The focus is to be on economic issues and hence I will not dwell on the political and other aspects of our relations. My views on the overall relationship were set out at some length in a keynote address I delivered on Dec 12 last year at a UGC sponsored conference on India China relations at Thrissur. The text is on the website of the Public Diplomacy Division of MEA and hard copies are also available for those interested.
To put today’s discussion in perspective I would like to highlight some basic facts which have an important bearing on the subject under discussion today.
China is India’s largest neighbor. We are the two most populous countries in the world. China is now classified as an upper middle income country and India as a lower middle income country.
Our systems of political governance are markedly different; India is the world’s largest democracy while China is a one party state, theoretically communist.
There is a desire at the highest political level in both countries to overcome differences and establish a wholesome and mutually beneficial partnership. Translating this on the ground into practical reality often runs into anticipated barriers that arise from the past history of the bilateral relationship and our differing approaches to issues.
China is a country that is more than three times the size of India in area terms while its population is only 14% larger than India’s. Both in GDP and per capita GDP terms the Chinese economy is three times plus that of India.
In recent years, China and India have been amongst the fastest growing economies in the world and their shares, particularly that of China, in the global economy have steadily increased. In fact, China is today the second largest economy in the world in absolute terms, the largest exporting nation and the second largest trading nation (approximately 13% of world trade). India’s share in global trade is low. (2.7%). The government’s target is to double the share by the end of 2020. As part of this process the target is to double exports to US $ 500 billion by the end of 2013/14 over the figure for 2010/11.
Currently, India’s trade with China is approximately 10% of its overall trade (it is around 2% of China’s trade). If the projections made for bilateral and total trade are fulfilled this percentage may not change substantially by the end of 2015 at which time the target is for bilateral trade to reach US $ 100 billion.
(Note: all percentages are approximations.)
India and China are amongst the fastest growing economies in the world and while China has sustained a 9-10% growth over more than three decades, India has over the last three decades maintained a growth rate of over 6%. Both countries have been seriously impacted by the recent and ongoing financial and economic crisis. This has lead to slightly lower growth rates even though the reduced growth rates remain the envy of most countries. Both countries have had to undertake serious programs of quantitative easing which have, inter alia, lead to excess monetary supply and inflationary pressure although the rise in prices in China has been relatively moderate compared to that in India.
The impact of the global financial and economic crisis has underlined the urgency, in China in particular, for the need to take corrective action to ensure long term sustainability of Chinese growth. This is yet another area where there is a substantial difference between the paradigms followed in our two countries. In India the development paradigm has largely been based on growth of domestic demand whereas in China it has been anchored on external trade and infrastructure development/ investment in capital goods. The infirmities of the latter model have been well understood by the Chinese leadership and economists and efforts have been underway since the beginning of this century to encourage domestic demand to play a greater role in the Chinese economy. However, so great is the vested interest in sustaining the current development pattern that these efforts have not been too successful. There are of course a host of other reasons for this also. But, if the views of the senior Chinese political leadership are examined, it is clear that this effort and that towards sustainability will find greater resonance in coming months and years.
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