ECONOMIC INTEGRATION

ECONOMIC INTEGRATION

SUBMITTED IN PARTIAL FULLFILLMENT OF THE REQUIREMENTS FOR THE
AWARD OF THE M.COM DEGREE OF
MASTER IN COMMERCE -1
(MANAGEMENT)
SUBMITTED TO
UNIVERSITY OF MUMBAI
LALA LAJPAT RAI COLLEGE, MAHALAXMI, MUMBAI
SUBMITTED BY


ZISHAN SIDDIQUI Roll no: 670

SUPERVISED BY
PROF. JANKI ANNANRAJ
Dr. J.Barucha

14
th
October 2013


CERTIFICATE

I hereby certify that the work which is being presented in the
M.Com internal project report entitled ECONOMIC INTEGRATION
in partial fulfilment of the requirements for the award of the
Master of Commerce and Economics, in MANAGEMENT and
submitted to the LALA LAJPATRAI COLLEGE OF COMMERCE AND
ECONOMICS, Mahalaxmi, Mumbai-400034 is an authentic record
of my own work carried out under the supervision of Prof. Janki
Annanraj & Dr.j.Barucha. The matter has not been presented by
me for the award of any other degree elsewhere.

SIGNATURE OF THE STUDENT:

SIGNATURE OF SUPERVISORS:

INTERNAL EXAMINER:

EXTERNAL EXAMINER:


COLLEGE STAMP PRINCIPAL


acknowledgement



I would like to place on record my deep sense of
gratitude to Prof. Janki Annanraj of m-com department
for her generous guidance help and useful suggestions

I am extremely thankful to Dr.Suryakant Kasune co-
ordinator and Principal Neelam Arora for providing me
infrastructural facilities to work in without which this
work would not have been possible














Contents
Introduction .................................................................................................................................... 4
DEFINITION ...................................................................................................................................... 4
WHAT IS ECONOMIC INTEGRATION? ............................................................................................... 5
OBJECTIVES OF ECONOMIC INTEGRATION .................................................................................... 7
BENEFITS OF ECONOMIC INTEGRATION ......................................................................................... 9
Levels of Economic Integration ............................................................................................ 11
Obstacles to economic integration: ................................................................................... 13
Global trade relations ............................................................................................................ 14
India China Relations: ............................................................................................................... 16
China and India: Greater Economic Integration ........................................................... 19
Bilateral trade blossoms ....................................................................................................... 20
Drivers of bilateral trade .................................................................................................... 22
Comparative advantages ........................................................................................................... 22
Rapid economic growth ............................................................................................................. 22
Deeper integration ahead, but distrust lingers ........................................................ 24
FACTS AND FIGURES RELATING TO INDIA CHINA BILATERAL TRADE ................................... 27
FACT 1: ........................................................................................................................................... 27
FACT 2: ........................................................................................................................................... 28
FACT 3: ........................................................................................................................................... 32
FACT 4: ........................................................................................................................................... 33
from china To aSean: rebalancing indiaS Trade .......................................................... 35
INDIA is devising a new strategy to reduce the trade deficits with China. ................ 35
Bibliography .................................................................................................................................. 39









Introduction

In economics, the word integration was first employed in
industrial organisation to refer to combinations of business firms
through economic agreements, cartels, concerns, trusts, and
mergershorizontal integration referring to combinations of
competitors, vertical integration to combinations of suppliers with
customers. In the current sense of combining separate economies
into larger economic regions, the use of the word integration can
be traced to the 1930s and 1940s. Fritz Machlup credits Eli
Heckscher, Herbert Gaedicke and Gert von Eyern as the first users
of the term economic integration in its current sense.

DEFINITION
An economic arrangement between different regions marked by
the reduction or elimination of trade barriers and the
coordination of monetary and fiscal policies. The aim of economic
integration is to reduce costs for both consumers and producers,
as well as to increase trade between the countries taking part in
the agreement.
The elimination of tariff and nontariff barriers to the flow of
goods, services, and factors of production between a group of
nations, or different parts of the same nation.
Economic integration is the unification of economic policies
between different states through the partial or full abolition of
tariff and non-tariff restrictions on trade taking place among
them prior to their integration.
WHAT IS ECONOMIC INTEGRATION?
Economic integration is the unification of economic policies
between different states through the partial or full abolition of
tariff and non-tariff restrictions on trade taking place among
them prior to their integration. This is meant in turn to lead to
lower prices for distributors and consumers with the goal of
increasing the combined economic productivity of the states.
The trade stimulation effects intended by means of economic
integration are part of the contemporary economic Theory of the
Second Best: where, in theory, the best option is free trade, with
free competition and no trade barriers whatsoever. Free trade is
treated as an idealistic option, and although realized within
certain developed states, economic integration has been thought
of as the "second best" option for global trade where barriers to
full free trade exist
There are varying levels of economic integration, including
preferential trade agreements (PTA), free trade areas (FTA),
customs unions, common markets and economic and monetary
unions. The more integrated the economies become, the fewer
trade barriers exist and the more economic and political
coordination there is between the member countries.

By integrating the economies of more than one country, the
short-term benefits from the use of tariffs and other trade
barriers is diminished.



At the same time, the more integrated the economies become,
the less power the governments of the member nations have to
make adjustments that would benefit themselves. In periods of
economic growth, being integrated can lead to greater long-term
economic benefits; however, in periods of poor growth being
integrated can actually make things worse.

OBJECTIVES OF ECONOMIC INTEGRATION

There are economic as well as political reasons why nations
pursue economic integration. The economic rationale for the
increase of trade between member states of economic unions that
it is meant to lead to higher productivity. This is one of the
reasons for the global scale development of economic integration,
a phenomenon now realized in continental economic blocks such
as ASEAN, NAFTA, SACN, the European Union, and the Eurasian
Economic Community; and proposed for intercontinental
economic blocks, such as the Comprehensive Economic
Partnership for East Asia and the Transatlantic Free Trade Area.
Comparative advantage refers to the ability of a person or a
country to produce a particular good or service at a lower
marginal and opportunity cost over another. Comparative
advantage was first described by David Ricardo who explained it
in his 1817 book On the Principles of Political Economy and
Taxation in an example involving England and Portugal.
[3]
In
Portugal it is possible to produce both wine and cloth with less
labor than it would take to produce the same quantities in
England. However the relative costs of producing those two goods
are different in the two countries. In England it is very hard to
produce wine, and only moderately difficult to produce cloth. In
Portugal both are easy to produce. Therefore while it is cheaper to
produce cloth in Portugal than England, it is cheaper still for
Portugal to produce excess wine, and trade that for English cloth.
Conversely England benefits from this trade because its cost for
producing cloth has not changed but it can now get wine at a
lower price, closer to the cost of cloth. The conclusion drawn is
that each country can gain by specializing in the good where it
has comparative advantage, and trading that good for the other.
Economies of scale refers to the cost advantages that an
enterprise obtains due to expansion. There are factors that cause
a producers average cost per unit to fall as the scale of output is
increased. Economies of scale is a long run concept and refers to
reductions in unit cost as the size of a facility and the usage
levels of other inputs increase.
[4]
Economies of scale is also a
justification for economic integration, since some economies of
scale may require a larger market than is possible within a
particular country for example, it would not be efficient for
Liechtenstein to have its own car maker, if they would only sell to
their local market. A lone car maker may be profitable, however,
if they export cars to global markets in addition to selling to the
local market.
Besides these economic reasons, the primary reasons why
economic integration has been pursued in practice are largely
political.


BENEFITS OF ECONOMIC INTEGRATION

Economic integration can be defined as a kind of arrangement
where countries get in agreement to coordinate and manage their
fiscal, trade, and monetary policies in order to be mutually
benefitted by them. There are many degrees of economic
integration, but the most preferred and popular one is free trade.
In economic integration no country pays customs duty within the
integrated area, so it results in lower prices both for the
distributors and the consumers. The ultimate aim of economic
integration is to increase trade across the world. There are many
other advantages associated with this concept.
Some of these are:
1. Progress in Trade:
All countries that follow economic integration have extremely wide
assortment of goods and services from which they can choose.
Introduction of economic integration helps in acquiring goods and
services at much low costs. This is because the removal of trade
barriers reduces or removes the tariffs entirely. Reduced duties and
lowered prices save a lot of spare money with countries which can be
used for buying more products and services.

2. Ease of Agreement:
When countries enter into regional integration, they easily get into
agreements and stick to them for long periods of time.

3. Improved Political Co-operation:
Countries entering economic integration form groups and have greater
political influence as compared to influence created by a single nation.
Integration is a vital strategy for addressing the effects of political
instability and human conflicts that might affect a region.
4. Employment Opportunities:
As economic integration encourage trade liberation and lead to market
expansion, more investment into the country and greater diffusion of
technology, it create more employment opportunities for people to
move from one country to another to find jobs or to earn higher pay.
For example, industries requiring mostly unskilled labour tends to
shift production to low wage countries within a regional cooperation.

5. Greater Consensus:
Unlike WTO with huge membership (147 countries), easier to gain
consensus amongst small memberships in regional integration

6. Beneficial For Financial Markets:
Economic integration is extremely beneficial for financial markets as it
eases firm to borrow finances at low rate if interest. This is because
capital liquidity of larger capital market increases and the resultant
diversification effect reduces the risks associated with high
investment.

7. Increase in FDI:
Economic integration helps to increase the amount of money in
Foreign Direct Investment (FDI). Once firms start FDI, through new
operations or by merger, takeover, and acquisition, it becomes a
international enterprise.


Levels of Economic Integration

There are about five additive levels of economic integration
impacting the global landscape:
1. Free trade.
Tariffs (a tax imposed on imported goods) between member countries
are abolished or significantly reduced. Each member country keeps its
own tariffs in regard to third countries. The general goal is to develop
economies of scale and comparative advantages, which promotes
economic efficiency.
2. Custom union.
Sets common external tariffs among member countries, implying that
the same tariffs are applied to third countries. Custom unions are
particularly useful to level the competitiveness playing field and
address the problem of re-exports (using preferential tariffs in one
country to enter another country).
3. Common market.
Factors of production, such a labour and capital, are free to move
within member countries, expanding scale economies and comparative
advantages. Thus, a worker in a member country is able to move and
work in another member country.
4. Economic union.
Monetary and fiscal policies between member countries are
harmonized, which implies a level of political integration. A further
step concerns a monetary union where a common currency is used,
such as with the European Union (Euro).

5. Political union.
Represents the potentially most advanced form of integration with a
common government and were the sovereignty of member country is
significantly reduced. Only found within nation states, such as
federations where there is a central government and regions having a
level of autonomy.
Here is a diagram showing the stages of ECONOMIC INTEGRATION

Success factors:
Among the requirements for successful development of economic
integration are "permanency" in its evolution (a gradual expansion
and over time a higher degree of economic/political unification);
"a formula for sharing joint revenues" (customs duties, licensing
etc.) between member states (e.g., per capita); "a process for
adopting decisions" both economically and politically; and "a will
to make concessions" between developed and developing states
of the union.
A "coherence" policy is a must for the permanent development of
economic unions, being also a property of the economic
integration process. Historically the success of the European Coal
and Steel Community opened a way for the formation of the
European Economic Community (EEC) which involved much more
than just the two sectors in the ECSC. So a coherence policy was
implemented to use a different speed of economic unification
(coherence) applied both to economic sectors and economic
policies. Implementation of the coherence principle in adjusting
economic policies in the member states of economic block causes
economic integration effects.
Obstacles to economic integration:
Obstacles standing as barriers for the development of economic integration
include the desire for preservation of the control of tax revenues and
licensing by local powers, sometimes requiring decades to pass under the
control of supranational bodies. The experience of 1990-2009 has shown
radical change in this pattern, as the world has observed the economic
success of the European Union. So now no state disputes the benefits of
economic integration: the only question is when and how it happens, what
exact benefits it may bring to a state, and what kind of negative effects may
take place.
Global trade relations

Until the liberalisation of 1991, India was largely and intentionally
isolated from the world markets, to protect its economy and to
achieve self-reliance. Foreign trade was subject to import tariffs,
export taxes and quantitative restrictions, while foreign direct
investment (FDI) was restricted by upper-limit equity
participation, restrictions on technology transfer, export
obligations and government approvals; these approvals were
needed for nearly 60% of new FDI in the industrial sector. The
restrictions ensured that FDI averaged only around $200 million
annually between 1985 and 1991; a large percentage of the
capital flows consisted of foreign aid, commercial borrowing and
deposits of non-resident Indians. India's exports were stagnant
for the first 15 years after independence, due to general neglect
of trade policy by the government of that period. Imports in the
same period, due to industrialisation being nascent, consisted
predominantly of machinery, raw materials and consumer goods.
Since liberalisation, the value of India's international trade has
increased sharply, with the contribution of total trade in goods
and services to the GDP rising from 16% in 199091 to 47% in
200810. India accounts for 1.44% of exports and 2.12% of
imports for merchandise trade and 3.34% of exports and 3.31% of
imports for commercial services trade worldwide. India's major
trading partners are the European Union, China, the United States
of America and the United Arab Emirates. In 200607, major
export commodities included engineering goods, petroleum
products, chemicals and pharmaceuticals, gems and jewellery,
textiles and garments, agricultural products, iron ore and other
minerals. Major import commodities included crude oil and
related products, machinery, electronic goods, gold and silver. In
November 2010, exports increased 22.3% year-on-year to
850.63 billion (US$13 billion), while imports were up 7.5% at
1251.33 billion (US$19 billion). Trade deficit for the same month
dropped from 468.65 billion (US$7.2 billion) in 2009 to 400.7
billion (US$6.1 billion) in 2010.
India is a founding-member of General Agreement on Tariffs and
Trade (GATT) since 1947 and its successor, the WTO. While
participating actively in its general council meetings, India has
been crucial in voicing the concerns of the developing world. For
instance, India has continued its opposition to the inclusion of
such matters as labour and environment issues and other non-
tariff barriers to trade into the WTO policies.

India China Relations:

ChinaIndia relations, also called Sino-Indian relations or Indo-
China relations, refers to the bilateral relationship between the
People's Republic of China (PRC) and the Republic of India.
Historically, India and China have had relations for more than
2,000 years but modern relationship began in 1950 when India
was among the first countries to end formal ties with the Republic
of China (Taiwan) and recognise the PRC as the legitimate
government of Mainland China. China and India are two most
populous countries and fastest growing major economies in the
world. The resultant growth in China and India's international
diplomatic and economic influence has also increased the
significance of their bilateral relationship.
China and India are two of the worlds oldest civilisations and
have co-existed in peace for millenniums.
[1]
Cultural and
economic relations between China and India date back to ancient
times. The Silk Road not only served as a major trade route
between India and China, but is also credited for facilitating the
spread of Buddhism from India to East Asia. During the 19th
century, China's growing opium trade with the British Raj
triggered the Opium Wars.

During World War II, India and China
played a crucial role in halting the progress of Imperial Japan.

Relations between contemporary China and India have been
characterised by border disputes, resulting in three major military
conflicts the Sino-Indian War of 1962, the Chola incident in
1967, and the 1987 Sino-Indian skirmish. However, since the late
1980s, both countries have successfully attempted to reignite
diplomatic and economic ties. In 2008, China emerged as India's
largest trading partner and the two countries have also attempted
to extend their strategic and military relations.
Despite growing economic and strategic ties, there are several
hurdles for India and the PRC to overcome in order to establish
favourable relations. Though bilateral trade has continuously
grown, India faces massive trade imbalance heavily in favour of
China. The two countries have failed to resolve their long-
standing border dispute and Indian media outlets have repeatedly
reported Chinese military incursions into Indian territory. Both
nations have steadily established heavy military infrastructure
along border areas. Additionally, India remains weary about
China's strong strategic relations with Pakistan while China has
expressed concerns about Indian military and economic activities
in the disputed South China Sea.
In June 2012, China stated its position that "Sino-Indian ties"
could be the most "important bilateral partnership of the century".
That month Wen Jiabao, the Premier of China and Manmohan
Singh, the Prime Minister of India set a goal to increase bilateral
trade between the two countries to US$100 billion by 2015.
According to a 2013 BBC World Service Poll, 36% of Indians view
China positively, with 27% expressing a negative view, whereas
23% of Chinese people view India positively, with 45% expressing
a negative view.
Indian Prime Minister Manmohan Singh with Chinese
Premier Wen Jiabao.

China and India: Greater Economic
Integration

Economic ties between China and India will play a large role in
one of the most important bilateral relationships in the world by
2020. Bilateral trade has already surged from under $3 billion in
2000 to nearly $52 billion in 2008 . Though last years figure
equals only one-eighth of total US-China trade in 2008, China-
India trade is growing at nearly three times the pace of US-China
trade, and rapid growth will likely continue. Even conservative
estimates suggest that, by 2020, China-India trade could surpass
last years US-China total of $409.2 billion and more than half of
total projected US-China trade in 2020. Such trade expansion
would affect every major world economy, including the United
States. Though foreign direct investment (FDI) between China and
India trails trade growth, it too will likely surge in the years to
come.

Bilateral trade blossoms

As neighbors and two of the worlds oldest civilizations, China
and India have shared a long history of cultural, scientific, and
economic linkages. In modern times, economic ties between the
two countries were almost completely severed from 1949 to
1978. Following a brief border war in 1962, bilateral trade and
investment came to a halt. Economic ties officially resumed when
China embarked on economic reforms but remained largely
insignificant for the next two decades. The last 10 years,
however, have seen a transformation of the economic relationship
between China and India. Since the 1990s, both countries have
become increasingly outward-looking in their economic policies
and have embraced deeper economic integration with the rest of
the world. China and India are also members of the World Trade
Organization (WTO)India as a founding member and China since
2001.
Indian Prime Minister Atal Behari Vajpayees visit to China in June
2003 accelerated the momentum for economic integration. The
visit led to a pragmatic decision by both countries political
leaders to cultivate economic ties without being constrained by
unresolved border disputes. After this visit, the two sides set up a
joint study group to examine how China and India could expand
trade and cooperation.
The reduction and elimination of trade barriers has helped to
stimulate economic exchange. Since 2000, trade between China
and India has grown nearly twice as fast as each countrys trade
with the rest of the world, and since 2001, Chinas trade with
India has grown more rapidly than its trade with any of its top 10
trade partners.
In 2008, China surpassed the United States to become Indias
largest trade partner. Last year, India was Chinas tenth-largest
export market.

Drivers of bilateral trade

There are two primary drivers of the burgeoning trade between
China and India: differing comparative advantages of the two
countries and sustained, high growth rates in both economies.
Comparative advantages

The different comparative advantages of the two countries
provide grounds for strong economic exchange. Although Chinas
economy is three times as large as Indias, its manufacturing
sector is five times that of Indias. Chinese exports to India thus
consist primarily of manufactured goods, especially various types
of machinery. Conversely, India has some of the worlds largest
reserves of iron ore, bauxite, and manganese, and its exports to
China consist primarily of raw materials to feed that countrys
expanding steel and automotive sectors. Services trade between
China and India remains small. Though India has emerged as a
global powerhouse in information technology (IT) and IT-enabled
services, language differences create natural barriers to the
export of these services from India to China. Thus, many of
Indias larger IT companies invest directly in local operations
within China.
Rapid economic growth

The sheer size and growth rates of these economies have boosted
bilateral trade, as bigger economies have more to buy and sell. In
2008, Chinas economy grew 9.0 percent and Indias grew 7.3
percentboth faster than any other major economy in the
worldand these countries will likely continue to grow faster than
other major economies through 2010, according to International
Monetary Fund projections. The two countries could also remain
the worlds two fastest-growing economies for the next two to
three decades. In this context, the prospects for continued strong
growth in bilateral trade appear to be bright.
Imports of lower-priced capital goods from China, such as
turbines for electric utilities, can help India address the
infrastructure bottlenecksespecially in roads, highways, ports,
and electric powerthat have appeared as Indias manufacturing
revolution gets under way. Because Chinese capital goods are
often much cheaper than those from Western or Japanese
manufacturers, such imports from China can keep costs low,
allowing India to modernize and upgrade its infrastructure more
quickly.

Deeper integration ahead, but distrust
lingers

Two developments could lead to even greater momentum for
Sino-Indian economic integration. Larger companies in both
countries are increasingly acquiring third-country companies that
already have a presence in China and India. For example, Tata
Steel Ltd. in 2004 acquired NatSteel Holdings Pvt Ltd., a
Singapore-based steel manufacturer that already had two steel
mills in China; Beijing-based Lenovo Group Ltd.s acquisition of
IBM Corp.s personal computer business in 2005 gave it access to
the Indian market; and Tata Motors Ltd.s acquisition of Jaguar
and Land Rover in 2007 gave it a nearly $1 billion revenue
business in China. As more third-country acquisitions
materialize, investment linkages between India and China will
deepen.
A second possibility is that Chinese capital could help India
accelerate its infrastructure revolution. China has an abundance
of capital looking for attractive investment opportunities. Over
the next 10 years, Indias infrastructure projects will provide
perhaps one of the largest such opportunities.
Not all is smooth sailing, however. Concern over Chinas
expanding trade surplus has grown in India over the last two
years. The recent global economic crisis, which has slowed
economic growth in China and India, appears to have exacerbated
the severity of these concerns.


Over the last 24 months, India has issued several antidumping
measures against products such as yarns and fabrics, nylon tire
cords, and aluminum products from China. Both governments
appear keen to resolve these issues through mutual discussions
rather than taking them to the WTO, however.
A major obstacle to bilateral investment that needs to be bridged
is one of lingering distrust stemming from the brief war of 1962
and unresolved border disputes. In an example of this distrust, in
July 2008, the Indian government prevented companies from
China and two other countries from investing in port
infrastructure projects in the country for security reasons.
It is important to note, however, that well-established
mechanisms exist that enable parties that do not fully trust each
other to do business. For example, Chinese investors could enter
India as limited partners in India-focused infrastructure funds
managed by trusted third parties such as Morgan Stanley, JP
Morgan Chase & Co., and the Goldman Sachs Group, Inc. In the
coming decade, it may be possible for tens of billions of dollars
from China to find their way into India.


FACTS AND FIGURES RELATING TO INDIA CHINA
BILATERAL TRADE

FACT 1:

The largest Indian partners with their total trade (sum of imports
and exports) in millions of US Dollars for calendar year 2012
2013 are as follows:
Country Exports Imports
Total
Trade
Trade
Balance
United Arab
Emirates
36,265.15 38,436.47 74,701.61 -2171.32
China 13,503.00 54,324.04 67,827.04 -40,821.04
United States 36,152.30 24,343.73 60,496.03 11,808.57

These are the top three countries whom India has its trade with.
Currently India has a trade Deficit with China.

FACT 2:
INDIA CONSTANTLY HAS TRADE DEFICITS WITH CHINA AS SHOWN IN THE GRAPH.


India's trade with China, including both exports and imports, have
been cooling for several months, and may dip further this year,
according to Q1 numbers.
India's trade deficit with China may also dip this year for the first
time in many years.
That may be good news for the rupee, which has been hit hard
over deficit concerns, as China accounts for about one-fifth of the
total trade deficit that India has with the rest of the world.
India's imports from China peaked in 2011-12 at $57.5 billion,
jumping by a breath taking 32.2% from the previous year. In the
previous year, Chinese imports into India had jumped 41% to
$43.5 billion. Not surprisingly, both India's total trade deficit and
its trade deficit with China rose during the period as well.
In 2010-11, India's trade with China contributed about 23.5% to
India's total trade deficit (see chart.) However, since then, China's
share of India's trade deficit has been falling, as oil and gold
stepped into the role of deficit drivers.
Indian exports to China include cotton raw & yarn, non-ferrous
metals, iron ore, other ores and minerals, plastic& linoleum
products, spices, Dyes/intermediates, machinery & instruments
and petroleum (crude& products). Major imports from China
include electronic goods, machinery, organic chemicals, project
goods, fertilizers, iron and steel, transport equipments, electric
machinery (except electronics) and manufactures of metals.
While India's trade deficit (the gap between exports and imports)
with China has been growing, as a proportion of the total trade
deficit, it has been declining from the peak of 2010--11,
indicating that the sources of India's worry lies more in its gold
and oil trade than in trade with China.
For example, China's share in India's total trade deficit grew from
17.6% in 2009-10 to 23.52% in 2010-11 (see chart above). But it
fell to 21.3% in 2011-12 in 2011-12 - not because trade deficit
with China fell, but because India's overall deficit zoomed by 55%
in that year to a record $185 billion.
So, while its deficit with China also rose by 41%, the growth was
overshadowed by the overall jump in deficit. It may be noted that
gold and oil prices rose sharply during this period.
2012-13 (last financial year) saw an interesting development. For
the first time ever, India's trade with China, both imports and
exports, fell.
But the new year has thrown up more interesting statistics.
Imports from China fell more than 5%, while exports to that
country fell more than 25%. Part of the reason may be the fall in
the value of the rupee (as all these figures are tallied in dollars.)
According to numbers for the June quarter, that trend may
continue this year as well. The quarter saw exports of $2.44
billion and imports of $12.08 billion. On an annualized basis,
they point to a fall of 11% in imports and 28% in exports.
While the falling exports may not be good news, the figures point
to the possibility of a 5.5% fall in India's trade deficit with China in
2013-14.
India recently inked a deal with China to promote the export of
buffalo meat, and feed and feed ingredients to China. Indian
generic drugs are also expected to get better market access in
China with the operationalization of the MoU on co-operation on
Pharma between CCCMHPIE and the Pharmexcil - two
organizations located in the two countries.
FACT 3:

India-China trade hits all time high of $ 73.9 bn in 2011.
India-China bilateral trade hit a record USD 73.9 billion last year,
but the ballooning trade deficit in Beijing's favour rose to over
USD 27 billion, raising concern among Indian authorities.
The bilateral trade registered a USD 12.2 billion increase in 2011,
taking the total to USD 73.9 billion as against USD 61.7 billion in
2010, according to official trade figures for the last year.

The trade deficit in 2011, however, piled up to USD 27.07 billion
even though Indian exports to China went up to USD 23.4 billion
registering a growth of almost 12.26 per cent compared to the
same period in year 2010.

FACT 4:

Indias trade with China falls 12 %
Indias bilateral trade with China has fallen by 12 per cent to $ 66
billion in 2012, driven by a record slump in exports, which has
expanded the trade deficit to $29 billion despite the decline in
overall trade and cast doubt on the sustainability of an
increasingly strained trade relationship.
Figures released by Chinas General Administration of Customs
(GAC), on Thursday, showed that Indian exports to China had
fallen by as much as 19.6 per cent year-on-year in December,
reflecting the challenge faced by both countries to find a new
driver of trade after iron ore exports have slumped following
bans.
Indias exports in 2012, comprised largely of ores, cotton,
chemicals and raw materials, reached $18.8 billion, while imports
from China driven by growing demand for power and telecom
equipment and machinery reached $47.7 billion. Bilateral trade
last year reached $66.47 billion, down from $73.9 billion in 2011
when China became Indias biggest trade partner.
The gloomy outlook for Indias future trade ties with China came
even as overall exports out of the worlds second-largest
economy rebounded last month, recording a higher than
expected 14.1 per cent growth, suggesting a revival whether
temporary or permanent in the Chinese economy following the
downturn last year.

Chinas exports last year rose by 7.9 per cent despite a
deepening debt crisis in the Eurozone, a sharply slowing world
economic recovery, continuously sluggish demand on the global
market and big downward pressure on the domestic economy,
said Zheng Yuesheng, a spokesman at the GAC.
He forecast that trade in 2013 would be slightly better than last
year, pointing to the 14.1 per cent surge in exports in December
that followed a 2.9 per cent rise the previous month.
On the India-China trade front, however, the coming year is
expected to be a difficult one. With bans on iron ore exports,
import duties on power equipment, and likely restrictions in the
telecom sector, the outlook for bilateral trade and the
likelihood of meeting the $100 billion target for 2015 remains
uncertain



from china To aSean: rebalancing indiaS
Trade

INDIA is devising a new strategy to reduce the trade
deficits with China.
Dec. 19 In August 2012, at the ninth meeting of the India-China
Joint Group on Economic Relations, Trade, Science and
Technology in New Delhi, the main point of concern for Indias
Minister of Commerce and Industry, Anand Sharma, was the
widening trade deficit between the two countries $40 billion for
the year ending in March 2012. Indias trade deficit with China
has increased by a massive 4,000% in the last 10 years.
At the meeting, the Indian and Chinese commerce ministers
agreed to set up a joint working group to address trade issues,
including the trade deficit. However, India has another option.
Instead of relying on the working group to fix Indias trade woes,
New Delhi can actively seek greater economic integration with the
Association of Southeast Asian Nations (ASEAN). It is important
for India to pursue this option at the next ASEAN-India Summit
scheduled to be held in New Delhi on December 20-21.
Nearly all the goods that India imports from China could
potentially be imported from ASEAN countries. Substituting
Chinese imports with ASEAN imports will not decrease Indias
absolute trade deficit, but it will reduce the enormous bilateral
trade deficit with China. This will result in a more equal trading
relationship. UN data indicates that currently more than 50% of
Indias imports in 36 product categories come from China. For
trade security and diversification, it is important for India to find
more sources for some of these products.
In addition to the financial imbalances created by the trade
deficit, there is another major problem with the current trading
relationship between India and China. According to the United
Nations Conference on Trade and Development, the main
products that India exports to China are primary commodities,
which are subject to greater price fluctuations and are low on the
value chain. In 2011, iron ore alone accounted for 41% of Indias
$23 billion worth of exports to China, while cotton and copper
accounted for 11.5% and 9% respectively.
According to UN data, China exported more than $7 billion worth
of telecommunications equipment and $2 billion in computers to
India in 2011, which represents 55% of total imports in these two
product categories. Huawei and ZTE, two of the largest Chinese
telecommunications companies and major exporters to India, are
at the centre of a recent report by the Intelligence Committee of
the U.S. House of Representatives that highlights the potential
security risks to the U.S. of equipment imported from the two
firms. These risks might be overestimated, but it is in Indias
interests to be cautious. To reduce its reliance on Chinese
equipment, India can look to ASEAN nations, which exported
telecommunications equipment worth $25 billion and $33 billion
in computers across the world in 2011.
India also heavily reliant on chemical imports from China, which
are essential to make fertilisers. In 2011, more than 50% of Indian
imports of four product categories that include chemicals like
nitrogen compounds, heterocyclic compounds, and metallic salts
came from China. This reliance on a single source can eventually
impact food security in India. ASEAN countries export more than
enough of the chemicals in these categories for India to begin
diversifying its import sources to ASEAN.
A similar situation exists in other high-value product categories
such as electrical machinery, boilers, and medicinal and
pharmaceutical products each of which represents over a billion
dollars in imports a year from China.
In April 2002, the Indian governments overtures resulted in the
Comprehensive Economic Cooperation Agreement (CECA) with
Singapore, followed by a Framework Agreement on Free Trade
Areas with Thailand in October 2003. However, even after a raft
of trade negotiations, culminating in the 2009 India-ASEAN Free
Trade Agreement (FTA) in Goods and infrastructure projects to
increase connectivity, trade between India and ASEAN remains
moribund.
Despite its enormous market, India is still only the ninth largest
export destination for ASEAN, purchasing just 3% of ASEANs total
exports. Meanwhile, China has become Indias number one
source of imports after Chinas entry into the World Trade
Organisation in 2001 and due to the sheer size of the Chinese
export market relative to other countries.
But there are signs that things are changing in addition to
Singapore and Thailand, New Delhi now has bilateral
arrangements with other Asian countries including Myanmar, Sri
Lanka, Bangladesh, Japan and Malaysia. Evidence suggests that
such trade agreements have had a positive, sometimes dramatic,
impact on trade.
For example, after the Delhi Declaration in 2005 and the Riyadh
Declaration in 2010, bilateral trade between Saudi Arabia and
India rose from $13 billion in 2006 to $32 billion in 2011 (though
this was partly driven by Indias increasing demand for oil).
Following the Singapore-India CECA deal in 2004, bilateral trade
grew from $7.5 billion in 2004 to $13 billion in 2007. After the
1999 Sri Lanka-India trade deal bilateral trade rose from just over
$400 million in 1999 to $2.5 billion in 2006.
For now, the Indian government has focused on FTA for services,
rather than goods, because it sees this is as a strong export area.
Although increasing exports is important, reducing Indias
reliance on Chinese imports is also important. To achieve this,
India will have to massively boost its infrastructure to reduce the
cost and ease with which goods from ASEAN can be imported.
Myanmar and Thailand, for example, have recently signed an
agreement to develop an $8.6 billion port facility at Dawei 155
miles from Bangkok which will allow ASEAN shipping to avoid
the congested Malacca straits.
India can also cultivate private investment to construct and
expand existing port facilities, especially to supplement the
terminals at Chennai and Haldia. India will also require sustained
investment in road transport infrastructure; in the short term
India can construct roads linking the poorly-connected North East
with Myanmar and the rest of India. This will provide an important
land route to the ASEAN economies. In addition, industry groups
like the Federation of Indian Chambers of Commerce and Industry
(FICCI) can play a role in making FTAs more transparent to Indian
businesses, especially small and medium enterprises (SMEs),
which are usually less likely than multinationals to take advantage
of Indias trade agreements



Bibliography

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3. http://en.wikipedia.org/wiki/File:Manmohan_Singh_and_We
n_Jiabao.jpg
4. http://en.wikipedia.org/wiki/China%E2%80%93India_relation
s
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