Despite hype by the two Governments, Indo-Sino trade seems to have slowed down to a mere 28% in the 1st half of this year which is only 1/3rd of growth rates seen the last 2 years. The two Governments are working hard to find convergence on many issues but unable to find necessary impetus to expand trade and investment. In 2004, bilateral trade grew at 79% which fell to 37.75% in 2005. During the 1st half of 2006, India exported goods worth $5.38 billion (2005 exports was $9.78 billion) and imported USD 6.25 billion.
The driving factor to enhance bilateral ties over the last 2 years was bilateral trade growth but observers fear that this important driver will be missing during Chinese President Hu Jintao’s visit to India November. Worse, there is nothing that can influence trade significantly either.
In March 2006, Industry and Commerce Minister Kamal Nath and his Chinese counterpart Bo Xilai
Confederation of Indian Industry (CII) audience that bilateral trade will be USD 50 billion by 2010. At that time, Xilai said that there was a huge appetite for Indian inputs into China as it mostly imports only raw materials from India and ships valued added products. Nath went a step further saying that with this sort of growth, Indo-Sino bilateral trade will eclipse Indo-US trade.
The worst thing that India can do is to export raw materials and import finished goods. Instead, India should be exporting finished goods and not surrender competitive advantage it holds with superior natural resources for quick political gain in bilateral relations or trade numbers. Even the communists, who normally parrot a line favorable to China, have opposed the
Government’s policies to export raw minerals.
Several Chinese companies facing security investigations and roadblocks plan to circumvent their dilemma by skipping the Foreign Investment Promotion Board (FIPB) and instead continue with their investments through notifications to the government. While India laws do allow investors to take the automatic route by notifying the Reserve Bank of India, the nation cannot overlook security implications of providing blanket permission in all sectors and all companies. The Government has to notify these companies whose applications are being investigated for security reasons to wait for clearance and hold so-called consultants culpable if these companies should break the law.
The proposal by the Home Ministry to institute mechanisms like the US to block investment proposals for security reasons is a sound one and must be passed at the earliest. There have been nonsensical arguments by some communist-oriented national papers and pro-business papers and even from the Finance Ministry that there has no been no security breach in the Chinese companies doing business in India and therefore intelligence fears are unfounded. The point is not whether they have breached security so far but the propensity to breach security at short notice and gaining access. While there needs to be checks and balances to ensure that there is not partiality for certain business groups, the same argument cannot be held against desire to
preserve the security of the nation.