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As China’s economy slows and India’s perks up in anticipation of the national elections in May this year, New Delhi is wooing Chinese investments into the country yet again. Saturation and inflation in the Middle Kingdom is making investments in India attractive, not only for the Chinese but also multinational companies (see Manufacturing in India grows as China slows).

On Monday, newly appointed Indian ambassador to China Ashok K Kantha met with Shanghai Mayor Yang Xiong to explore trade opportunities between the countries. India is trying to promote the growth of software, pharmaceuticals and raw materials from India to China as India’s trade deficit yawns to US$35 billion from US$19 billion three years ago. China-India bilateral trade dipped to USD 66.5 billion last year and India has been asking China to boost investments to bridge the trade deficit.

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Trade between India and China is drying up, to India’s disadvantage. In 2010, when China-India trade was on a roll, the two countries set a goal of US$100 billion in trade in 2015. Indeed, in 2011, trade rose to US$74 billion, a 23-percent increase over the previous year. For the last two years, however, events have moved in the opposite direction, with trade levels declining year by year, falling by 2.7 percent in 2012 and by an additional 1.5 percent in 2013 to US$65.47 billion. Total trade dropped 11.5 percent over the two years. Now, achieving the US$100 billion target in 2015 is looks increasingly difficult.

According to the China Post, an even pricklier problem from New Delhi’s standpoint is that while India’s exports to China have been dropping, while China’s exports to India continue to rise. In 2013, the value of Chinese exports to India was almost three times that of Indian exports to China. The Indian trade deficit with China reached US$35 billion in 2013, according to Chinese customs figures.

While India and China are both being hailed as rapidly developing emerging markets, the gap between the two countries is widening with India being left behind as China continues to power ahead. China’s growth in 2013 was 7.7 percent while that of India hit a low for the decade of 4.5 percent in the 2012-13 fiscal year.

Indian figures show an even worse situation. Last week, Montek Singh Ahluwalia, deputy chief of the Planning Commission, said at the annual bilateral strategic economic dialogue that “India’s trade deficit over the last three successive years has been in excess of US$35 billion per annum, which is not sustainable.” Current Chinese investment in India is less than US$1 billion.

A common solution between the neighbours is to establish industrial parks in India, which similar to what Singapore has built in Suzhou would house Chinese factories and manufacturing units on Indian soil. The products produced from these units would be exported to markets in the west, enabling India to increase her exports with Chinese competence. While the idea seems to solve the trade deficit problem as of now, its getting permission from India’s home ministry is expected to take a few years (see China’s might makes inroads into India.)

Additionally, a task force is also being set up to enable Chinese companies to invest in industries and industrial zones in India. The idea is that low value goods currently exported from China can be manufactured in India in the future. India is also keen to give China the opportunity to upgrade its existing railway network which was built by the British. Japan a competitor nation is presently conducting a feasibility study to build a high-speed railway network across India.

As both nations explore opportunities between them, bilateral ties will strengthen, and cross border trade will flourish. True trust between the nations needs to grow, but neither was Rome built in a day.

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