'Time now for India Inc. to enter Chinese markets'

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Namrata Kath Hazarika | 19 Jan, 2010
The recent announcement made by the Commerce Minister, Anand Sharma on the labour-intensive sectors for increasing shipments to China would encourage the Indian exporters to excessively market in the non-market thereby reduce the large trade deficit, says Ajay Sahai, Director General, Federation of Indian Exporters Organisation (FIEO).

"The Market Focus Product Scheme has included two new markets i.e Japan and China as India has balance of trade with these nations."

"The benefits that we are getting under the Market Focus Product Scheme will definitely encourage the Indian exporters to excessively market in China, which would address the adverse trade balance to some extent between India and China," he said.

Further explaining, Sahai added: "China is a non-market economy. Once you are determined as a non-market economy, the pricing chapter which we normally take into account in calculation of anti-dumping duty is different for a market economy and of a non-market economy."

He said, "The push which the government of India is giving them (China), I think will encourage the exporters to export the value-added products. Right now, if you look at India's exports to China, by and large it is only of the raw materials. And, to some extent is of the intermediate products. We are not exporting finished products to China in a big way."

India's Commerce minister, has met the Chinese counterparts today to question China's purchasing efforts for Indian goods and push dialouges on reducing the trade gap between both the countries.

In fact, reports say that over 90 percent of India's major exports to China include only commodities rather than any value-added products. The Chinese importers are reluctant to buy manufactured goods and value-added products from India.

Sharma wants that China should reciprocate in India's favour without taking market access to India for granted.

Explaining further, on the benefits India can reap by accessing the Chinese market, Sahai said, "One should keep in mind that the trend of Chinese currency that has highly over-valued is likely to depreciate. If that happens then the cost of Chinese goods will substantially increase. In the last two years, there has been major increase in the prices of the Chinese products."

"Secondly, in China the labour wages and the social compliance costs are on increase. China has to provide some sort of social comfort to the labour," he said.

"That is why, if we look at the recent trend, all the departmental stores though they are procuring by and large from China, are shifting to India, Vietnam and other countries. Five years down the line, China will not have the edge which they have right now because of currency appreciation and increase in the costs of social compliance. This will provide India a chance to aggressively market in the new market," Sahai added.

At present the Chinese non-performing assets of the banks are on the increase. Few economists are quoting that China's NPAs has gone up to 35 percent.

"If this figure is true then it is a alarming figure. In India, the NPAs are less than five percent. Therefore, no economy can survive if NPAs of the banks are above 35 percent. Looking at all these factors, my personal view is that in the next five years China will not be the country which we know right now," Sahai told SME Times.

"Unfortunately, China may not be the manufacturing base of the world as the prices of the products would definitely go up. So, there is an opportunity for India to export to China. If we (India) do not enter China right now, then it will be difficult after five years. India today has the possibilities of expansion in a big way in China."

He also said it has been a rightful move by the Commerce Minister for tapping the Chinese market. Sahai also opined that the market penetration may not happen in the coming years if wages goes up immensely in China. It is an advantage for India to avail benefits from China right now as China's economic scenario might change in coming years.

The sectors which will have potential opportunity in China are those which can draw little R&D as China is a market which has a mass consumption. Auto component is one such sector which can provide India an edge, Sahai pointed out.

"India has the R&D facility and the best manpower available to do R&D. Though producing the products, China may not be very competitive so far as the R&D facility and design facility are concerned. India has an edge over China. That is why, Chinese companies are quite keen to set up joint ventures with India," he said.

He mentioned: "We are also encouraging Indian exporters for not only to start exporting from here but they can establish units in China. If we are getting the advantage of lower costs, then you can produce there. India can not only produce the technical designing and drawings, but can also manufacture the same from China. Or, we can even do the manufacturing from India as well."

"Secondly, in pharmaceuticals sector. We have an edge over China. China has set the grounds in an alternative system of medicine. But, as far as the 'aloepathic drugs' are concerned, India is quite ahead. It requires constant innovation and upgradation, which does not take place in any other countries in the world. India has a big chance to penetrate those markets."

"Thirdly, bio-technology has huge opportunities in China. In fact, services can also be exported to China. Many leading IT companies are already there in China. But in years to come we will have many IT companies setting up their shops in China," Sahai added.

Earlier on Monday, India's Commerce Minister Anand Sharma had invited Chinese companies to explore opportunities in the infrastructure sector, which needs a whopping USD 500 billion investment in the next five years.

In the three-day official visit to China, the Commerce Ministry will push Chinese government to remove a variety of non-trade barriers that has resulted in low exports of value-added goods to China. India expects barriers in the area of information technology and pharmaceuticals to be removed to allow greater market access to Indian companies.

On the other hand, China is expected to request India to relax the restrictions on the issuance of visas and allow more Chinese workers to travel to India in order to set up new projects. The Indian delegation along with the minister includes Commerce Secretary, Rahul Khullar and top officials from the ministries of animal husbandry, agriculture, industry, chemicals and information technology.