The fourth India-China strategic economic dialogue (SED) comes after a gap of more than two years.

China’s ‘new normal’ of 6.5 per cent GDP growth rate has been set as an objective in the 13th Five Year Plan. While India has emerged as the world’s fastest growing large economy, the mechanics of bilateral economic relations have shifted. Over the last decade or so, India-China trade has soared to over $70 billion, but its contours are now recognised as ‘unsustainable’.

The third SED took up a trade deficit of $36 billion, or 26 per cent of India’s total trade deficit. The fourth SED will need to factor in an adverse bilateral trade balance of $53 billion, 45 per cent of the Indian aggregate. Getting this figure to a more sustainable level would be a priority for the dialogue.

Emerging scene An encouraging investment scenario is emerging. Although official FDI from China stands just at a cumulative $1.4 billion till March 2016, new announcements of large investments by Chinese companies in India are a regular feature. Sectors such as pharma, electronics, e-commerce, startups, and so on are attracting funds from China, and companies like Alibaba, Xiaomi and Lenovo are household names in India.

At a recent India-China’s CEOs’ Dialogue organised by CII, the excitement was palpable. Several Chinese companies expressed desire to work with Indian partners, while Indian participants talked about growing opportunities in a changing India with programmes such as Make in India, Housing for All, Smart Cities, and Digital India.

At the same time, business leaders mentioned challenges to bilateral trade and investment relations. Financing options, work visas, information gaps and cultural diversity were some of the factors thought to be inhibiting economic cooperation. The suggested solutions pertained to building the India brand in China, enhancing people-to-people links, regular business interactions, and investor facilitation.

What matters Our recommendations are built around several strategies: attract more Chinese FDI, engage at the State and provincial level, and slot India into global value chains dominated by China. SED could consider platforms for these with the participation of industry from both sides.

In the manufacturing space, rising Chinese overseas FDI flows should be channelised to low-cost production centres in India for sectors such as capital goods and machinery, core infrastructure, and consumer products. In sectors such as pharmaceuticals, electrical equipment, and auto components our exports to China can be stepped up, provided market access issues are resolved.

Cooperation in the services sector has hardly been explored. IT services would benefit from access to Chinese state-owned enterprises and easier work visas for Indian software professionals. Tourism, films and financial services have high potential.

Chinese sovereign wealth funds could be invited to participate in long-term infrastructure assets in India. However, regulations are a deterrent. Chinese companies should be encouraged to explore FTAs.

At the same time, Indian companies should look at opportunities in China’s provinces. The forum of state and provincial leaders set up in 2015 could help in this effort. Building on the gains of the past, the SED has the potential to reset partnerships between Indian and Chinese industry and enhance cooperation at the global, regional, national and sub-national levels for mutual benefit.

The writer is the director-general of CII

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