NEW DELHI - Despite the substantial nuclear cooperation deal, sealed by visiting President George W Bush earlier this month, trade growth between India and China has been so rapid that the United States may lose out to China as India's largest trading partner within a few years.
India's bilateral trade with China in 2005 set a new record at US$18.71 billion, up nearly 38% from 2004. India had set a target of $20 billion by 2008, but that could be achieved well in advance. India's exports to China grew by more than 27% in 2005, nearly 38% higher than the overall growth in Sino-India bilateral trade.
"China should emerge as India's largest trading partner, overtaking the US within a year or two, with two-way trade exceeding $30 billion in 2007," Nagesh Kumar, director general of the Research and Information System for Developing Countries, a government-funded think-tank, told IPS in an interview.
Other analysts disagree, contending that the US will remain India's largest trading partner for the foreseeable future. Merchandise trade between India and the US stood at about $25 billion in 2005 and is expected to touch $40 billion by 2009, and Bush took pains on his visit to emphasize the importance of trade relations with one of the world's fastest-growing economies.
After he landed in the southern Indian city of Hyderabad, capital of Andhra Pradesh, Bush was given a basket of Banganapalli mangoes, reputed to be the world's finest, by state chief minister Y S Rajasekhara Reddy. This small gesture was a giant stride in trade terms considering that for 17 years the US had kept its doors shut to this luscious Indian product. "The US is looking forward to eating Indian mangoes," Bush said.
Citing public health concerns, the US has resisted the entry of Indian mangoes. "The regulatory process for [the] export of irradiated mangoes from India to the US may be initiated and hopefully completed in about a year," an official statement said. What this implies is that there could be more export of farm products from India, even as the US is trying to get Indian regulations relaxed to promote US wheat and other products into the Indian market. The US is India's largest export market, and Bush mentioned that the US also looked to India as the largest growing market for its products.
But with China lurking around the corner, the US can no longer dither on gaining a foothold in the rapidly opening up Indian market. The sense of urgency can be seen from the fact the US even accepted the assessment system of India's Agricultural and Processed Food Products Export Development Authority for accreditation of agencies to certify organic produce.
A joint statement during the Bush visit endorsed a work plan to promote bilateral trade in agriculture through agreements that "lay out a path to open the US market to Indian mangoes, and recognize India as having the authority to certify shipments of Indian products to the US". It provides "for discussions on current regulations affecting trade in fresh fruits and vegetables, poultry, dairy [products] and almonds", all categories considered to have potential for US exports to India.
India and the US have also sought to expand cooperation in agriculture by launching the "knowledge initiative on agriculture" with a three-year financial commitment of $100 million. The joint statement said the objective is "to link our universities, technical institutions and businesses to support agriculture education, joint research and capacity-building projects including in the area of biotechnology".
"There is new trust and new warmth in India's economic relations with the US," said Anil K Agarwal, president of the Associated Chambers of Commerce and Industry in India. "The Americans have reposed faith in India's technological capability. Otherwise they wouldn't even be thinking of a nuclear deal with us. There is, of course, a 'look East' policy and India will certainly expand its economic links with China. But the Bush visit has ensured that American investors sitting on the fence [will] now come to India," Agarwal told IPS in an interview.
Trade between the US and India has been climbing steadily. US exports to India doubled between 2002 and 2005, from $4 billion to $8 billion a year. However, India's rank in US trade is 24th in terms of exports and 18th in imports.
India's main exports to the US are precious stones, metals (worked diamonds and gold jewelry), woven and knitted apparel, other textile articles, fish and seafood (mainly frozen shrimp), textile floor coverings, iron and steel products, organic chemicals and machinery (including taps, valves, transmission shafts, gears and pistons).
India imports sophisticated machinery (computers and components, gas turbines and telecommunications equipment), electrical machinery (recording and sound media), medical and surgical equipment, aircraft, precious stones, metals (diamonds, not mounted or set), jewelry, organic chemicals, plastic, cotton and cotton waste and wood pulp, among other items.
Technically, the US is India's second-largest source of foreign direct investment (after Mauritius), accounting for 16% of total foreign direct investment (FDI) flows to India between 1991 and mid-2005. While the US had a 17% share of FDI inflows into India in this period, Mauritius topped the list with almost 35% . However, a fair amount of US investment is routed through Mauritius because of the island nation's reputation as a tax haven.
On the investment front, US investments include almost every sector in India open to private participants. The American investor is today increasingly involved in several sectors, including the infrastructure, telecom, information technology, pharmaceuticals and biotechnology industries. But even here, China has shown keen interest in attracting Indian software support for its manufactures and several major Indian software companies have already set up shop in China.
"The US will continue to remain India's largest partner despite the rapid increase in trade with China," said Arun Kumar, professor at the Center for Economic Studies and Planning at Jawaharlal Nehru University in New Delhi. "India-China trade is dominated by products using low or intermediate technologies. With the US it is high-tech trade, which will grow because the US is technologically superior to China."
Kumar, however, is worried about the agreement on agriculture. "I am perturbed about the implications of the India-US agricultural agreement with regard to the so-called second Green Revolution. The US wants to use on a large scale genetically modified seeds and capital-intensive technology. Many farmers in India [have] yet to absorb the benefits of the first Green Revolution. These farmers are illiterate, ill-trained and their productivity is low."
The other big sticking point in Indo-US trade ties relates to business process outsourcing. A section of the US Congress believes that outsourcing is taking away jobs. During his interaction with young entrepreneurs in Hyderabad, India, Bush said the US will not take protectionist measures. "I have taken a position. The US will reject protectionism. We won't fear competition," Bush said while acknowledging that loss of jobs was an emotive issue.
A recent survey by the Organization for Economic Cooperation and Development entitled "The share of employment potentially affected by offshoring - an empirical investigation", found that only one in five jobs could be hit by continued growth of offshore outsourcing. Even then, the survey said, "in the long run the positive benefits of services offshoring outweigh the costs".
Yet, the real stumbling block to US investment may lie in India's famous red tape. Releasing the report of the US-India chief executive officers' forum here on March 6, William Harrison, forum co-chair and chairman of JPMorgan Chase, said, "It's hard to get approvals and permits, the legal system is slow and cumbersome and it takes a long time [to settle] disputes."
