Chinese premier Xi Jinping's promise to invest USD 20 billion in India was the highlight of his most-talked-about visit to the country, but the fact remains that the dragon nation is still resisting Indian imports.
Also read: India-China talks: High on hype; low on substance?
In an interview to CNBC-TV18's Latha Venkatesh, Dr Sachin Chaturvedi, Director General, RIS says China continues to bypass India. He says China is using non tariff barriers to block Indian export of agriculture products.
He says Indian pharma exports too are not being allowed and despite USFDA's clearances to the drugs, China on pretext of standards, is not allowing exports in Beijing or Shanghai.
Also read: Key trade, biz announcements during China Xi's India visit
Professor SK Mohanty says the issue also lies with the value chain. While India has competitive advantage in several lines of products like machinery, precision instruments, chemicals, in some sort of textiles, China continues to import from Association of Southeast Asian Nations (ASEAN) – Indonesia, Malaysia, Philippines, Singapore Thailand, Brunei, Cambodia, Laos, Myanmar (Burma) and Vietnam.
In the process of import from ASEAN countries, China is completely bypassing India's capabilities. "China should change its strategy to source more from India where it is more competitive than other countries so that it can benefit itself by lowering its cost of imports from other ASEAN countries and also provide greater market access to India, he adds.
Below is the transcript of Sachin Chaturvedi & SK Mohanty's interview with Latha Venkatesh on CNBC-TV18.
Q: We understand that China is now moving from slightly lower value-added industries to more hi-tech industries. It is vacating some industries. Do you think this vacating can be an area which India can take over and thereby bridge the trade deficit? What are the immediate plans that you can think of to bridge this vast trade deficit?
Chaturvedi: It is very important for us to realise that almost 42 percent of our total exports to China is coming from our natural base. So that kind of extractive profile that China has exhibited in the last couple of years from across the world is a major challenge and that India would have to evolve proactive measures in terms of promoting technology intensive exports and that requires a major push.
Q: If you can elaborate a bit more since most of us are very ignorant of what exactly are the products exported. You are saying it's largely items like iron ore which are natural resources.
Chaturvedi: Exactly. If one looks at the statistics, one will find that textile is almost 26 percent of our total exports while minerals and base metals are almost 42 percent of the total exports. So China's appetite for natural products for minerals, for iron ore and other things is huge and unfortunately, India hasn't put any kind of check on this export (a) because it is very rewarding and (b) because traders are finding it very easy to ship it to China. Sometimes we know from one of these states even unauthorised exports of iron ore have happened in the past.
Q: Would you say that the export levy on iron ore which India introduced a year ago is the way to go. As well what other strategies can India employ?
Chaturvedi: That is only one dimension of the challenge that we have to face. The second one is far more intense in terms of domestic policy proposition which is to give impetus to our manufacturing sector. As you rightly mentioned in the beginning about giving push to our technology intensive exports and there is a sort of vacuum in our export portfolio at this stage. So, it has to be addressed. We need to put our thinking hats on in terms of how we create a niche for that and as one might have noticed Dr. Mohanty has come up with a study which lays out nuances of a strategy in which we make India part of the global value chains which are bringing in India and China together. So, that is the way forward and we would have to lay out a roadmap in terms of how we can hookup at least some sectors of our manufacturing area to have a balance in terms of a hook to linkup with when it comes to high technology exports.
Q: In your paper you speak of the global value chain as well as the regional value chain. How does India fit in?
Mohanty: One can see that the global trade is moving fast in the areas of regional valuation and in this regard if one looks at the competitive position of India vis-à-vis other suppliers of products related to valuation sector, then India is better-off compared to many countries in south and south east Asian region.
The study has highlighted that in the sector, value chain particularly parts and components, India has got competitiveness in several lines of products like machinery, precision instruments, chemicals, in some sort of textiles – these are the broad sectors within the region of value chain particularly parts and components where India has got competitiveness as compared to major leading countries in south east Asian counties like Singapore, Indonesia, Malaysia and Philippines.
Q: What is holding back? Is it that we are not part of an Association of South East Asian Nations (ASEAN) or any of the regional trading blocks? Is that the reason why we are not participating in this regional value chain?
Mohanty: Difficulty is that China is consistently through bilateral Free Trade Agreements (FTAs) and regional FTAs with ASEAN, sourcing much from the ASEAN region and has completely bypassed India's capabilities. China should change its strategy to source more from India where it is more competitive than other countries so that it can benefit itself by lowering its cost of imports from other ASEAN countries and also provide greater market access to India.
Q: You were telling me that India is trying to get China to accept ASEAN+6. At the moment China has preferred the group ASEAN+3 and India is not in that plus three, so they should get into ASEAN+6. Is China resisting it stubbornly or is it something which India can win over?
Chaturvedi: China's resistance for India's access to not only their own market but even to that of ASEAN is very much evident. We need to realise the agony that our pharmaceutical market is facing in terms of market access in China. So, that struggle is going on.
The issue here is that there is growth in India as they are saying; the only challenge that we have at the domestic level is to have consistency in terms of our production, production of quality and then be part of those value chains which are coming in. So, some proactive measures we require on part of our own industry and our government to see that we are part of those chains. As you know in the last couple of years and if you see the number you were right that China has invested very little right from 2000 to 2014, only something like USD 400 million but if you look at India's investment in China, it is somewhere close to USD 1 billion from 2000 to 2012. So, that very much shows that there is eagerness among Indian investor and Indian exporters to link up with Chinese market and take the measures that are important in terms of tap on these externalities which are evident from the Chinese.
Q: I agree but is there a resistance on the past of China, is China using this bypassing of India because of diplomatic reason. Is China deliberately keeping India out?
Chaturvedi: Yes, definitely because the way China is using non tariff barriers to block our export of agriculture products. If you speak to export promotion council, they would tell you how much resistance we are facing in export of agricultural products on names of sanitary and phytosanitary measures, technical barriers to trade. So, sanitary/phyto-sanitary (SPS) and technical barriers to trade (TBT) are the two agreements of WTO within which China is blocking our export of agricultural products.
You would also find resistance in terms of not allowing export of our pharmaceutical products to China. However, for the last five years, major India companies are requesting for clearance even when they have Food and Drug Administration (FDA) clearance to export to Untied States - China on questions or on pretext of standard, is not allowing our pharmaceutical exporters to land up in Beijing or Shanghai. So those are some of the measures and I was expecting that during this visit of the premier, the issue of mutual recognition of standards would come up and this is the way we have addressed our problems with USA, which was a sort of economy ridden with barriers.
Q: But it hasn't come up?
Chaturvedi: No, it hasn't come up at this point but I was hoping that something would be done to address this.
Q: Do you think that we need to get into the ASEAN first and then when your products are there, getting into China is easy?
Mohanty: At the outset I would like to tell that at the beginning there are two processes – ASEAN+3 and ASEAN+6 and China was insisting on ASEAN+3 because China was more consistent with countries like Japan, Korea and China. Therefore, China wanted that ASEAN+3 should start first but subsequently India and other countries strongly argued and several studies showed that there is tremendous potential in ASEAN+6, which is much better than ASEAN+3 and that is how the new grouping has come up in the name of Regional Comprehensive Economic Partnership (RCEP) and India is part of RCEP and now there is no ASEAN+3.
As you rightly said that several ideas have come up and we have seen in various studies that many of them are found to be very good particularly ASEAN could be India's future.
Q: Two issues – the renminbi has remain stable compared to the dollar and definitely compared to the rupee as well over the past four-five years since the Lehman crises and India has had the advantage of huge depreciation in the last one year. Is this going to be able to bridge the deficit?
Chaturvedi: I think much more substantive issue in context of India-China relationship is this huge trade deficit to which you alluded in the beginning and that trade deficit we would have to address. However, if you pick up details on China's strategy because China is facing hit all across the world because of trade deficit. Latin American countries immediate after Fortaleza meeting of BRIC when premier went across Latin America, every country they raised this issue of trade deficit with China.
So, there the issue that China is trying to raise is to take that advantage of trade deficit to turn it into preferential investment arrangement and after coming back from Ahmedabad the premier again indicated in terms of preferential investment access in India. Therefore, the USD 20 billion proposal that has come up for investment is a very little given the huge gap we have of USD 36 billion. So that's a major challenge that we are facing and you rightly said in the beginning that with Japan we have a deficit of only USD 6 billion. With China the measures to allow market access is an issue as I said in the beginning but then to turn deficit into preferential investment to get absorbed at the local level is a strategy which is a very brilliant masterstroke from China and we would have to understand this game and would have to take it in that earnestness.
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