MOHAN GURUSWAMYVISITING PROFESSOR, ADMINISTRATIVE STAFF
COLLEGE OF INDIA.
DISTINGUISHED FELLOW, UNITED SERVICES INSTITUTION OF INDIA
Sino-Indian Relations and the Elephant in the Room.
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The Big Economic Transition Happening. (GDP PPP)
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Top GDPs by PPP
IMF Projections for China & India PPP GDPs.
Year China India
2020 $29 trillion $13 trillion
2030 $46 trillion $22 trillion
2040 $71 trillion $35 trillion
2050 $103 trillion $55 trillion
2060 $145 trillion $82 trillion
Great revival of the Chinese nation.
On November 15, 2012, the day he became general secretary of the
Chinese Communist Party, Xi Jinping stood onstage at the Great Hall
of the People, in Beijing, to reflect back on his countrys 5,000
years of history. After citing Chinas indelible contribution to
world civilization, Xi called for the great revival of the Chinese
nation. And he acknowledged that others had failed one time after
another to realize that goal. Implicit in Xis remarks was a
promise: unlike his predecessors, he would not fall short.
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China will still be thrice as rich as India .
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Two different orbits.
India and China exist in different orbits of the world economy.
A slowed down China now growing at 7% still adds $490 billion to
global growth, while a speeded up India, now growing at 7%, adds a
mere $160 billion.
Even when the rate of Indian growth exceeds Chinas by a big
margin, it will be a long time before it adds more to global growth
Although the Chinese economy does not compete directly
with Indias, the effect the former imposes on the global economy
will influence the Indian economy.
Hence, whether a slowing Chinese economy will really create more
opportunities for the Indian economy needs rethinking.
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"The faster growth rates of China and India imply that their
combined GDP (gross domestic product) will exceed that of the major
seven (G7) OECD economies by around 2025.
China, currently the world's second biggest economy, is forecast
to grow at an average pace of 6.6% from now till 2030, and 2.3%
from 2030 to 2060. The projections for India, the 10th largest, are
6.7% and 4%, respectively, the OECD said.
In comparison, the 34 OECD nations are projected to grow an
average of 2.3% per year from now till 2030 and 1.7% from 2030 to
Why China needs India.
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Now to the Elephant in the room.
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US Balance of Trade averaged -$13749 million from 1950-2017. It
was $762 billion in 2006. In 2016 it was $502 billion (Imports
$2.172 trillion; Exports $2.209 trillion). It was $47 billion in
USA Exports to China.
China was the United States' 3rd largest goods export market in
2016. U.S. goods exports to China in 2016 were $115.8 billion, down
0.3% ($297 million) from 2015. U.S. exports to China account for
8.0% of overall U.S. exports in 2016. The top export categories in
2016 were: miscellaneous grain, seeds, fruit (soybeans) ($15
billion), aircraft ($15 billion), electrical machinery ($12
billion), machinery ($11 billion), and vehicles ($11 billion). U.S.
exports of agricultural products to China totaled $21 billion in
2016, its 2nd largest agricultural export market. Leading export
categories include: soybeans ($14 billion), coarse grains ($1.0
billion), hides & skins ($949 million), pork & pork
products ($715 million), and cotton ($553 million). U.S. exports of
services to China were an estimated $53.5 billion in 2016, 10.5%
($5.1 billion) more than 2015, and 406% greater than 2006 levels.
It was up roughly 896% from 2001 (pre-WTO accession). Leading
services exports from the U.S. to China, in 2015, were in the
travel, intellectual property (trademark, computer software), and
Chinas Exports to the USA.
China was the United States' largest supplier of goods imports
in 2016.U.S. goods imports from China totaled $462.8 billion in
2016, down 4.2% ($20.4 billion) from 2015. The top import
categories in 2016 were: electrical machinery ($129 billion),
machinery ($97 billion), furniture and bedding ($29 billion), toys
and sports equipment ($24 billion), and footwear ($15 billion).
U.S. imports of agricultural products from China totaled $4.3
billion in 2016, its 3rd largest supplier of agricultural
U.S. imports of services from China were an estimated $16.1
billion in 2016, 6.6% ($993 million) more than 2015, and 58.8%
greater than 2006 levels. Leading services imports from China to
the U.S., in 2015, were in the transport, travel, and research and
The U.S. goods trade deficit with China was $347.0 billion in
2016, a 5.5% decrease ($20.1 billion) over 2015. The United States
has a services trade surplus of an estimated $37 billion with China
in 2016, up 12.3% from 2015.
U.S. foreign direct investment (FDI) in China (stock) was $74.6
billion in 2015, a 10.5% increase from 2014. U.S. direct investment
in China is led by manufacturing, wholesale trade, and depository
institutions. China's FDI in the United States (stock) was $14.8
billion in 2015, up 50.6% from 2014. China's direct investment in
the U.S. is led by manufacturing, depository institutions, and real
estate. Sales of services in China by majority U.S.-owned
affiliates were $54.9 billion in 2014 (latest data available),
while sales of services in the United States by majority
China-owned firms were $4.8 billion.
USAs Exports to the India.
India was the United States' 18th largest goods export market in
2016. U.S. goods exports to India in 2016 were $21.7 billion, up
1.1% ($237 million) from 2015 and up 124.2% from 2006. U.S. exports
to India account for 1.5% of overall U.S. exports in 2015. The top
export categories in 2016 were: precious metal and diamonds ($7.0
billion), machinery ($2.0 billion), optical and medical instruments
($1.3 billion), mineral fuels ($1.2 billion), and electrical
machinery ($1.2 billion).
U.S. total exports of agricultural products to India totaled
$1.3 billion in 2016.
U.S. exports of services to India were an estimated $20.3
billion in 2016, 12.3% ($2.2 billion) more than 2015, and 211%
greater than 2006 levels. Leading services exports from the U.S. to
India, in 2015, were in the travel, transport, and intellectual
property (computer software, audio and visual related products)
Indias Exports to USA.
India was the United States' 9th largest supplier of goods
imports in 2016. U.S. goods imports from India totaled $46.0
billion in 2016, up 2.7% ($1.2 billion) from 2015, and up 110.7%
from 2006. U.S. imports from India account for 2.1% of overall U.S.
imports in 2015. The top import categories in 2016 were: precious
metal and diamonds ($11 billion), pharmaceuticals ($7.4 billion),
mineral fuels ($2.4 billion), miscellaneous textile articles ($2.3
billion), and machinery ($2.1 billion).
U.S. total imports of agricultural products from India totaled
$2.1 billion in 2016.
U.S. imports of services from India were an estimated $26.8
billion in 2016, 8.6% ($2.1 billion) more than 2015, and 280%
greater than 2006 levels. Leading services imports from India to
the U.S., in 2015, were in the telecommunications, computer, and
information services, travel, and research and development
The U.S. goods trade deficit with India was $24.3 billion in
2016, a 4.2% increase ($970 million) over 2015. The United States
has a services trade deficit of an estimated $6.5 billion with
India in 2016, up 1.5% from 2015.
U.S. foreign direct investment (FDI) in India (stock) was $28.3
billion in 2015 (latest data available), a 4.4% increase from 2014.
U.S. direct investment in India is led by prof., scientific, and
tech. services, manufacturing, and wholesale trade. India's FDI in
the United States (stock) was $9.3 billion in 2015 (latest data
available), up 3.7% from 2014. India's direct investment in the
U.S. is led by prof., scientific, and tech. services, depository
institutions, and manufacturing. Sales of services in India by
majority U.S.-owned affiliates were $22.7 billion in 2014 (latest
data available), while sales of services in the United States by
majority India-owned firms were $13.4 billion.
There is no bilateral trade relationship of greater economic and
political significance for the U.S. than with China. And it is the
size of the trade deficit that feeds all manner of concerns in the
U.S. about declining competitiveness, job losses, and unfair trade
practices by Chinese companies.
China is also the worlds largest exporter and a global center
for the manufacturing and assembling of goods for export.
In addition, manufactured exports tend to have higher levels of
foreign value-added due to the role of imported intermediate goods
and services in their production. Factoring in Value Addition
reduces the US-Chin trade deficit by 25%.
Shutting the doors on China by the USA.
One of the important trade policy insights from the value-added
data is that barriers to Chinese imports will often harm U.S.
consumers through higher prices for final goods.
In addition, U.S. manufacturers would end up paying more for
intermediate goods, which would reduce the competitiveness of their
final goods in the U.S. and in export markets overseas.
Furthermore, to the extent that U.S. trade barriers reduce
demand for Chinese imports, they also reduce demand for the U.S.
goods and services incorporated into Chinas exports.
The realities of the inter-dependent world.
How much is the US trade deficit with China?
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The United States has a robust trade and investment relationship
with ASEAN. These countries collectively are the United States
fourth-largest trading partner and together represent a market with
a GDP of more than $2.4 trillion and a population of 632 million
In 2016, two-way goods trade was $234 billion. Since 2010, U.S.
goods exports to ASEAN countries has expanded by 58 percent, with
top U.S. goods export categories including electrical machinery,
machinery, aircraft, optic and medical instruments, and
miscellaneous grain, seed, and fruit.
U.S. domestic exports of agricultural products to ASEAN
countries totaled $11.2 billion in 2016, with leading categories
including soybeans, cotton, soybean meal, wheat, and dairy
products. Meanwhile, U.S. services exports to ASEAN totaled $27.1
billion in 2015 (latest data available), up 11.7 percent from 2014.
U.S. trade in goods and services with ASEAN now supports more than
500,000 American jobs.
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Indias IT sector and the US dependency.
The IT industry continues to be the largest private sector
employer in India, adding 230,000 employees in 2014-15, taking the
total number of jobs in the industry to 3.5 million, while
accounting for 9.5% of the gross domestic product. The IT industry
also holds the largest share of total services exports at 38%.
The software lobby body on Tuesday forecast that software
exports for 2015-16 would grow between 12-14% to about $110-112
billion, compared with the 13-15% growth estimate for the current
fiscal year. The IT sector is expected to grow at 13% to $146
billion in the year.
On the domestic front, IT will grow at 15-17% growth to reach
$55-57 billion in the next fiscal year. Domestic growth is expected
to be led by e-commerce, government initiatives and technology
adoption by industries.
The importance of IT to India.
ARE WE READY?
Chinas US trade surplus in 2016 was $350 billion. After
adjusting 30% value addition from third
country imports, it is still about $280-300 billion.Indias US
trade surplus was $25 billion in 2016.Indias IT exports to the US
was $110 billion in 2016.Indias surplus after adjusting for value
from third country imports is around $130 billion.Both, India
and China cannot afford to do without
USA now. But need to examine ways of reducing dependency on
The realities of India-USA-China triangular relationship.
1. The USAs engagement in Afghanistan will increase. Its
dependency on Pakistan will consequently increase.
2. The USAs primary interest is to sell more arms to India and
diminish the Indo-Russian arms partnership. It seeks to hurt the
Russian arms industry, particularly military aviation, so that
Western companies can enjoy unchallenged dominance. Higher prices
being assured in the absence of credible competition.
3. The USA is much too engaged economically with China to risk a
break with it. It is not interested in another Cold War.
4. Tensions with China sustain its military-industrial
complex.5. India is not interested in any alliance directed against
which it will become the frontline state.6. India remains very
concerned with the Sino-Pak military alliance,
particularly in the nuclear weapons technology transfers. 7.
India sees no economic gains for it from OBOR.8. Western thinktanks
and opinion makers shape the perceptions
about China in India. And presumably in China about India.
The Challenge for Sino-Indian Leadership.
Given the dynamics of the worlds top three economies, it is
important we move carefully and with a full understanding of all
the issues involved.
Both India and China need the USA for growth. To reduce that
dependency India and China should integrate their economies into a
Great Asian Powerhouse.
India and China are logical partners in creating an economic
counterweight to the West and restore the world order as it was in
Any India-China conflict will throw the world economy into a
turmoil which neither country can afford. Our window of opportunity
to restore the historical order is only here for the next few
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Survey on India in the Indo-Pacific:
Along with six other partner think tanks, Brookings India
participated in a six-country public opinion survey (covering
Australia, China, India, Indonesia, Japan, and South Korea)* that
covered attitudes to the United States, China, regional security,
trade, investment, immigration, and democracy.
Overall, the survey showed extraordinarily high Indian public
opinion of the U.S., wariness about China, strong support for free
trade agreements and FDI, consistent views on democracy, and
concern about regional competition.
*(Simon Jackman, Gordon Flake et al., The Asian Research
Network: Survey on Americas Role in the Indo-Pacific, United States
Study Centre at the University of Sydney and Perth U.S.-Asia
Centre, May 2017)
Think about it.
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1. UnemploymentDespite rapid economic growth, unemployment is
still an issue in both rural and urban areas. The fast rate of
economic growth has left unskilled workers behind, and they have
struggled to find work in growing industries. In 2017, the official
unemployment rate was just below 5%. However, a report by the OECD
found over 30% of people aged 15-29 in India are not in employment,
education or training (NEETs).
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Poor educational standards
Although India has benefited from a high % of English speakers,
(important for call centre industry) there is still high levels of
illiteracy amongst the population. It is worse in rural areas and
amongst women. Over 50% of Indian women are illiterate. This limits
economic development and a more skilled workforce.
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Poor InfrastructureMany Indians lack basic amenities lack access
to running water. Indian public services are creaking under the
strain of bureaucracy and inefficiency. Over 40% of Indian fruit
rots before it reaches the market; this is one example of the
supply constraints and inefficiencys facing the Indian economy.
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Balance of Payments deterioration.Although India has built up
large amounts of foreign currency reserves, the high rates of
economic growth have been at the cost of a persistent current
account deficit. In late 2012, the current account reached a peak
of 6% of GDP. Since then there has been an improvement in the
current account. But, the Indian economy has seen imports growth
faster than exports. This means India needs to attract capital
flows to finance the deficit. Also, the large deficit caused the
depreciation in the Rupee between 2012 and 2014. Whilst the deficit
remains, there is always the fear of a further devaluation in the
Rupee. There is a need to rebalance the economy and improve the
competitiveness of exports.
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High levels of private debtBuoyed by a property boom the amount
of lending in India has grown by 30% in the past year. However,
there are concerns about the risk of such loans. If they are
dependent on rising property prices it could be problematic.
Furthermore, if inflation increases further it may force the RBI to
increase interest rates. If interest rates rise substantially it
will leave those indebted facing rising interest payments and
potentially reducing consumer spending in the future
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Inequality has risen rather than decreased.It is hoped that
economic growth would help drag the Indian poor above the poverty
line. However, so far economic growth has been highly uneven
benefiting the skilled and wealthy disproportionately. Many of
Indias rural poor are yet to receive any tangible benefit from the
Indias economic growth. More than 78 million homes do not have
electricity. 33% (268million) of the population live on less than
$1 per day. Furthermore with the spread of television in Indian
villages the poor are increasingly aware of the disparity between
rich and poor.
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Large Budget DeficitIndia has one of the largest budget deficits
in the developing world. Excluding subsidies, it amounts to nearly
8% of GDP. Although it is fallen a little in the past year. It
still allows little scope for increasing investment in public
services like health and education.
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Rigid labour LawsAs an example Firms employing more than 100
people cannot fire workers without government permission. The
effect of this is to discourage firms from expanding to over 100
people. It also discourages foreign investment. Trades Unions have
an important political power base and governments often shy away
from tackling potentially politically sensitive labour laws.
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Inefficient agricultureAgriculture produces 17.4% of economic
output but, over 51% of the work force are employed in agriculture.
This is the most inefficient sector of the economy and reform has
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Poor tax collection rates.According to the Economist, India has
one of the poorest tax to GDP rates in the whole world. Indias tax
revenue as a % of GDP is just 12%. Compared to an EU average of
45%. This poor tax collection rate reflects widespread corruption,
tax avoidance and complicated tax rates. In 2017, Narendra Modi has
sought to improve tax collection rates and reduce complications
through the introduction of a general sales tax (GST) which
involves a single tax rate rather than tax rates applied multiple
times at different stages of production.