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FDI in multi-brand retail will flood Indian markets with Chinese goods
As per the data released by the Government of India, India's trade deficit touched a record high of $184.9 billion for 2011-12 as against $ 118 billion in 2010-2011. This trade deficit is about 10.5 percent of the GDP and is not sustainable. Oil imports rose 47 per cent to $155.63 billion during 2011-12 over the previous year's $105.9 billion. The non-oil imports grew 26 per cent to $333 billion against $263.8 billion in the previous year. As per Forbes, increasing trade deficit will result in the current account deficit of India rising to $60 billion in fiscal year 2012-13. That will further weaken the rupee.

Trade Deficit with China

While the trade and current account deficits are alarming, India’s trade deficit with China is going to be disastrous. India and China officially resumed trade in 1978. In 1984, the two sides signed the Most Favoured Nation (MFN) Agreement. India-China bilateral trade was just US$ 2.92 billion in 2000. It reached US$ 51.8 billion in 2008, making China India’s largest trading partner in goods. In 2011, bilateral trade stood at US$ 73.9 billion. Unfortunately, the trade deficit with China for year 2011 was US$ 27.08 billion (about 25 percent of India’s total trade deficit of $118 billion). The deficit has been rising rapidly. India’s trade deficit with China has always been negative. It was 15.87 in 2009, 20.02 in 2010.

In 2011, India’s exports to China consisted of Iron Ores, Slag etc ($10.45 billion) cotton & yarn, fabric etc ($3.19 billion), copper and items ($2.16 billion), precious stones etc ($1.19 billion), organic chemicals ($0.99 billion), plastics ($0.69 billion), salt, sulphur, earth & stone ($0.51 billion), machinery, reactors, boilers etc ($0.43 billion), electric machinery TV etc ($0.43 billion), animal or vegetable fats etc ($0.32 billion), iron and steel ($0.32 billion), raw hides and skins etc($0.3 billion), Animal feed etc ($0.27 billion), artificial flowers etc ($0.22 billion) and fish/prawns etc ($1.50 billion).

China’s exports to India during 2011 included nuclear reactors, boilers, machinery, etc ($12.34 billion), electric machinery, sound Equip, etc. ($10.75 billion), organic chemicals ($4.62 billion), fertilizers ($3.54 billion), articles of iron or steel ($2.15 billion), iron and steel ($1.87 billion), plastic articles ($1.11 billion), medical and surgical instruments etc ($1.0 billion), vehicles and parts ($0.99 billion), textile fabrics and arts ($0.85 billion), oil bitumen or mineral wax ($0.66 billion), furniture, bedding, lamps etc ($0.61 billion), inorganic chemicals and rare earth metals ($0.59 billion), manmade yarns and woven fabrics ($0.5 billion) and ceramic products ($0.5 billion). Whereas some of the imports like machinery and rare earths are beneficial to Indian industry, a variety of consumer goods including electrical items used during Diwali festivals, furniture, cheap shoes, locks, tools, toys and even kites and other items are destroying domestic industries.

Indian Companies in China

With the growth in bilateral trade between India and China in the last few years, many Indian companies have started setting up Chinese operations to service both their Indian and MNC clientele in China. Indian enterprises operating in China are into manufacturing (pharmaceuticals, refractories, laminated tubes, auto-components, wind energy etc.), IT and IT-enabled services (including IT education, software solutions, and specific software products), trading, banking and allied activities.

Chinese Companies in India  

According to information available with the Embassy of India, close to 100 Chinese companies have established offices/operations in India. Many large Chinese state-owned companies in the field of machinery and infrastructure construction have won projects in India and have opened project offices in India. A large number of Chinese companies are involved in projects in the Power Sector. These companies will also be repatriating their profits in dollars and adding. The situation will become even worse with introduction of FDI in retail.

Conclusion

China is the world’s hub of low-cost manufacturing. Its exports to India far exceed imports from this country. Chinese electric and electronic items are the most popular items in India though their quality cannot be guaranteed. Chinese exports have now penetrated to sectors as unconventional as Diwali decorations including icons of Hindu deities Lakshmi and Ganesh.

With the FDI push in multi-brand retail, the trade deficit with China is set to increase. Walmart and other international retail chains source heavily from China. Some Indian companies have also set up manufacturing units in China as joint venture units. Thus more Chinese consumer products are likely to find their way into India. It will also have depressing effect on India’s manufacturing sector which is already in contraction mode.

Our Finance Ministry has finally woken up to the dangers of mounting trade and current account deficits and the declining value of the Rupee. But its knee jerk reaction to increasing import duty on gold will have little effect in reducing both. Indian society cannot live without gold. The measure will only increase smuggling and create new mafias.

Some viable options for India are:

Increase duties on all imported consumer items from cosmetics to clothes and accessories to discourage consumption and help Indian industries.

Increase gold production at Kolar and other fields and subsidise it if necessary. Expenses will be in Rupees and not in dollars. One can also put a limit on the quantity of gold which temple trusts like Tirupati and Shirdi. Government can buy the gold from the temple trusts and sell it in the open market. That will reduce the requirement of importing gold and reduce the demand for dollars.

Violate Western sanctions and increase bilateral trade with Iran. We need Iranian oil and can export everything they need to have balanced trade. We can have Rupee or Dinar trade with Iran if necessary.

Stop import of defence equipment and set up a meaningful defence production in partnership with Indian companies like Tatas, Mahindras, Adanis and others.  

However, India is a soft state. We are a “Mango People in a Banana Republic.” How can we defy the US and displease China? We will persist with our neo-liberal Western dictated economic policies and continue to import more than we export till we are broke and the Rupee becomes 100 to the US dollar. We will continue to treat foreign exchange management as a Ponzi scheme and pay old investors with dollars received from new investors. Sooner or later all Ponzi schemes will crash. Then we can sell Arunachal and Andaman islands to China and Lakshadweep to Saudi Arabia and replenish our foreign exchange reserves.

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of merinews.com. In case you have a opposing view, please click here to share the same in the comments section.
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