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Sino-Indian relations: Economy over Politics?

A series of economic agreements signed between India and China bear significant political and military connotations. A five-year plan envisages the two-way growth of bilateral trade to $30 billion by 2010. A group formed during former Prime Minister Vajpayee's visit to China, had identified several measures related to trade in goods, services, investments and other areas of economic cooperation, and recommended the removal of impediments to facilitate enhanced economic engagement between India and China. A ministerial-level India-China Joint Economic Group (JEG) will consider these recommendations and coordinate their implementation. An India-China Regional Trading Arrangement has been recommended. Both countries have also decided to commission a Joint Task Force to study the feasibility of this project. A Financial Dialogue is also envisaged, which calls for promoting mutual understandings to learn from each other's experiences. Besides, the two sides would exchange views on a range of domestic and international financial issues and seek practical cooperation wherever it is mutually advantageous.

A sense of euphoria followed Wen Jiabao's visit to India. India wants to make investments in the pharmaceuticals, automobile components, software, and machine tools sectors in China. Commercial associations from India like FICCI and CII are identifying new areas to enter the Chinese market. Investments by China have not picked up so far, though companies like the Haier Group have entered the Indian market. The two countries are determined to take their business partnership to new heights. The CII has come out with a list of basic industries, high tech industries and trade in goods/services where there is potential for bilateral trade.

The mechanisms available are border trade and regional economic cooperation. They have taken off due to political differences. Border trade remains sluggish due to the absence of a mutually agreed border, and regional economic cooperation is a non-starter due to the volatile situation in India's Northeast, apart from China's past record of supporting insurgency in the region. The Bangladesh-India-Myanmar-China (BIMC) or the Kunming Initiative is dying a premature death. If India could handle its geopolitical problems in the Northeast and agree to regional trade cooperation, trade between India and China could gain a big boost.

High volume trade between the two countries can lead to several spin-offs. First, the economic development in India's Northeast and China's Yunnan province would be enlarged. Emphasis on communication networks in the region (such as rejuvenating the Stillwell Road) could lead to huge savings on ocean freight. Second, as business relations develop, the two countries would draw closer. Until two years ago, there were no direct flights between the two countries. One had to take a detour via Bangkok and Hong Kong. Now the frequency of direct flights has increased. In the future, it could be possible to go anywhere in China without stopping in Beijing or Shanghai. Third, with increasing communication linkages, it would be possible to develop sub-regional linkages independent of the state. An increase in Indian and Chinese diaspora in each others' countries could bring about a greater cultural understanding and tolerance of each other's social arrangements and governing principles. Tourism and scholarly exchanges will also increase.

But the political relationship between the two countries will be the major beneficiary. Over the last four decades, both countries have put the 1962 war behind them and emerged as mature players. Business interactions will help them to know each other better, remove the cobwebs and misperceptions about each other, and educate public opinion. This should help the political leadership of the two countries to resolve the long pending border issue.

If business is so important to determine the fate of Sino-Indian relations, prudence demands that the Indian business community does its homework properly, and takes steps to add value to the bilateral trade. The balance of trade is in India's favour. But the Chinese can do better than the Indians, since they enjoy the advantage of cheap labour. They are making rapid strides in software, and there is a growing English speaking community in China that threatens to compete with India over outsourced businesses. While this may not lead to a 'trade war' between the two countries, economic relations with China would become very competitive. Sino-Indian trade offers a new opportunity to bring about a permanent peace with India's northern neighbour. It also lays the foundation stone for a possible Asian Economic Community, hence a major effort is warranted to enhance India's business linkages with China.Views expressed are author's own.