International trade is exchange of capital, goods, and services across international borders or territories.

In most countries, it represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history (Silk Road, Amber Road), its economic, social, and political importance has been on the rise in recent centuries. Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders. International trade is in principle not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture. Another difference between domestic and international trade is that factors of production such as capital and labor are typically more mobile within a country than across countries. Thus international trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labor or other factors of production. Then trade in goods and services can serve as a substitute for trade in factors of production. Instead of importing a factor of production, a country can import goods that make intensive use of the factor of production and are thus embodying the respective factor. An example is the import of labor-intensive goods by the United States from China. Instead of importing Chinese labor the United States is importing goods from China that were produced with Chinese labor.

Indian EconomyThe economy of India is the eleventh largest economy in the world by nominal GDP and the fourth largest by purchasing power parity (PPP). Following strong economic reforms from the socialist inspired economy of a post-independence Indian nation, the country began to develop a fast-paced economic growth, as free market principles were initiated in 1990 for international competition and foreign investment. India is an emerging economic power with a very large pool of human and natural resources, and a growing large pool of skilled professionals. Economists predict that by 2020, India will be among the leading economies of the world. India was under social democratic-based policies from 1947 to 1991. The economy was characterised by extensive regulation, protectionism, public ownership, pervasive corruption and slow growth. Since 1991, continuing economic liberalisation has moved the country towards a market-based economy. A revival of economic reforms and better economic policy in 2000s accelerated India's economic growth rate. In recent years, Indian cities have continued to liberalize business regulations. By 2008, India had established itself as the world's second-fastest growing major economy. However, the year 2009 saw a significant slowdown in India's GDP growth rate to 6.8% as well as the return of a large projected fiscal deficit of 6.8% of GDP which would be among the highest in the world.

oilseed.7 20.6 46. avg.1 178.3 6.9 9. and industrial sector around 14%. avg.5e 56.0 2009-10 1317. US$ bn) GDP Growth 9.) Exchange Rate 53.8 4.9e 9. annual avg. mining.3 58.2 57. goats. India's total merchandise trade (counting exports and imports) was valued at $294 billion in 2006 and India's services trade inclusive of export and import was $143 billion.3e 14. According to the World Trade Statistics of the WTO in 2006. tea. wheat.2 allied Industry 9. Agriculture is the predominant occupation in India.0 251.5# 9.8 (AprJun) 32. India currently accounts for 1. accounting for about 52% of employment.4 22.5e 9.) Exports (US$ 103.4e 8. Thus.4 Imports (US$ bn) % change 149.9 Services 53.7e 4.7 7.5 40.1 Deficit (% of GDP) Exchange Rate 44.4 28.8 9.3 8.0 (AprJun) 34.9# 9.81 (Aug 26) 59.1 126. while its per capita (PPP) of US$2.9 (Mar '10) 6.5 45.9 65. India's global economic engagement in 2006 covering both merchandise and services trade was of the order of $437 billion.7 9.8 -5.2e 8.5 10.030.2 28. potatoes.7# 8.7 24.7 12. petroleum.5# 3. machinery. steel.1 bn) % change 23.1 Sectoral Share in GDP (%) Agriculture & 18.4 3. jute.5 (at constant prices.2 current prices.2 6.3 13.7 54. %) Agriculture & 5.0e 0.3 (Rs/US$.1 29.6 286.2 5. food processing. Major agricultural products include rice. cement.0 56. up by a record 72% from a level of $253 billion in 2004.8 54. Major industries include telecommunications. cotton. up from 6% in 1985.0 2010-11 1529.7 28.1 185. The service sector makes up a further 34%.5 4. The labor force totals half a billion workers.India's large service industry accounts for 55% of the country's Gross Domestic Product (GDP) while the industrial and agricultural sector contribute 28% and 17% respectively.7 35.3 Services 11.97 (Jul '10) - 45.0 163.1 allied Industry 27.5 16. transportation equipment.6 303.45 (Aug 26) 50.0 2007-08 1231.7 1. water buffalo.4 (WPI. textiles. MACRO-ECONOMIC AGGREGATES OF INDIAN ECONOMYINDICATORS 2005-06 2006-07 947.6 185. ranked 139th in the world.7 47. sugarcane.5% of World trade as of 2007 according to the WTO.7 9. poultry and fish. information technology enabled services and pharmaceuticals. sheep. India's trade has grown fast.0 2008-09 1222.2 17.6 3.4 67. cattle.2 (Apr- .9 (Rs/Euro.940 is ranked 128th.9 Inflation rate 4.2 33.7 2.7 (AprJun)^ 83. Previously a closed economy.6e 28.7 10. chemicals. %) Gross Fiscal 4. India's per capita income (nominal) is $1.0# GDP (at 837. India's trade has reached a still relatively moderate share 24% of GDP in 2006.8 15.7 -3.

3 309.8 224..5 90.5 52.3 6.2 93.5 69.1 10.6 - - 10.2 6.6 - 23.6 9.0 2.5 19.1 20.9 -15.1 34.8 (Aug 13) - 139.9 277.6 20.Trade Balance (US $ bn) Services Exports (US$ bn) Software Exports (US$ bn) Services Imports (US$ bn) Services Balance (US$ bn) Current Account Balance (US$ bn) CAB as percentage of GDP (%) Forex Reserves (US$ bn) External Debt (US $ bn) External Debt to GDP Ratio (%) Short Term Debt / Total Debt (%) Total Debt Service Ratio (%) Foreign Investment Inflows (US$ bn) FDI (US$ bn) GDRs/ADRs (US$ bn) FIIs (net) (US$ bn) FDI Outflows (US$ bn) (Actual) -46.1 224.6 21.3 4.2 -9.6 8.6 -1.1 22.2 -38.4 18.3 4.1 17.0 2011P 4.4 101.9 20.1 8.0 282.3 40.3 (AprJun) - 23. Trade (Vol.8 2010P 4.8 -88.8 3.0 (Apr-Jun) 3.7 49.2 1.3 14.4 252.4 18.2 151.4 4.0 10.4 (AprJun) 9.2 13.8 Jun)^ -32.7 35.5 18.7 34.0 16.2 37.2 -1.3 -118.7 - 34. % change) 2006 5.1 199.3 18.5 2008 3.0 59.3 29.8 62.8 2007 5.2 -15.8 6.4 - -1.0 2.3 5.5 -9.5 44.8 (Apr-Jun) 1.1 21.7 29.5 172.3 49.1 57.9 29.5 (Apr-Jun) - Memo Items: Global GDP (% change) World Merch.5 20.6 -28.2 .4 2009e -0.2 3.7 -2.0 -2.6 38.9 6.3 46.1 5.3 73.7 -59.8 3.3 51.7 -108.6 -11.6 31.2 16.3 261.

averaging 8% growth in Gross Domestic Product (GDP) per annum. The process of fiscal decentralization soon followed. The high growth rate of China is attributed to high levels of trade and greater investment . In recent years the role played by China in international trade has also increased. In 1999. China stands at a lowly 107th out of 179 countries.42 trillion US dollars by 2007. were trying to change the center of agriculture from farming to household activities. Most analysts project China to become the largest economy in the world this century using all measures of GDP. China's share in world trade was less than one percent. China has adopted a slow but steady method in implementing their economic reforms. The economy has grown more than 10 times during that period. At later stages the reforms extended to the liberalization of prices. with Chinese GDP reaching 3.Chinese EconomyChina's economy is huge and expanding rapidly. In the last 30 years the rate of Chinese economic growth has been almost miraculous. However. at that point in time. In 1980. The banking system was diversified and the Chinese stock markets started to develop and grow as economic reforms in China took hold.000 US dollars. The leaders of the Chinese economy. China also opened its economy to the world for the purposes of trade and direct foreign investment. The per capita income of China is only about 2. As part of the reforms. there are still inequalities in the income of the Chinese people. The initial focus of these reforms was on collectivizing the agricultural activities of the country. The Purchasing Power Parity figure for China is only slightly better at 7. This meant that government officials at the local levels and the managers of various plants had more authority than before. as well as the light manufacturing sectors. more independence was granted to the business enterprises that were owned by the state government. in a gradual manner. and it started permitting foreign direct investment. This led to the creation of a number of various types of privately held enterprises within the services sector. ranking China 82nd out of 179 countries. The economic reforms made in China in the 70s and 80s had other far reaching effects as well. which is fairly poor when judged against global standards.800 US dollars. The sectors outside the control of the state government of China grew at a rapid pace as a result of these reforms. The Chinese economy was decentralized in 1978 and major economic reforms were introduced which created conditions for rapid economic growth and structural changes in China. and this income disparity has increased in the recent times. Economic reforms started in China in the 70s and 80s. It has also sold the equity of some of the major Chinese state banks to overseas companies and bond markets during the middle phase of the first half of the 21st century. China already has the biggest economy after the United States. China had grown to become the world's second largest economy after US in terms of GDP. In per capita income terms. in part due to a liberalization of markets within the country. In purchasing power Parity GDP.

790 4.46 19.0 896.500 8.6 225.43 3.46 21.300 2.3 299.86 22.46 21.32 2.0 9.93 30.854.906 1.1% growth rate in 2003-2004.effort.52 1.500 8.0 Per Capita Income (as % of USA) 2.04 2.69 4.49 25.400 8.0 6.440 2.700 2.65 1.48 2.0 1.20 2.4 460.079.05 .78 49. MACRO-ECONOMIC AGGREGATES OF CHINESE ECONOMYYear 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Gross domestic product US dollar exchange Inflation index (2000=100) 91.46 20.19 106.700 1. Growth in Special Economic Zones (SEZ) has also helped China increase its productivity.000 2.0 171.27 100.63 2.35 91.17 2.2 145.308.0 18.600 2.921. Strong exports growth from China has helped push China's economy to 9. China is the world's second largest recipient for FDI with total FDI inflows crossing US $ 53 billion in 2003.

the agricultural sector of China is more developed than that of India. we need to have an idea of the economic facts of the countries.8 % China around $7.2 % 807. Unlike India. China has an average GDP of around $7. China occupies the third position. India was under the colonial rule of the British for around 190 years. Compared to the estimated $1.3 % If we make the analysis of the India vs. we can see that there are a number of factors that has made China a better economy than India.1% $6. from the very beginning.7 million 4. First things first. Agriculture Agriculture is another factor of economic comparison of India and China. .India vs China EconomyMaking an in depth study and analysis of India vs. However. the economy of China is more developed than that of India. In case of per capital GDP. While India is the 12th largest economy in terms of the exchange rates.7% $1016 7. On the other hand. the country enjoyed a planned economic model which made it stronger. where farmers still use the traditional and old methods of cultivation.8 trillion.5 million 6. As such. Going by the basic facts. Both the countries were among the most ancient civilizations and their economies are influenced by a number of social. Both India and China rank among the front runners of global economy and are among the world's most diverse nations.209 trillion GDP of India. To make a basic comparison of India and China Economy. China economy seems to be a very hard task. China economy.100 -1. the agricultural techniques used in China are very much developed.100 of the latter. It forms a major economic sector in both the countries.8 trillion 9. This leads to better quality and high yield of crops which can be exported. India lags far behind China with just $1016 compared to $6. This drained the country's resources to a great extent and led to huge economic loss. if we try to properly understand the various economic and market trends and features of the countries.209 trillion 6.8 % 523. However. economic and other factors. we can make a comparison between Indian and Chinese economy. political. Facts GDP GDP growth Per capital GDP Inflation Labor Force Unemployment India around $1. there was no such instance of colonization in China.

India was very slow in embracing globalization and open market economies. India China Economy agreed to broaden bilateral ties in various areas. And that too. Difference in infrastructure and other aspects of economic growth Compared to India. lack of civic amenities and so on. China started towards the liberalization of its market economy much before India. facilitated a warming trend in relations. when both the applied and bound import tariffs are higher in India compared with China.6 billion. In 1954. All these aspects are well developed in China which has put a positive impact in its economy to make it one of the best in the world. TRADE PATTERN BETWEEN INDIA AND CHINA Among the most encouraging recent developments in India China Economy and India-China ties is the rapid increase in bilateral trade. Some of the important factors that have created a stark difference between the economies of the two countries are manpower and labor development. water management. This made a significant change in its economy and the GDP increased considerably. There's a feeling that some of these FTAs were signed in haste. But major industry players in India feel there is no need to give the Chinese a free ride into the domestic market so early. China has a much well developed infrastructure. A few years ago. Today. India enjoys a positive balance of trade with China. health care facilities and services. This strengthened the economy to a great extent. Indian Prime Minister. In 2004. civic amenities and so on. Indian industry's ambivalence over the proposed Indo-China FTA stems from concerns over previous FTAs signed by the government. unemployment. when India and China have been directly competing across several product categories.67 million. India was the second country to establish diplomatic relations with China among the non-socialist countries. Chinese Premier Zhou Enlai and Indian Prime Minister Nehru exchanged visits and jointly initiated the famous Five Principles of Peaceful Coexistence. On the other hand. 1950. Rajiv Gandhi's visit to China in December 1988. The two sides issued a joint statement that stressed the need to restore friendly relations on the basis of the Panch Sheel and noted the importance of the first visit by an Indian prime minister to China since Nehru's 1954 visit. China and India established diplomatic relations on April 1. China is still investing in huge amounts towards manpower development and strengthening of infrastructure. Result: There has been confusion about the country of origin issue as well as the items to be put in the early harvest lists. China welcomed foreign direct investment and private investment in the mid 1980s. and without adequate homework. it is still plagued by problems such as poverty. While India's liberalization policies started in the 1990s.Liberalization of the market In spite of being a Socialist country. working to achieve a "fair and reasonable settlement while seeking a mutually acceptable solution" to the border dispute .43 million and imports from china at US $ 5926. India's total trade to China crossed US $13. In fact unlike India. India Inc had a fear of being swamped by Chinese imports. This is particularly. Although India has become much developed than before. with Indian exports to China touching $ 7677. communication.

Growing demand has led to a rise in some key commodity prices and this has benefited many exporting countries. China´s exports still contain a high proportion of content imported from other countries. China´s weight in international markets may contribute to a fall in the prices of the products it exports. There are also third countries that benefit indirectly through the growth of the economies of their main trading partners. There are countries that have benefited from the rising demand for imports into the fast-growing Asian economies. clothing. . Benefits for other developing countries The growth dynamics in China and other Asian economies such as India have positive effects for many other countries both developed and developing. particularly in the electronics sector. Challenges But China´s increasing participation in international trade poses new challenges for many countries. In particular.The big economic story of the last few years has been the emergence of China and India as major global players. But there are indications that the share of domestic value added in China´s processing trade will rise. footwear and certain types of information and communication technology products. There are widespread fears in many countries that the pace of structural change could result in higher unemployment and lower output. India y y y India has not had the kind of manufacturing export boom that has characterized other rapidly growing economies in Asia. particularly to the United States. China y y y Labour and resource intensive manufactures and electronics have become more dominant in China´s exports since the 1980s. It has become a leading exporter of software and IT-enabled services. even though their exports to the Asian economies are relatively small. Over the next few years export dynamism in manufacturing is likely to become stronger.

So. FUTURE OF INDO CHINA TRADEEconomic ties between India and China are rapidly emerging as one of the most important bilateral relationships in the world. Second. We address three questions of utmost interest to policy makers in both countries: Is the current magnitude of trade between India and China too little or too large? Should India grant Market Economy Status (MES) to China? Finally. $306 billion vs $1. after adjusting for partner GDP (i. Each country¶s aggregate international trade is expanding by 23-24% annually. trade between the two countries has grown very robustly. China¶s trade with India is growing much faster than with any of the other nine. India¶s overall international trade is significantly below that of China¶s. China¶s trade with India is only slightly below that with Japan. or the entire world. India-China trade grew at a 50% rate during 2002-2006 and will increase by a further 54% during 2007 to reach $37 billion. China already is (or will shortly become) India¶s number one trading partner. directly or indirectly. bilateral trade between them will be almost $75 . India is rapidly becoming an increasingly important trading partner for China. Third. export growth in developing countries benefits developed countries too.Interdependence But growth in these Asian economies should not undermine the commitment of all countries to a global partnership for development. the US.760 billion) as well as relative to GDP (34% of GDP vs. Fifth. First. From China¶s side. even if the growth rate in India-China trade slows down to 25% annually (a conservative projection) from the current rate of over 50%. After similar adjustments.. the US. several observations are in order. in terms of both absolute figures (for 2006. Thus. bilateral trade divided by the trading partner¶s GDP). In comparison. 65% of GDP). Fourth. or the entire world. Also. Responding to the rise of large but poor countries by giving in to protectionism would be counterproductive: most of the export earnings of developing countries are translated into higher import demand for advanced industrial products. India already is one of its top ten trading partners. More detailed analysis on the impact of the growth of India and China can be found in UNCTAD´s Trade and Development Report 2005.e. what are the prospects for investment links between India and China? Regarding the magnitude of IndiaChina trade. India¶s trade with China is greater than that with Japan.

as we know well. for China. the US. trade between two countries should be a multiplicative function of their GDPs. the symbolic value to China will be much greater than if India were to be a mere follower. the latter retains the right to use the best information available. the substantive value of granting or not granting MES to China is insignificant not just for China but also for India. its trade deficit with China was $162 billion in 2004. China and India will be the two largest economies in the world. In short. However. Yes. Take the US as an example. other countries (such as Russia) which suffer from similar problems already enjoy a Market Economy Status. in an increasingly flat world. from China¶s point of view. If India were to grant MES to China now (rather than after Japan. Since it is almost certain that. i. it is in India¶s own best interests to grant MES to China ² now. . We look now at the current hot subject and one that may be part of Prime Minister Manmohan Singh¶s discussions during his visit to China: should India grant Market Economy Status (MES) to China? We believe that the correct answer is ³Yes. These are very large numbers. symbolism is a hugely valued commodity in China. it is inevitable that bilateral trade between them will become the most important economic relationship in the world.. Political and business leaders need to start getting ready now for this radically different world. there is no evidence that this problem is endemic throughout large sectors of the Chinese economy.billion in 2010 and $225 billion in 2015. Here¶s why. the current anti-dumping cases filed by India against China total less than 5% of China¶s annual exports to India. by 2050. Also. and $232 billion in 2006. In any case. including third-country (surrogate) information. Trade theory tells us that. The value is entirely ³symbolic and. the EU. $202 billion in 2005. Thus. and Japan) have not yet granted MES to China. MES has little if anything to do with the trade deficit. as large as China-US trade just three years ago.e. True. India will have a $9-10 billion trade deficit with China in 2007. whether or not a country grants MES to it has little substantive value. or the EU have done so). If such information is not provided. the symbolic value of getting MES goes down with each passing year. As it is. Whether or not a country grants MES to China has minimal impact on trade balance with China. however. Even though the US has not granted MES to China. it has to provide verifiable information to the country filing an anti-dumping complaint. some of China¶s major trading partners (the US. Even after China is granted MES. Thus. China will automatically get the Market Economy Status around 2015-16. While government subsidies do remain an issue in some industries in China. Granting MES to China will not take away India¶s rights to file legitimate anti-dumping cases.

the symbolic value to China will be very high. Similarly. it is important to remember also that trade is only one of the two major economic ties that bind nations. over just the next five years. However. it should exploit this opportunity to the maximum by getting quid-pro-quo concessions from China on issues that matter enormously to India (e. We agree that. investment links between the two countries are relatively modest. In essence. Haier and Huawei have significant presence in India. look at the accelerated pace with which India¶s IT giants are globalising their footprint and moving up the value chain in response to an appreciation of the rupee and growing competition from other countries. The other is investment. India should look at MES for China as an issue whose salience rests almost totally in non-economic rather than economic domains. it is inevitable that investment linkages between India and China will grow rapidly. However. if an Indian auto company were to acquire a western auto company with significant presence in China).. Or. TCS. At present. the quantum leap will come as some of the bigger companies from India and China acquire third-country companies that already have a significant presence in the other country (e. and Infosys are building a noteworthy presence in China. However. . It is certain that. In any discussion of the growing economic integration between India and China. India¶s political and business leaders have always responded with vigour to external economic pressures and competition. These types of greenfield investments will continue to grow.g. If India is smart. and the EU do so. the US. if India were to grant MES to China before Japan.Substance aside. Look at the country¶s response in 1991. most people do not realise that the implications of tighter economic links between the two could be even more profound. a settlement of the border disputes).. The world is watching the rise of China and India with fascination and awe. this pressure is likely to be a net plus. at the margins. granting MES to China will put greater pressure on Indian manufacturers to become more efficient (and on the Indian government to accelerate the elimination of India¶s disadvantage in infrastructure). Bharat Forge. As these acquisitions materialise. we will see a growing number of foreign acquisitions by Indian and Chinese companies.g.