India concerned about widening trade deficit with China

[Lil Mathew]

Wrong.

Increasing interest rates means the savings of people are higher which increases consumption long term as they gain more money from the savings. Increasing interest rates reduce inflation by decreasing money supply. Decreasing inflation makes goods affordable to consumers. They are doing that to increase the purchasing power of consumers. They realise consumption is the only engine of growth India has and due to the collapsed Rupee the inflation is way too high for ordinary consumers to buy goods as they now have to spend more of their income on the same goods.

Try harder, maybe then your economy wouldn't collapse as it does every few years

With the Indian 'logic' no wonder the Indian economy is such a laughing stock with such high inflation and collapsing Rupee. Indians lack basic understanding how things work in reality and brainwashed by jingoistic propaganda.

First understand The Reserve Bank of India hiked short term rates... Here RBI took the first strong measure to support the Indian rupee and its primary objective is not related to domestic inflation... Inflation mainly due to the oil price not RBI policies...

Here's what the central bank has done.

1) The RBI has increased banks' cost of borrowing short term money through the Marginal Standing Facility (MSF) rate and Bank Rate each by 200 basis points ( 2 per cent) to 10.25 per cent. The measure will make it unattractive for banks to borrow rupee (at cheap rates) and buy dollars (in the forward markets). This will reduce the pressure on the rupee.

2) The RBI has capped the amount banks can borrow from overnight markets to Rs. 75,000 crore. This is aimed to suck liquidity
from the system. This will prevent banks from taking speculative position in forward markets (will support the rupee).

3) The RBI will conduct Open Market Sales of bonds of Rs. 12,000
crore on Thursday to further suck out liquidity from the system. Bond prices will fall and yields will rise. Higher yields will attract foreign investors in the debt market. FIIs have sold billions of dollars in the debt market ever since Fed Reserve Chairman Ben Bernanke signalled a tapering of the quantitative easing in the U.S. resulting in a 10 per cent drop in the value of Indian rupee. Net portfolio investments in India slumped to just $50 million in the three months to June from $11.3 billion in the quarter ending in April.

 

[Lightningbolt]

I do not entertain retards.

If your peanut size brain could not comprehend cause effect relationship of Economics, it if inferior genes that you got from your parents that are at fault.

Try to educate yourself. There is an invention called internet which exist solely for this purpose.

Wait, that is regulated in China .

I've given you a free lesson in economics. Read post #89. This kind of lesson is too expensive for a guy like you to afford with the collapsed Rupee. Be thankful we are here to educate you Indians on everything.

Your welcome. If you need more advice just ask me and I shall teach you.

 

[shree835]

Well, here is the honest and sincere question. What exactly can India offer China?

Some of the earlier articles on the issue states that India is trying to getting into banking, finance and IT sectors in China since these are some of the things India is known for, but there is several very serious problem associated with this proposal.

1. There is zero chance China is going to hand any control of its finance and banking market to foreign entities. If the financial crisis of 97 and 08, as well as the lesser storms of 06 taught us anything, that is a nation MUST maintain firm control of its financial market in order to weather the storm. China is lucky in the fact that it already has good control over its banks and stocks, this is why China handled the financial crisis better than all other nations. There is simply no way China is going to give up such a powerful tool.

2. Chinese domestic IT business is literally about 10 times the size of the entire India IT sector. Security issues aside, the competition is pretty stiff already in Chinese market. Indian IT simply doesn't offer anything that Chinese IT sector doesn't already have in spades.

The problem with trading industrial power house like China is there are really only two category of things you can offer them---resource and high tech. Here lays the dilemma. India is not really a resource exporter. The technological gap between India and China also means there isn't much India can offer in high tech market. Hence the difficulty in balancing the trade.

CHINI Guy, please help me to understand bold part...Please care to explain.

 

[Bang Galore]

But each & every one of them can be reciprocated in kind & perhaps even extended to something beyond India & China due to the enormous leverage that China enjoys !

That is the point being made. You have to have a target to hit. If there are substantial Indian exports to China, then this discussion would immediately become irrelevant. The key idea is to lessen the imbalance that exists. I have little idea of what you mean by "extending to outside India-China" but with the nature of India-China relationship being as it is, there is not much love available.

 

[shree835]

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?

Your words are fit for your close friend call PAKISTAN...

 

[Lightningbolt]

First understand The Reserve Bank of India hiked short term rates... Here RBI took the first strong measure to support the Indian rupee and its primary objective is not related to domestic inflation... Inflation mainly due to the oil price not RBI policies...

Here's what the central bank has done.

1) The RBI has increased banks' cost of borrowing short term money through the Marginal Standing Facility (MSF) rate and Bank Rate each by 200 basis points ( 2 per cent) to 10.25 per cent. The measure will make it unattractive for banks to borrow rupee (at cheap rates) and buy dollars (in the forward markets). This will reduce the pressure on the rupee.

2) The RBI has capped the amount banks can borrow from overnight markets to Rs. 75,000 crore. This is aimed to suck liquidity
from the system. This will prevent banks from taking speculative position in forward markets (will support the rupee).

3) The RBI will conduct Open Market Sales of bonds of Rs. 12,000
crore on Thursday to further suck out liquidity from the system. Bond prices will fall and yields will rise. Higher yields will attract foreign investors in the debt market. FIIs have sold billions of dollars in the debt market ever since Fed Reserve Chairman Ben Bernanke signalled a tapering of the quantitative easing in the U.S. resulting in a 10 per cent drop in the value of Indian rupee. Net portfolio investments in India slumped to just $50 million in the three months to June from $11.3 billion in the quarter ending in April.

You are an incredibly dumb person.

The RBI raise interest rates exactly to reduce inflation to keep consumption high. With high inflation, consumption falls. With falling consumption the Indian economy comes to a screeching halt.

This has nothing to do with supporting the Rupee to attract investors through higher coupon rates. The falling Rupee is a consequence of a fundamentally weak economy that has sticky inflation leading to lower spending and thus lower economic growth.

If inflation is too high, input prices become too high causing manufacturers massive pain as their cost of production is too high. Then manufacturing suffers which affects exports. To increase exports India needs to manufacture. India needs to export to reduce the current account deficit thus supporting a Rupee through a fundamentally strong economy. To manufacturer you need to bring input prices and wage inflation down. Only way to do this is to decrease inflation by increasing interest rates.

Your economic knowledge is non-existent kid

 

[Bang Galore]

It's clear you have zero understanding of basic economics kiddo.

When inflation is higher than deposit rates, the consumption rate decreases. Demand is affected by inflation. Inflation is affected by interest rates. To increase demand you keep prices in check. It's very clear what the RBI is doing, by increasing interest rates they are trying to keep inflation in check to increase consumption. It's also a double affect as higher deposit rates makes savings more valuable as Indian consumer rely on their savings to consume. What you are talking about is borrowing. Borrowing money becomes difficult when the price of capital is higher but that is offset by increasing the value of savings. If inflation is high, then wages rise to keep up with inflation called wage inflation which makes inflation problem even worse. If wage inflation does not keep up with the inflation, then consumers lose purchasing power as their income buys less and their savings are being inflated away. Thus consumption goes down. So to increase consumption, they want to make sure wage inflation is kept in check and the value of savings are preserved.

India is not an import dependent country?
Not even you believe that nonsense mate.

Name me what India can produce itself?
You import everything from oil to manufactured goods to weapons. There ain't a darn thing your country can produce.

India is very much an import dependent country that exports very little.

You really need to quit while you are ahead. In your case, just quit, you are never likely to be ahead. Stupidity can only be excused to a point. There is very little to be gained by repeating what has been said before. Your understanding of economics seems to be ...well your own. Unless you are really stupid, you would have known that inflation has been a concern long before the rupee depreciated (which by the way is already helping the CAD). The RBI has kept interest rates high consistently hoping to dampen inflation. With the exception of fuel (which we don't buy from China), imports have a negligible impact on inflation. Your desire to rant is infinitely greater than any knowledge that you might possess. Chinese imports & any restriction on them will have a very marginal impact on inflation, if at all. Go home old man....better still go away. You are now becoming boring, amusing for a bit but now just boring.

 

[Armstrong]

That is the point being made. You have to have a target to hit. If there are substantial Indian exports to China, then this discussion would immediately become irrelevant. The key idea is to lessen the imbalance that exists. I have little idea of what you mean by "extending to outside India-China" but with the nature of India-China relationship being as it is, there is not much love available.

What I meant by that is that if this leads to a tit-for-tat thing with aggressive posturing by either than this might extend beyond India & CHina & into the potential emerging markets of the Far-East & Latin America & the resource rich African Continent & Central Asia where either side is looking to aggressively compete with the other as opposed to looking into the possibility of greater economic integration even when tapping more lucrative markets or resource rich areas !

Its like how two companies react when instead of competing by using positive factors like moving up the value-chain, employing efficient business process changes & redoing their strategic analysis in a more holistic manner; sustainable competitive advantage is sought through countering whatever your competitor seeks to do !

It hasn't worked well for companies - It won't work well for countries !

At any rate China being the considerably more resource rich of the two would probably have the upper hand in all of this !

But because neither would want anything of the sort to come by because at the end of the day this would provide the 'initiative' to other emerging economies to circumvent this bickering & profit from it - I don't think that India would engage in measures that restricts the 'free market'; it already has pressure mounting to remove its many non-tariff barriers to facilitate greater & easier production & distribution of goods & services !

 

[Lil Mathew]

You are an incredibly dumb person.

The RBI raise interest rates exactly to reduce inflation to keep consumption high. With high inflation, consumption falls. With falling consumption the Indian economy comes to a screeching halt.

This has nothing to do with supporting the Rupee to attract investors through higher coupon rates. The falling Rupee is a consequence of a fundamentally weak economy that has sticky inflation leading to lower spending and thus lower economic growth.

If inflation is too high, input prices become too high causing manufacturers massive pain as thei cost of production is too high. Then manufacturing suffers which affects exports. To increase exports India needs to manufacture. To manufacturer you need to bring input prices and wage inflation down. Only way to do this is to decrease inflation by increasing interest rates.

Your economic knowledge is non-existent kid

Ha ha ... You are talking about the simple economics which we studied in school.... Here the scenario is very complex...

 

[sovcomflot]

What I meant by that is that if this leads to a tit-for-tat thing with aggressive posturing by either than this might extend beyond India & Pakistan & into the potential emerging markets of the Far-East & Latin America & the resource rich African Continent & Central Asia where either side is looking to aggressively compete with the other as opposed to looking into the possibility of greater economic integration even when tapping more lucrative markets or resource rich areas !

Its like how two companies react when instead of competing by using positive factors like moving up the value-chain, employing efficient business process changes & redoing their strategic analysis in a more holistic manner; sustainable competitive advantage is sought through countering whatever your competitor seeks to do !

It hasn't worked well for companies - It won't work well for countries !

At any rate China being the considerably more resource rich of the two would probably have the upper hand in all of this !

But because neither would want anything of the sort to come by because at the end of the day this would provide the 'initiative' to other emerging economies to circumvent this bickering & profit from it - I don't think that India would engage in measures that restricts the 'free market'; it already has pressure mounting to remove its many non-tariff barriers to facilitate greater & easier production & distribution of goods & services !

Central Asia is more or less Russian Backyard.Chinese are at an advantage ,compared to India there for resources,due to their improving relations with Russia and membership of SCO . Who knows,tomorrow China will be member of CSTO alliance also.

Ha ha ... You are talking about the simple economics which we studied in school.... Here the scenario is very complex...

Actually ,all of you whether chinese or the indians are talking on theortical basis.

 

[Lightningbolt]

You really need to quit while you are ahead. In your case, just quit, you are never likely to be ahead. Stupidity can only be excused to a point. There is very little to be gained by repeating what has been said before. Your understanding of economics seems to be ...well your own. Unless you are really stupid, you would have known that inflation has been a concern long before the rupee depreciated (which by the way is already helping the CAD). The RBI has kept interest rates high consistently hoping to dampen inflation. With the exception of fuel (which we don't buy from China), imports have a negligible impact on inflation. Your desire to rant is infinitely greater than any knowledge that you might possess. Chinese imports & any restriction on them will have a very marginal impact on inflation, if at all. Go home old man....better still go away. You are now becoming boring, amusing for a bit but now just boring.

Imports have a negligible impact on inflation? Oh boy your comedy act keeps getting better
Utterly clueless beyond belief you Indians. It's scary that there are people this stupid in this world.

Why do you think companies move to low cost countries to manufacture goods? To keep prices down.
When companies go to countries with higher cost of production, the prices of those manufactured goods rise.
Then when countries like India import those goods, the consumers pay those higher prices. Higher prices mean inflation.

You are humiliating yourself
Keep going, it's fun teaching you basic economics.

 

[Bang Galore]

What I meant by that is that if this leads to a tit-for-tat thing with aggressive posturing by either than this might extend beyond India & Pakistan & into the potential emerging markets of the Far-East & Latin America & the resource rich African Continent & Central Asia where either side is looking to aggressively compete with the other as opposed to looking into the possibility of greater economic integration even when tapping more lucrative markets or resource rich areas !

Its like how two companies react when instead of competing by using positive factors like moving up the value-chain, employing efficient business process changes & redoing their strategic analysis in a more holistic manner; sustainable competitive advantage is sought through countering whatever your competitor seeks to do !

It hasn't worked well for companies - It won't work well for countries !

At any rate China being the considerably more resource rich of the two would probably have the upper hand in all of this !

But because neither would want anything of the sort to come by because at the end of the day this would provide the 'initiative' to other emerging economies to circumvent this bickering & profit from it - I don't think that India would engage in measures that restricts the 'free market'; it already has pressure mounting to remove its many non-tariff barriers to facilitate greater & easier production & distribution of goods & services !

I don't believe that there will be a direct concern on what you have discussed but tense relations between India & China in the even of a trade dispute is a given. However Indian relations with China have recentlyy taken a dive & that will almost certainly accelerate any response to trade imbalances. Nobody is as concerned about hurting Chinese feelings as before.

Your logic on Chinese companies outbidding India on resources is debatable, it is not as if they are giving India a free ride now. If the Chinese were serious to resolve the issue, they would make it easier for Indian companies to trade and reduce the imbalance that exists. They aren't, hence this conundrum.

 

[AnnoyingOrange]

India concerned about widening trade deficit with China

India concerned about widening trade deficit with China | Business Standard

The Commerce Ministry here has expressed its concern over the widening trade deficit with China, and warned that this won't be sustainable in the long term.

This view was conveyed, when representatives of both countries met on Monday to explore greater business opportunities between the countries.

The India-China Business Matchmaking Symposium in New Delhi was organised by the Confederation of Indian Industry (CII) and Trade Development Bureau (TDB) of China, in the backdrop of exponential growth in the trade sector between the two countries in the last few years.

Joint Secretary of the Commerce Ministry Asit Tripathy said that India's engineering goods, petroleum downstream products, agriculture based commodities and pharmaceuticals along with other services were internationally competitive and should be made available in the Chinese markets as well.

He added that the countries needed to collaborate to bring evenness in the trade between the two countries.

"What is worrying (indications) to government of India and to the Indian industry is that we have a very large trade deficit. So, we need to collaborate with each other so that we have evenness to our trade, because in uneven trade like this is not sustainable in the long run," said Tripathy.

The Chinese business delegation headed by Vice Director General of Chinese Trade Development Bureau (TDB) Jia Guoyong consisted of delegates from various sectors of business and trade.

While addressing the delegates, Chairman of CII National MSME (Micro, Small and Medium Enterprises) Council, Deep Kapuria said that the countries were taking steps to cope with increasing trade imbalance.

He added that the Indian industries should benefit from this collaboration.

"Now, it is at the end of the Indian businesses to look at how they can take this opportunity forward (and) engage with the companies not only today but with the help of the Chinese embassy (and) with CII (Confederation of Indian Industry) having their office in Shanghai in the future, and participating in the delegation to move this business relationship forward," said Kapuria.

In the meet, the delegations of the both countries also signed 15 Memorandum of Understanding (MoU) worth USD 338 million, in wide range of sectors.

Following Indian complaints about the size of the trade deficit with its neighbour, earlier in May this year, China's Premier Li Keqiang had said that China and India had agreed on a roadmap to reach a "dynamic balance" in bilateral trade between the two nations.
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The above article proves one thing --> Indians love Chinese products but Chinese people are not interested in Indian products !

There is a lot of contract manufacturing being doing by Chinese Subcontractors for Indian companies... that is a concern....

Just like every other country is concerned about growing trade deficit with China..so is India.

 

[Lightningbolt]

Ha ha ... You are talking about the simple economics which we studied in school.... Here the scenario is very complex...

It is YOU that is talking simple economics. You say higher interest rates mean lower consumption because borrowing rates rise. That is the simplest way people think when it comes to interest rates.
What I've said was a more complex scenario that the RBI is working towards. They understand the dilemma India is in and are acting the correct way.

They are doing this to reduce the current account deficit by making it easier to manufacture goods to export. In order to manufacture you need to reduce the cost of production by bringing inflation down.
Inflation is also hurting consumer spending in India which is the main growth engine for the Indian economy.
By raising interest rates it achieves a short term and long term objective.

Raise interest rates->reduce inflation->reduce cost of production->increase manufacturing->increase exports->reduce current account deficit->strengthens Rupee.

 

[sovcomflot]

It is YOU that is talking simple economics. You say higher interest rates mean lower consumption because borrowing rates rise. That is the simplest way people think when it comes to interest rates.
What I've said was a more complex scenario that the RBI is working towards. They understand the dilemma India is in and are acting the correct way.

They are doing this to reduce the current account deficit by making it easier to manufacture goods to export. In order to manufacture you need to reduce the cost of production by bringing inflation down.
Inflation is also hurting consumer spending in India which is the main growth engine for the Indian economy.
By raising interer rates it achieves a short term and long term objective.

Raise interest rates->reduce inflation->reduce cost of production->increase manufacturing->increase exports->reduce current account deficit->strengthens Rupee.

Relax and cool off. Go and take fresh air for now.