India may reckon that China is its largest trading partner, but its export manifest in recent years has looked strikingly similar to that of “banana” producing countries of Central America. With iron ore constituting 60 per cent of India’s $14 billion export in 2007, the basket could not have been more unbalanced. No wonder it collapsed late last year after China slowed down iron ore purchases after the Olympics, the trade deficit rising from below a bill ion dollars in 2002-03 to around $12 billion in 2008. The challenge now is to get the balance back again. Helpfully, iron ore rakes are moving up once again following an increase in demand from China. In February, exports were up 17 per cent compared with the same month in 2008, the revival process having started in December last after seven months of continual decline. Clearly, this is good news for the iron ore industry, but how long will the good times last and, more generally, to what extent will India-China bilateral trade as a whole be affected by the ongoing economic slowdown?
According to the Federation of Indian Mineral Industries, a period of uncertainty lies ahead for iron ore exports since demand could yet not revert to old levels because of a slowdown in purchases by Chinese steelmakers in anticipation of a further fall in ore prices. There is also little doubt that the future stability in the demand for iron ore will depend greatly on the success of the recovery efforts of the Chinese Government, fuelled by the four trillion yuan ($585 billion) stimulus. The problem for China has been compounded by the fact that nearly two-thirds of China’s GDP is dependent on exports. Since New Delhi is among Beijing’s top ten trading partners it cannot but occupy an important place in China’s present export calculations. The problem is that, from New Delhi’s point of view, the huge deficit which India suffers in its trade with China needs to be corrected, which would mean a reduction in Chinese exports and an increase in the flow of Indian products.
Just last week the issue of trade deficit was raised by the Indian envoy to Beijing with a request for greater market access for Indian products in spheres where Indian manufacturers enjoy a competitive advantage. While such steps will no doubt be helpful in increasing the flow of Indian exports marginally, a more strategic solution would involve increasing the IT penetration of the Chinese market and increasing the flow of Indian investment ventures in China, an intitiative which would mark a sharp break with the conventional Indian sales pitch for “ores, slag and ash”, cotton, and organic chemicals.
Source : Business Line