India concerned about widening trade deficit with China

[Bang Galore]

Join the long list of countries that have the same complains India. Unlike India, countries like the US has things we want like high-tech goods they refuse to export. But India has nothing we want. We have pretty much everything in the low-tech and middle-tech goods produced domestically. As someone said we only need 2 things, resources and high-tech goods. India only has iron ore as resource exports we buy. Indian outsourcing IT companies cannot compete with our IT companies due to the language barrier and because the IT sector in China is the most competitive of all sectors.

India will have to just live with this deficit for a long time until they have something that we need.

That assumption that India would have to live with it is mistaken. In a case where India has nothing much to lose, tariffs can simply be hiked, Chinese products and companies not allowed in power plants,telecom, infrastructure etc....it's actually easier than if India was engaging in meaningful trade. We don't not need to import from China compulsorily. If China does not work towards reducing the deficit, it will almost certainly result in India restricting Chinese imports.

 

[walle]

That assumption that India would have to live with it is mistaken. In a case where India has nothing much to lose, tariffs can simply be hiked, Chinese products and companies not allowed in power plants,telecom, infrastructure etc....it's actually easier than if India was engaging in meaningful trade. We don't not need to import from China compulsorily. If China does not work towards reducing the deficit, it will almost certainly result in India restricting Chinese imports.

Beggars can't be choosers, India is vastly underdeveloped without the technical know how to improve your power grids, telecommunication infrastructure. You need foreign help and mind i remind you India is also broke as ****? It's easy to say "we will restrict blah blah blah" but, what are your alternatives?

 

[Genesis]

That assumption that India would have to live with it is mistaken. In a case where India has nothing much to lose, tariffs can simply be hiked, Chinese products and companies not allowed in power plants,telecom, infrastructure etc....it's actually easier than if India was engaging in meaningful trade. We don't not need to import from China compulsorily. If China does not work towards reducing the deficit, it will almost certainly result in India restricting Chinese imports.

Why do Indian members keep thinking extra teriffs and restrictions are the way to go?

India is in he WTO, you can't change rules like nothing. If India does that, India truly be done.

Why do you think Chinese cars are not competitive world wide, because we got no prestige and we can't subsidize them too much or else we would have violated the WTO rules and lose a lot more than a car industry.

 

[Dandpatta]

Restrictions / hike in tarrifs will only result in a trade war and whichever way we Indians look at it, we have no alternative but to sit it out and bear the brunt of the deficit.

If only all the money going into corrupt practices by our politicians (who would even sell their mothers) - actually went into research and development, we would have a lot to show. But even still, we have a long way to go till domestic manufacturing industry comes to a mark. Unfortunately..... well.. enough said .

 

[walle]

Now we know why India does so poorly in PISA tests.

According to this Indian guy Indocarib 2.5 trillion RMB translates to only $40 billion USD @ exchange rate of 6.2

If it was 2.5 trillion rupees it would have made sense.

 

[armchairPrivate]

Some people here bemoan the deficit in China, definitely do not understand the basic finance of a country or international finance.

Yes, China has a big deficit, but it is all internal. It is like a family get together playing poker. Whoever win or lose, the winnings stay in the family. The next morning, the money is still there inside the house.

As to other countries, like the US, they played poker with friends. When they lost the games, the friends took the winning with them when they left.

That's the difference.

 

[Lightningbolt]

Putting tariffs on our goods will only hurt the Indian middle class that buys our goods because they can afford it. India being reliant on consumption, Indian middle class will be destroyed which will hurt the only engine of growth for the Indian economy. You can't just replace all our goods domestically because most of the manufacturing done in China is done by foreign firms so we are the main production base and has the most of the global supply chain. Every country wants manufacturing, but you don't get it by just because you want it.

There is a gross lack of understanding of basic economics among Indians here. Getting too emotional.

You want to reduce your trade deficit by manufacturing things using comparative advantages that others want and not by reducing trade. If you want zero trade deficit then you can stop trading altogether but you will be like Iran that can't get any goods and shut yourself from the world. As walle said, beggers cant be choosers. India is an extremely poor country and cannot afford to buy expensive western goods and expect to develop fast. You need affordable goods that poor countries like India can afford or your country will develop at a very slow pace as you can't afford expensive goods.

India needs us far more than we need India. Our exports to India represents only 2.33% of our total exports. India is still an economic lightweight compared to us. Our government fiscal revenue alone is bigger than the entire Indian economy.

 

[Bang Galore]

Beggars can't be choosers, India is vastly underdeveloped without the technical know how to improve your power grids, telecommunication infrastructure. You need foreign help and mind i remind you India is also broke as ****? It's easy to say "we will restrict blah blah blah" but, what are your alternatives?

This is a silly rant, expected but silly. India routinely blocks Chinese companies from operating in what it feels is "sensitive" areas, that can always be expanded. You are not "helping" us, we have alternatives with countries that will be more eager to supply. More expensive maybe but a two way trade might be workable there.

Why do Indian members keep thinking extra teriffs and restrictions are the way to go?

India is in he WTO, you can't change rules like nothing. If India does that, India truly be done.

Why do you think Chinese cars are not competitive world wide, because we got no prestige and we can't subsidize them too much or else we would have violated the WTO rules and lose a lot more than a car industry.

Don't believe that you are the only one who knows anything about the WTO. Unlike you, I'm not prone to ranting on matters that I have no knowledge of. India can block China in many areas purely on national security grounds & tariffs can be revised, the WTO only prescribes uniform treatment. In areas where you seem to strong, you can always be dealt with by higher tariffs. Unlike you, I'm also aware that there are various non-tariff barriers that can be erected if India chooses to. You are a very naive & a gullible person if you believe there aren't. Which is why, unlike you, the Chinese government looks at Indian statements on widening gap far more seriously. Restriction is always around the corner & they know it. If a country really wants to go after your exports, there are very many ways that can be done. The biggest disincentive for such actions is if you also offer something in return. The government of China is cognizant of that. Between large countries where balance of diplomatic power is not very tilted, there are no easy, free lunches. Certainly not permanently.

 

[Bang Galore]

Restrictions / hike in tarrifs will only result in a trade war and whichever way we Indians look at it, we have no alternative but to sit it out and bear the brunt of the deficit.

You didn't understand the thrust of the argument. For a trade war, you must have something substantial to lose. If India-China trade remains skewed, India will really have very little to lose. There are no free lunches. With increasing political friction, it is only a matter of time before there are restrictive practices implemented. China will have to give somewhere, either on trade or diplomatically. There are no permanent free lunches.Period.

 

[Dandpatta]

@ Lighteningbolt and my other Indian bros.

The biggest point missed out by most Indians is that it is not (ONLY) China who is dumping cheap goods into India. For every import from China of cheap , bad quality and trashy batteries that don't even last a minute, there are chains of Chinese and Indians who form the bane of trade.

So you have the Indian middle class who wanted (yes, wanted) cheap stuff from China. Indian traders especially the Marwadis who sat in Delhi/Mumbai trade streets knew the price a certain Chinese import would fetch. The Indian trader (importer) would have his bro or some distant cousin sitting in China, go to places like Yiwu (another bane of cheap goods for the whole world), book one or 10 whole containers of cheap goods, bring into the market , sell it at a profit and then flood it for the next 2-3 consignments.

It was the Indian traders who benefited hugely from the profits they made in selling (no, flooding) the market. The Middle Class was left to learn from its own mistakes of going for the cheap. Soon enough with rising income levels of the middle class, they wanted to buy goods that lasted long and had better quality. Again, China came and still comes into the picture. And I will elaborate more on this in the next paragraph.

Let's take a battery that is dirt cheap - and as per my previous factual example, low quality, lasting one minute, throwaway type. The Chinese SUPPLIER logic to many Indian traders was and is this. You want cheap price, take cheap quality. You want better quality, pay more. You want best quality, pay even more. These three are the mantras that one comes across in many Chinese trade fairs. From the early 2000s till now, Chinese trade fairs have seen a profound change in buyer seller behaviour. BUYERS (in this case Indians) are paying more for better quality. The days of cheap quality trash from China being dumped into India are waning. Another example. India's construction boom saw many cheap and low quality chinese fabrications come into the market. After 3-4 years, builders and construction industry knew they had to pay a bit more if they wanted long lasting quality. Today, you see Chinese construction material of international standards (IS for short) making it into the Indian market to the extent that some of India's airports have been supplied by Chinese I.S manufacturers. Indian skyscrapers too are using PREDOMINANTLY Chinese aluminum cladding for exteriors .

So here, the Indians too have wisened up and are ready to pay a bit more - especially the middle class and the traders who supply to the M.C. They learnt their lessons that Made in China necessarily does not mean bad quality. Pay MORE, the M.I.C can be better.

On the very other hand, Indian domestic consumable items (apart from well established brands and well established industries), fail on the MOST basic human element . PROCRASTINATION ! For example, an assembly line manufacturer of steel rods want an Indian company to supply 10,000 rods and want sampling and costing done, it would typically take 1 week for the Indian supplier to get back with a quote. Compare that with the Chinese, you would have a quote and a sample within 3 days. This is NOT to imply that we Indians are lazy or don't bother to reply. The point is that there are so many variable factors that contribute to procrastination that it is difficult to have a time bound chain of action based on quotations.

 

[Bang Galore]

Putting tariffs on our goods will only hurt the Indian middle class that buys our goods because they can afford it. India being reliant on consumption, Indian middle class will be destroyed which will hurt the only engine of growth for the Indian economy. You can't just replace all our goods domestically because most of the manufacturing done in China is done by foreign firms so we are the main production base and has the most of the global supply chain. Every country wants manufacturing, but you don't get it by just because you want it.

There is a gross lack of understanding of basic economics among Indians here. Getting too emotional.

The only ones here getting emotional are some Chinese members who want to rant rather than discuss. You won't see me doing that. I'm just pointing out a common sensical point. There is always a measuring of trade that takes place. Indians buy the most Gold but the government has over the last few months continuously increased tariffs to taper off the demand because of excessive imports and the current account situation. Any government strikes a fine balance between economic needs & what people may want. There are a number of factors governing trade which also include the political. India-China relations have been tense in the last year, to imagine that the GoI will not look at a skewed trade balance is silly. I'm not suggesting that trade restrictions are imminent, merely that they will be always available as an option. India can do what China does & order foreign manufacturers, including Chinese ones to manufacture in India.

In December, India’s National Security Council Secretariat, the apex agency responsible for economic and strategic security, even circulated a note to various ministries detailing its concerns and backing a possible move by the country’s Department of Commerce to start restricting imports from China

 

[Genesis]

This is a silly rant, expected but silly. India routinely blocks Chinese companies from operating in what it feels is "sensitive" areas, that can always be expanded. You are not "helping" us, we have alternatives with countries that will be more eager to supply. More expensive maybe but a two way trade might be workable there.



Don't believe that you are the only one who knows anything abut the WTO. Unlike you, I'm not prone to ranting on matters that I have no knowledge of. India can block China in many areas purely on national security grounds & tariffs can be revised, the WTO only prescribes uniform treatment. In areas where you seem to strong, you can always be dealt with by higher tariffs. Unlike you, I'm also aware that there are various non-tariff barriers that can be erected if India chooses to. You are a very naive & a gullible person if you believe there aren't. Which is why, unlike you, the Chinese government looks at Indian statements on widening gap far more seriously. Restriction is always around the corner & they know it. If a country really wants to go after your exports, there are very many ways that can be done. The biggest disincentive for such actions is if you also offer something in return. The government of China is cognizant of that. Between large countries where balance of diplomatic power is not very tilted, there are no easy, free lunches. Certainly not permanently.

Are you crazy? If it's so easy why doesn't America do it? Why don't Europeans do it? Are you saying you are stronger and got better bargaining chip than them?

There's a million reasons to do a million things, being Chinese I know all about it.

However changing rules is not that simple, you do realize while Chinese goods are sold in India, they are being sold by INDIANS, now tell me how are those Indians going to react.

If you make it harder for China, on the international stage it will make India seem like a country that doesn't do business fairly. Who would dare to invest in a country that changes rules because they are losing?

India is not America and also not China, your markets are not that great, it may have a ton of people but the number of people that can afford stuff is not a lot.

There's also the effect of shutting off your country will not result in competitiveness but will result in lack of effort and lose competitiveness, not to mention reputation.

There's a reason your politicians don't do certain things and it's not because they are stupid.

 

[armchairPrivate]

^^^

Haven't you heard?

Foreign Telecom Investors Getting a Beating from India

Peter I. Galace

New Delhi, May 7, 2013 — India has renewed calls to attract foreign investments to upgrade its industries to world standards. But attracting greater capital from abroad will not be easy as unclear rules, corruption, and bribery remain a fixture in the Indian business and politics. This is especially true for telecom, broadcasting and ICT investor companies who have done business in the Asian subcontinent during the last half decade.

A case in point is the protracted, nearly six-year legal battle $2.6 billion tax dispute between British telecommunications company Vodafone Group Plc. and the Indian government. The dispute started in 2007 when Vodafone purchased for $11.1 billion the Indian mobile business Hutchison Essar Ltd, India’s no. 3 mobile operator, from Hong Kong-based Hutchison Whampoa. The deal, the biggest ever in the Indian telecom industry, was structured so that Vodafone’s Netherlands subsidiary and a Cayman Islands-incorporated subsidiary of Hutchison were the ones that struck the deal.

But the Indian revenue department tried to levy a $2 billion tax on the transaction, contending that Vodafone is obligated to pay capital gains as Hutchison Essar is an Indian company. Vodafone resisted the claim, saying that the transaction’s use of offshore entities makes it exempt from such a duty.

The two parties battled back and forth in court until January 2012, when India’s Supreme Court sided with Vodafone and ruled that the offshore transaction consummated in Mauritius by companies incorporated outside of India was beyond the Indian government’s jurisdiction. But alas, the Indian Parliament responded by amending its Income Tax Act permitting India’s tax department to impose a levy on such deals and, to the dismay of Vodafone, the new law was made to be effective retroactively.

Tax authorities promptly filed an appeal to the High Court, and followed it up with a letter to Vodafone demanding the payment of about $2.7 billion (Rs 11,217 crore) tax along with interest. Vodafone replied back saying that they do not owe anything to the Indian government. Reports say Vodafone has recently proposed a conciliation which the Indian government is considering.

Cancelled: 122 2G Licenses

In another bizarre case, the Supreme Court in February 2012 canceled 122 2G telecom licenses awarded in 2008, including those of Norway’s Telenor ASA and Japan’s NTYT DoCoMo Inc. alleging corruption. The allocation of the mobile spectrum licenses during the term of the then telecoms Minister Andimuthu Raja were based on a controversial “first come first serve” criteria, which resulted in the grant of licenses at lower prices compared to if the spectrum were bidded out. Various irregularities in the allotment process were soon discovered and the government estimated a revenue loss of $36 billion. A number of criminal cases against the former telecoms Minister and various industry executives are ongoing.

Overseas investment into India’s telecommunications industry plummeted after that despite Finance Minister Palaniappan Chidambaram’s global public relations campaign stressing that India is very much open for business.

In another controversial case, Deutsche Telekom AG and two U.S. investment firms, Columbia Capital LLC and Telcom Ventures LLC, are seeking more than $1.6 billion before a United Nations panel challenging the Indian government over a canceled contract to supply broadband service.

The case started in January 2005 when Antrix Corp., the commercial and marketing arm of India’s space agency ISRO, leased 90% of the space segment capacity of two satellites for 12 years with an Indian company, Devas Multimedia. Deutsche Telekom held a 20% stake in Devas, while U.S.-based Columbia Capital and Telcom Ventures each owns 17%. Various individuals, including some ISRO scientists own the rest.

Under the deal, Devas was to pay about $340 million to Antrix to secure bandwidth on the satellites to offer broadband Internet services in India, which lags behind other major economies in Internet connectivity.

Public investment for profit

But New Delhi canceled the contract in 2011 saying that the bandwidth allotted was needed for "strategic requirements," such as defense, railways and public utilities. The Comptroller and Auditor General of India accused the Department of Space's then secretary, G Madhavan Nair of violating numerous rules and policies and concealed facts to favor Devas. It described the agreement with Devas as "a classic case of public investment for private profit" and criticized the Department of Space for its failure to explore the revenue potential of 70 MHz of S-Band spectrum earmarked for Devas for an infinite period.

"The special treatment accorded to Devas is also reflected in the fact that the Department of Space decided to use the country-specific scarce orbital slot at 83 degrees East, for two co-located satellites, exclusively by the private customer," the government report said.

The project has been on hold since.

The series of unfavorable events has prompted even US President Barack Obama to remark last year that it India’s investment climate is "deteriorating." The remarks riled many quarters in the country but there's no denying the fact that the present investment climate in India continues to be worrisome. Observers say barriers and bottlenecks continue to deter foreign investments needed to create jobs and revive continued growth in the region.

In another related issue, the Acting U.S. Trade Representative Demetrios Marantis in April expressed concern about trade barriers faced by U.S. telecommunications companies in countries like Brazil, India and Indonesia for resorting to local content requirements to achieve manufacturing goals.

According to the report, India adopted measures in late 2012 pursuant to its preferential market access notification that identify specific telecommunications and computer equipment that is subject to greater local content requirements in government procurement in the information and communications technology sector.

“Of even greater concern is the provision in the PMA that anticipates similar domestic purchase mandates applicable to private firms for ‘electronic products which have security implications,’” the report said.

 

[Chinese-Dragon]

However changing rules is not that simple, you do realize while Chinese goods are sold in India, they are being sold by INDIANS, now tell me how are those Indians going to react.

That's a good point. It's the Indian business that are buying Chinese goods, it is the Indian people who are buying Chinese goods.

They are all making the choice to do that. They feel our products are more competitively priced, and are apparently not all that nationalistic in terms of what country it is coming from.

 

[Bang Galore]

Are you crazy? If it's so easy why doesn't America do it? Why don't Europeans do it? Are you saying you are stronger and got better bargaining chip than them?

There's a million reasons to do a million things, being Chinese I know all about it.

No, I'm sorry to disappoint you, I'm not crazy. However you certainly have very little idea of what constitutes an equal comparison. The U.S. and Europe don't do it for a number of reasons but that doesn't stop them from threatening to. The U.S. & China have a much larger labour price gap than between India & China, their trade with you is worth something to them. That is the key to my point. Unless China is valuable to India as a market, there are no barriers stopping India from restricting Chinese goods. If trade imbalance remains skewed, restrictions will apply. The government of China understands that. Pretty much everyone understands that. If a side has nothing to lose, then it will lose nothing. The country worrying will always be the one which has something to lose.

However changing rules is not that simple, you do realize while Chinese goods are sold in India, they are being sold by INDIANS, now tell me how are those Indians going to react.

They will simply sell something else. Do you really believe that is a realistic reason?

If you make it harder for China, on the international stage it will make India seem like a country that doesn't do business fairly. Who would dare to invest in a country that changes rules because they are losing?

Imports are not investments, you really should get your facts right. The second point is, that the world knows how the rules apply & no one will care about an Indo-China dispute, especially if they stand to benefit from it. After all what is China's loss will be a gain elsewhere....Trade is not sport, no one will continue to lose to keep up appearances...

India is not America and also not China, your markets are not that great, it may have a ton of people but the number of people that can afford stuff is not a lot.

There's also the effect of shutting off your country will not result in competitiveness but will result in lack of effort and lose competitiveness, not to mention reputation.

That is a given but there are not many markets the size of India available and getting shut out might mean losing such a market permanently. There are always alternatives, sometimes expensive but always alternatives. I'm not suggesting a trade war, merely pointing out that unlike what you chaps think, such skewed trade is not without a risk of consequences.

There's a reason your politicians don't do certain things and it's not because they are stupid.

Politicians will do many things, you are seriously naive if you think what I said above is not being considered. After the recent events on the border, the politicians are considering a lot more steps on trade that they were not doing so before because they didn't want a deterioration of ties. Disabuse yourself of any notion that such steps are not being considered or that they are not in the realm of possibility. They are and while not imminent, they remain on the table.