India-China Economic Cooperation: Prospects for Growth

It gives me great pleasure to contribute this article for the inaugural issue of China-India Dialogue. The focus of this issue – Internet + Enterprises – is a reflection of the many opportunities presented by the convergence of digital technology and a vibrant entrepreneurial culture. As two of the fastest growing major economies in the world today, India and China enjoy special advantages in leveraging these two emerging sectors.

India has been a bright spot among developing economies with its growth rate for 2015-16 expected to be around 7.5 percent. Our inflation is down as also our fiscal and external deficits. We are carrying out reforms to make our business environment more welcoming, resulting in a sharp improvement in India’s ranking in the World Bank’s ease of doing business index. The government led by Prime Minister Narendra Modi has brought out multiple initiatives such as “Make in India”, “Digital India” and “Skill India” focusing respectively on reviving India’s manufacturing, transforming the country into a digitally empowered knowledge economy and improving human resources so as to take advantage of our demographic dividend. Our Prime Minister has assured that “we will continue with our reforms with speed and boldness”.

China is also in the process of comprehensively continuing reforms to a deeper level. The reforms envisaged and decided at the Third Plenary Session are being implemented and the 13th Five-Year Plan, which is critical in bringing in a “moderately prosperous society”, has been approved for implementation from January 2016. The reform journeys of our two countries and our economic complementarities offer new chances for partnership.

The landmark visit of Prime Minister Narendra Modi in May 2015, coming just eight months after the path-breaking visit of President Xi Jinping to India in September 2014, has provided a major impetus to our relationship across all spheres. In particular, our leaders have agreed to make developmental partnership a core component of our Strategic and Cooperative Partnership for Peace and Prosperity. Hence, our economic relationship is a focal point of our overall engagement.

Our bilateral trade has grown rapidly in the last decade, crossing USD 70 billion in 2014. According to Chinese statistics, aggregate merchandise trade in the first nine months of 2015 was USD 53.37 billion, but the problem of a large deficit for India has further aggravated. Mutual investment flow has increased. This is emerging as a new and powerful driver of growth for our economic relationship. We are exploring other avenues of cooperation in the economic sphere.

Practical cooperation between India and China has been stren­gthened, recognizing our mutual complementarities. For instance, China is a world leader in railways whereas India has a large demand for strengthening our railways infrastructure. Thus, we are now cooperating in various aspects in the railways sector including proposed feasibility studies for high speed rail, raising the speed along existing tracks, station development and training of personnel.

Similarly, Chinese enterprises enjoy a comparative advantage in the infrastructure and manufacturing sectors and are looking towards “going out”. The economic growth in India and the reform measures that are being undertaken provide China with huge opportunities. The Government of India has elevated the revival of Indian manufacturing to a key policy objective, identifying this sector as the engine of long-run growth. The government has made it clear that we welcome Chinese enterprises to participate as partners in our developmental process as a part of the “Make in India” campaign. We are glad to note the positive response from Chinese enterprises. China’s ranking in the list of foreign investments to India has increased from the 28th position as of September 2014 to 18th position as of June 2015, showing that Chinese investors are beginning to see India as a preferred investment destination.

A particular highlight of the bilateral investment cooperation is the cooperation in building industrial parks. Two MoUs were signed during the visit of President Xi to India whereby Chinese enterprises will build industrial parks in Gujarat and Maharashtra. More such MoUs were signed during the visit of Prime Minister Modi to China. We believe that this provides a good example of win-win cooperation. For Chinese enterprises, these industrial parks can be a hub of activity.

Rapid urbanization is a common challenge (and opportunity) that we both have to deal with. In this context, we are also cooperating in the field of “smart cities”. We have identified a city each in India and China to implement joint demonstration projects in this regard.  

Tourism is another area wh­ere there is a large potential for growth. China is the largest source of outbound tourists in the world with over 110 million trips made last year alone. However, only a miniscule part of this number goes to India. Similarly, the number of Indians traveling to China is also small relative to the number of tourists traveling abroad and also in comparison with our age-old civilizational linkages. Both our countries are taking measures to rectify this anomaly and to reach our full potential in bilateral tourist flows. We marked 2015 as the Visit India Year in China. 2016 will be marked as the Visit China Year in India. In order to facilitate the travel of Chinese nationals to India, we have begun issuing E-Visas to Chinese nationals since July 30, 2015. Our preliminary data suggests that there is a jump in the number of Chinese people traveling to India as a result of the activities related to the Visit India Year and the implementation of E-Visas.

In digital technology, India is a world leader in terms of software exports. The government has now instituted a visionary campaign entitled ‘Digital India’ which envisages a huge jump in access to high-speed internet technology, e-governance, development of digital infrastructure and skill development. Electronics manufacturing is also a core component of this mission. Chinese companies are already actively looking at opportunities emanating from Digital India and this would gain momentum with the participation of small and medium businesses. Indian IT companies, too, are attempting to tap the Chinese market for software and would like to see more projects coming their way.

The entrepreneurship space, too, is vibrant and buzzing in both countries. The Government of India has emphasized rapid development of the small and medium sector by addressing the funding issue. Techno-Financial Incubation and Facilitation Program is in place to support start­ups and self-employment, particularly in technology-driven areas. Intellectual Property Facilitation Centers aim to create IP culture among entrepreneurs, looking at protection, capacity building, information services and counselling and advisory services. We hope that more and more small and medium enterprises can find opportunities in each other’s markets.

Though we have enjoyed tremendous growth in our economic partnership, we also face some issues that we are seeking to resolve. The skewed bilateral trade is one of the major issues that we face. Trade deficit last year was nearly USD 38 billion, which was India’s largest with any country. This year, in just the first nine months of 2015, the deficit has crossed USD 33 billion. Both our countries recognize that this is not sustainable and we need to take urgent measures to ensure that our economic engagement becomes more balanced. In this regard, we have agreed that both sides will take necessary measures to remove impediments to bilateral trade and investment and facilitate greater market access to each other’s economies. The common premise from which we work is that both India and China recognize the imperative to foster a strong, sustainable economic relationship.

On the global and multilateral front, India and China also share common views on the need to reform international financial governance. We are founding members of new financial institutions such as the New Development Bank and the AIIB. We have convergent interests in strengthening the rule-based global trading system and speeding up the Doha Development Agenda. We are working together in the climate change negotiations.

As both our economies proceed to address development gaps and raise incomes, we can jointly leverage the power of the internet and the inherent capacity of our enterprises to forge closer trade and investment ties. In conclusion, I would like to quote our Prime Minister’s words on India-China relations: “We reinforce each other’s progress in today’s uncertain times. Few partnerships are as filled with promise as ours.”

The author is India’s Ambassador to China since January 2014. A Mandarin-speaker, in the last 20 years he has worked in Indian missions in Singapore, China and the US; and, in the Ministry of External Affairs dealing with India’s relations with China, Pakistan, Afghanistan and Iran. He was Consul General to Hong Kong and Macau 2000-03, Director General of MEA’s East Asia Division 2003-07, and High Commissioner to Malaysia 2007-09.

Published in the INAUGURAL ISSUE of CHINA-INDIA DIALOGUE