China wants FTA and MES from India

By Vipin Agnihotri

The Chinese Dragon is on a new invasion mission, but this time in disguise. After becoming India’s third biggest trade partner, China now wants to enter into a Free Trade Agreement (FTA) and get a Market Economy Status (MES) from India.

In my opinion, both FTA & MES are sensitive issues that need greater deliberations, primarily due to reasons both political as well as economic. Entering into a FTA could create mayhem in Indian industry’s profit margins, as ‘Made in China’ products are already economical than the cheapest Indian products, granting MES would further entangle the situation.

It is worth mentioning in this regard that till now, prices of Chinese products in the US or European market are used for calculating dumping, but the grant of MES would make the Chinese domestic market prices applicable for calculation of dumping and this would refrain India from accusing China of flooding Indian markets.

According to experts, till the time there is complete transparency, there is no need for a FTA or granting MES. As a matter of fact, trade can always be done without that. As per the recent FICCI report, the Chinese Renminbi is 25-40 per cent undervalued against the US dollar and there has been barely any appreciation over the past one-year.

In addition, lower rate of interest at 2.8 per cent, inflation at about 3 per cent and scores of subsidies extended by the Chinese government to the industry contribute towards lowering the cost of production drastically in comparison to India. Because of all this, the Indian business is already suffering both in the domestic as well as international markets. Therefore, going for either of the two, would be nothing less than a blasphemy, causes of which could be very severe, remains the bottomline.

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India ahead of China in Bertelsmann survey

by: Priya Nigam

India Stands Tall

Recently, I bought a pen that has a torch at one end. It’s pretty useful you know. And it’s compact and slick. What’s most fascinating about the pen is that it cost me Rs10. Yes, you guessed it… it was made in China. It seems like everything around us is made in China these days, from color pencils to DVD players! Heck, I even bought a souvenir in Australia to find out later that it had “Made in China” etched below it! And I think to myself, “Why is India lagging behind?” Well, guess what. It’s not. In fact, it is way ahead. No, I’m not saying this out of patriotism. Bertelsmann Foundation, a German NGO, is saying this in a recent study.

China may be the world's fastest growing economy, but India is transforming at a more rapid pace and in a more successful manner than its Asian counterpart. The study, called Transformation Index, conducted by Bertelsmann Foundation, has ranked 125 countries on the basis of development, management and market economy. India has ranked 25th in the study, while China is far behind at 85.

India ranked 19 in an evaluation of the management performance of its political decision makers. The government can feel proud not only because this rank compares well with China’s 67, but also because it is an improvement of 13 rankings versus the earlier study conducted a couple of years ago and of 24 rankings versus the investigation five years ago.

While India has become one of the global economic powers, the country would have to seriously pursue economic reforms in order to maintain its current growth rate, the study suggested. The nation’s legal system and underdeveloped infrastructure need to be focus areas for improvement.

Although there is optimism and enthusiasm surrounding India’s future, the stock market has been volatile of late. The Sensex closed Monday with a loss of 67 points at 18,048. The 50-share index had gained around 1,500 points in the last three trading days. While it opened on a positive note, it plummeted to as low as 17,901 in mid-noon trades and recovered subsequently. The loss was mainly due to profit taking. The shares that bore the brunt of the downturn belonged to technology companies (like Satyam, Wipro, Tata Consultancy Services and Infosys), banking companies (such as State Bank of India, ICICI and HDFC Bank) and other heavyweights (like Reliance Industries and ONGC).

Despite the volatility and the concerns triggered by the state of the US economy, I believe it is still a good idea to bet on India’s future. And the German NGO’s study indicates we are moving in the right direction.

Chinese products the bane of Indian retail market?

By Vipin Agnihotri

In my opinion, as Indians scale newer heights of consumption, retail shelves are becoming showcases of the competitiveness (or, in few situations, the lack of it) of Indian manufacturing. It has come into the notice of The India Street that bigger sections of these shelves are getting filled by products from China, particularly in categories such as toys, home decor items, luggage, consumer electronics, appliances, and stationery. Notwithstanding the lead paint scare in the US from Chinese made goods, India needs to take the initiative and start promoting Indian manufacturing.

If experts are to be believed, almost all organized retailers are reporting a growth in Chinese imports. According to sources, in a global economy, it is inevitable that Indian products will find markets abroad and foreign goods will be sold in India. But the million-dollar question is: Why would Indians go to China if Indian manufacturers can give them the same or better product quality, much safer, more variety and price?

There are some experts who are of the opinion that competitive products from China and other countries are benefiting Indian consumers and therefore India Inc. should have no objection to it. Point to be noted here is that only top quality Chinese products are gaining market share in India, not the shoddy ones. It is worth mentioning in this regard that Chinese consumer electronics are not selling in India.

It's a good possibility that in the next two or three years, some Indian industries will succumb to competition from imported goods, but large chunk of Indian manufacturers will pull up their socks and compete hard. No one will argue with the fact that organized retail has started a process of discovery for Indian manufacturers. As a matter of fact, they are finding their own strengths. In addition, they are preparing to give a fitting response to imported goods.

In theory, Chinese products are winning only in categories where Indian industry has failed to provide top quality products at competitive prices. India needs to step up and start promoting India products as a sfaer alternative to China. All in all, one can safely say that Indian manufacturers will have to shape up; or they will get edged out of their home market in few product categories.

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10 Interesting India vs China Numbers

I have always been fascinated with the so-called culture race between India and China. In fact we produced a short, humorous India versus China video about the rivalry. Publicly, neither country takes the competition seriously but I know from observation in both countries, the comparison ignites fierce debate. Therefore, allow me to take a look at the numbers both curious and serious.

1. 2007 Forbes List of Asia’s Fab 50 Companies

Forbes list of Asia’s "top" fifty public companies showcases 7 Chinese companies and twelve from India. Interestingly, only four of the 12 companies are technology related.

India	China
12	7

2. 2006 GDP Survey using Purchasing Power Parity

India cashes in at an impressive $4.158 trillion (PPP) but China doubles up on India with an astounding $9.984 trillion

India	China
$4.158 Trillion	$9.984 trillion

3. 2007 KPMG report on Cross Border Acquisitions

Indian companies did 32 outbound deals during the first half of 2007 while China, lagged behind with a meager 14 deals.

India	China
32	14

4. GDP in Services

While a larger proportion of people are employed in services in China versus India, the amount of contribution to GDP is interesting because India’s share is 50% while China’s is only 33%. This is probably due to China having a more productive manufacturing industry.

Share of GDP in Services

India	China
50%	33%

5. India versus China Internet Users

In January 2007, ComScore Networks announced that India, China and Russia experienced the highest audience growth year over year. They measured unique users and determined China to be far ahead of India in number of users.

India	China
51,107,000	111,757,000

6. India versus China Billionaires

According to Forbes list of Billionaires India has more billionaires then China and they are a lot wealthier. So what does this mean, only that it’s easier to become extremely wealthy in India despite a weaker GDP. Moreover, India’s rich are richer than China’s despite China’s economic advantages. By the way, we recently we did a story about a record number of India's millionaires .

The Top India and China Billionaires

Rank	Name	Citizenship	Age	Net Worth ($Bil)	Residence
14	Mukesh Ambani	India	49	20.1	India
390	Yan Cheung	China	49	2.4	Hong Kong

India	China
32	20

7. India vs. China Mobile Phone Usage

As we have explored earlier, the number of internet users in China far exceeds India although the number of CDMA users in India exceeds that of China. As for total mobile users as of July 2007, China is the largest mobile market in the world with 491 million subscribers to India's 189 million.

India	China
189 million	491 million

8. India vs. China Median Age

A definite India advantage given that half the population is under 25. The demographic is a large competitive advantage 10 – 30 years from now when an aging China’s one-child policy will limit the amount of workers able to work during this period.

India	China
25	33

9. India vs. China Literacy Rates

A big competitive disadvantage for India as China by far leads in this category. There simply is no excuse for India to lag behind here and doing so for much longer will cripple India’s economy. I’ll give the communists one advantage over its rival democracies, the literacy rates tend to be higher in the communists countries. Even the communist controlled areas in India enjoy a much higher literacy rate then the democratic areas.

India	China
60%	91%

10. India vs. China Poverty

Both China and India have high numbers of people in poverty conditions. I think the number for China and India is much higher than stated here, but it depends on the definition of poverty.

Statistic	India	China
% of People	25%	10%
# of People	273 million	131 million

Summary

There's no question about it India lags behind China in every major category save IT offshoring. However, India is planting the seeds that will eventually catch in surpass China in most of the categories cited above. You have heard me preach the infrastructure sermon for quite some time and I see it as India’s only major obstacle to becoming a true superpower.

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