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    India, China keen on closer trade ties; ministers to meet against the backdrop of growth slowdown

    Synopsis

    Trade ministers from both countries will meet in New Delhi on Monday against the backdrop of growth slowdown in both countries.

    China is likely to lobby for a smoother investment and operational environment for its companies in India, lower tariffs on power equipment and more visas for its workers when trade ministers from both countries meet in New Delhi on Monday.
    NEW DELHI: As growth slows in China and India, both nations want closer trade and investment ties with each other. China is likely to lobby for a smoother investment and operational environment for its companies in India, lower tariffs on power equipment and more visas for its workers when trade ministers from both countries meet in New Delhi on Monday.

    India has been crying foul over the rising trade deficit with China, which widened to $40 billion last fiscal. It will press for greater access for pharmaceuticals, IT/ITES sectors, diamonds and agricultural products to bridge the trade gap.

    Beijing is also eager to discuss a five-year development plan for trade and economic cooperation with India as part of its strategy to increase its presence in Asia, a government official told ET.

    "China has been unhappy about some of its investment plans in India getting hampered due to India's security concerns especially in the area of telecom. It also wants our land and labour laws to be smoother," the official said.

    New Delhi is keen to have Chinese investments in all areas especially infrastructure sectors like power and would take all steps to make the going smooth. "We will assure the Chinese that it is in our interest to make things smooth for them. We will certainly listen to the issues that they raise and take measures to make it easier for Chinese companies to invest," the official said.

    The government will clarify that India's concerns about security, which have dogged telecom equipment suppliers ZTE and Huawei, were stand-alone issues and not linked to any particular country, the official added.

    China has also asked for more work visas for its workers, which New Delhi says is not a problem as long as it is for skilled workers. "We have made it clear that we encourage skilled Chinese workers to come to India and work, but we do have a policy against unskilled workers which is a logical stand for a labour surplus country like ours," the official said. On its part, New Delhi will press Beijing to announce measures that would check the widening trade gap, which accounts for more than a fifth of the country's total trade deficit. A workshop held by the National Security Council Secretariat last year expressed concerns about India's growing dependence on China, in case ties between the two get strained in the future.

    Concerns were expressed about forecasts that China could account for 75% of India's manufacturing GDP in the next five years, up from the present 26%.

    One of India's strategy to bridge the trade deficit is to encourage Chinese investments and discourage imports. Imposition of a 21% tariff on power equipment imports last month, that mostly affects Chinese imports, is one such measure. "We are going to tell the Chinese that it will now make more sense for them to invest in the power sector in India as it is not so profitable to export equipment any more," the official said.

    India will also demand specific steps like lowering of withholding tax, bringing down taxes on Indian IT/BPO companies, allowing Chinese state-owned companies to do business with Indian companies and simplification of registration process for pharmaceuticals. The Chinese market also has great potential for export of diamond and agricultural products from India provided the country agrees to lower its quarantine and pest-control requirements.

    Although China has not yet disclosed what it proposes to include in its five year plan for increased economic ties with India, commerce department officials in the country say that it would certainly insist on measures to lower deficit.

    ET View: Open Up

    Restrictions or high tariffs on imports of Chinese equipment, like electricity turbines and telecom switches, need to go if India has to deliver affordable power and telecom services. Any move to give domestic producers excessive protection would make them flabby and inefficient. Low duties and low barriers will keep local costs low and companies on their toes. What they need is other kinds of support, R&D and standards, for example. While negotiating, the government should press hard for greater market access to India’s goods and services exports into China. History shows that mercantilism is poor policy in the long term.
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    2 Comments on this Story

    Dilip Sharma3024 days ago
    We must do the best possible to create the best possible relationships between neighbours.
    Sasi3024 days ago
    The sincerity of the Chinese will be only visible if the trade is balanced.Imports from China have already closed many small and big companies in India.Luckily labour being in short supply no trade unions are complaining but the trade balance is widening day by day in China's favour.
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