trade deficit that plagues our economy and hinders our growth.
