India holds back on FTA commitment to China

India has raised its concerns on the trade deficit that it incurs with China several times in the past. But this time around, one saw some real engagement on the issue during the visit of Chinese Premier Li Keqiang.

The Chinese side not only proposed several measures to address the deficit but also made a strong pitch for a FTA. But CNBC-TV18 has learnt that India wants more active engagement on this issue before committing on FTA talks.

Commenting on the issue Salman Khurshid, External Affairs Minister, said, "We would have them as a friend. We need to have them as a friend. But I would like to articulate it in this way. India wants to be port of the solution, not part of the problem." He further added that, "They have suggested a Regional Trade Agreement - What we have said is that the Regional Trade Agreement should come sequentially after we have addressed the issues of trade that we have because whatever we do beyond that will finally have to take into account other countries in our neighbourhood and we should first make sure that everything is sorted out with China." CNBC-TV18’s Rituparna Bhuyan,reports that the trade deficit issue was discussed in detail between Anand Sharma and his Chinese counterpart. The Chinese proposed that it would be sending more trade sourcing machines to India. They also said it will facilitate participation of Indian companies in the Beijing Commodity Fair. The Chinese also gave assured that it will promote sale of Indian Goods in China especially the once which enjoy a competitive advantage and it will do so by relaxing import norms and the Chinese will also promote Indian tourism, so that more and more Chinese tourist come to India. Meanwhile, India pitched for buying of more Indian generic products as well as Indian IT products by Chinese PSUs, who are major buyers across the globe. The Indian side also called for a quick notification of the three joint working groups from the Chinese side, as issue which has been pending since last August, adds Bhuyan. Notwithstanding steps announced by India and China to reduce their trade deficit during Premier Li Keqiang's ongoing visit, Chinese analysts believe the imbalance is likely to keep growing in the short term due to structural problems. "India's trade deficit with China is expanding. In the short term, that's hard to resolve. The imbalance is mainly because India has limited exports to China, while Chinese manufactured goods have a competitive advantage in the Indian market," Liu Xiaoxue, a researcher on South Asian studies at the Chinese Academy of Social Sciences said. The slower growth pace in China in recent years, together with overcapacity in the steel and iron sectors and the Chinese government's tightening policies in the real estate sector, reduced demand for Indian raw materials mainly iron ore and iron sand, which account for the bulk of Indian exports to China. That's the reason behind India's increasing trade deficit with China, Liu told China Daily. In the first four months of the year, Sino-India trade declined 6.2 percent year-on-year. Chinese exports increased 3.6 percent and imports decreased 24 percent, yielding a trade surplus of USD 8.83 billion, according to China's General Administration of Customs. In 2012, bilateral trade dropped 10.1 percent, and China's exports went down 5.7 percent while its imports plunged 19.6 percent, leaving a trade surplus of USD 28.87 billion, compared with USD 27.17 billion in 2011 and USD 20.08 billion in 2010, according to customs data. Indian officials say the iron ore exports from India also fell due to investigations into allegations of corrupt practices in mine sector. "The trade imbalance is rooted in India's trade structure. India's trade deficit with China will not be reversed in the foreseeable future. Any change depends on whether India can export products that meet the demand of the Chinese market," Hu Shisheng, director of the Institute of South and Southeast Asian and Oceanian Studies at the China Institutes of Contemporary International Relations said. (With inputs from PTI)