Thursday, November 5, 2009

Prospect for China India FTA?

Sino-India trade has been growing at about 50% annually over the past decade. It is estimated to reach $60 billion by the end of 2009-10, growing from barely $2.3 bn in 2001. Since 2005-06, India's trade deficit has grown too, and put at over $20 bn, in 2008-09.

Suparna Karmakar writes in the Hindu Business Line newspaper, on Nov 6, 2009, about a study done at the Institute for South Asian Studies at the National University of Singapore, in an article titled "Wiring up Sino-Indian trade".
  • China accounts for 10.7% of India's total imports.
  • The top five Indian imports from China (at two-digit level) comprise electrical and electronic machinery, organic chemicals, iron and steel, mineral fuels, and waxes; constituting 2/3 of the total imports.
  • About 45.85% of the imports last fiscal comprised electrical and electronic machinery, comprising 30% of India’s total imports last fiscal.
  • In contrast, India’s exports to China are dominated by resource-based and labour-intensive products. Mineral products (for example, ores, slag and ash, salt and sulphur, and mineral fuels and oil) are prominent exports; ores comprise more than half of them.
  • India’s major exports to China are very different from its main exports to the rest of the world.
In this back drop, what is the prospect for an FTA? Ms Karmakar writes,
A quick analysis of trade data shows that the increasing trade deficit of India vis-À-vis China emanates in the very product categories which in value-terms are among India’s top five exports (at two-digit level) to the rest of the world. China is an important supplier in these key product categories, namely, mineral fuels, electronic and electrical machinery, iron and steel, and organic chemicals. Given the high intra-industry investment, production and trade in these key export industries, an FTA with China that assures reliable and assured supply of intermediate inputs may help boost India’s manufacturing efficiency and international competitiveness.
But she also notes two critical factors.
  • Indian industry associations remain extremely wary of the proposed Sino-Indian goods FTA.
  • In 2008, the Government also agreed that an FTA with China was not a ‘priority’.

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