Modi’s East Asia visit: Attracting investments, counterbalancing China
by Ashok B Sharma on 12 May 2015 0 Comment
China still remains a difficult neighbour for India to tackle. Apart from border dispute the concerns over growing trade deficit with China and resolving the water issue of trans-boundary rivers, particularly the Brahmaputra, remains a formidable challenge. To offset the huge trade imbalance, India has sought more Chinese investments. Prime Minister Narendra Modi will be on a six-day official tour of three East Asian countries – China, Mongolia and South Korea – from May 14 to garner investments for his ambitious ‘Make in India’ programme.


But apart from assurances on investments, what does he expects from China? Possibly Beijing’s nod for India’s membership in the Shanghai Cooperation Organisation (SCO) and Asia Pacific Economic Cooperation (APEC), without the former insisting upon its membership in the South Asian Association for Regional Cooperation (SAARC).


China’s growing influence in the Asia Pacific is a wake-up call for India to counter balance the move along with other regional actors. Mr Modi’s scheduled visit to Mongolia and South Korea can thus be viewed as a move in right direction. His Buddha diplomacy is a right thought to garner support from Buddhist countries in the region. The prime minister had earlier visited Japan and Australia, maintained good relations with Vietnam and vouched for the centrality of ASEAN. India also supports Trans-Atlantic powers like US, Canada and European nations’ presence in the region. But can all these strategies counter-balance Beijing’s plans to extend its String of Pearls?


Though Prime Minister Narendra Modi claims that India-China has been peaceful after 1962, the intermittent Chinese incursions along the Line of Actual Control (LAC) have raised doubts about Beijing’s hidden agenda. India has inherited the borders defined by the erstwhile British colonial rulers and thus maintains its position in its official map. The Johnson Line demarcated the borders of Jammu and Kashmir with Tibet and on the eastern sector McMahon Line demarcated the border which extended to the edge of the Tibetan plateau. Officially India’s northern boundary in the Ladakh region with Tibet extends beyond the Kuen-Lun (Kunlun) mountains up to Khotan and includes the Aksai Chin desert and links Demchok in the south with the 18,000 feet high Karakorum Pass in the north. This is popularly called the Johnson Line, drawn by WH Johnson of the Survey of India. It includes Shahidulla in far off Karakash valley, about 400 km from Leh.


China, however, refuses to accept the history and has been making further claims on 90,000 sq km in Arunachal Pradesh despite its illegal occupation of 38,000 sq km in Aksai Chin in the north and some areas across the McMahon Line. It is also in possession of 5,800 sq km of Gilgit-Baltistan illegally ceded by Pakistan in addition to its occupation of more than 15,000 sq km of Gilgit-Baltistan covering Shaksgam, Raskam and Aghil valleys, apart from a large chunk in Ladakh. After Chinese occupation of the Indian territory, the Line of Actual Control (LAC) came into existence.


However, both countries have wisely decided that the contentious border issue should not come in the way of bilateral ties. The border issue would be resolved through negotiations. But despite 17 rounds of negotiations between special representatives of the two countries no tangible results are in sight. It would be better to first resolve the varying perceptions about LAC and then attempt to settle the final boundary issue. There are, however, many areas where both the countries can cooperate without being bogged down by boundary issue.


India-China bilateral trade has crossed $65 billion, but India suffers from a trade deficit of $37.8 billion. According to trade analysts, if corrective steps are not taken in time, India’s trade deficit is likely to widen to $58 billion by 2018. Apart from trade, India is also one of the largest markets for project exports from China. Currently, projects under execution are estimated at over $60 billion. As per Beijing’s figures, cumulative Chinese investments into India till September 2014 were $2.63 billion while Indian investments into China were $0.55 billion.


What is the real cause for India’s burgeoning trade deficit with China? India’s competitive exports like pharmaceuticals, IT and IT-enabled services and agro commodities do not get market access in China due to non-tariff barriers. In China, Indian pharma companies face regulatory hurdles in the form of prolonged and unpredictable timelines for registering Indian drugs. China’s drug regulator requires Indian companies to not only reveal the detailed process of manufacture but also conduct clinical trials within the country. Indian companies are therefore apprehensive of IPR violations. China should better allow import of cheap and time-tested Indian drugs and healthcare facilities to cater to the growing needs of the Chinese people. Similarly Beijing should give access to Indian IT and ITES.


President Xi Jinping during his last visit to India had promised an investment of $10 billion over a span of five years. Beijing feels that this assured investment will materialize earlier and fresh agreements amounting to $ 10 investment will be signed during Mr Modi’s visit. China had promised to set up two industrial parks in Chakan near Pune in Maharashtra and near Ahmadabad in Gujarat.


While Chinese investment in India is at $2.63 billion, South Korean investment touched $3.8 billion by December 2014. South Korean investments have surged after the singing of India-South Korea Bilateral Investment Promotion and Protection Agreement in 1996. South Korean majors like Hyundai, LG, Hyosung, KC Cottrell, R-Land, Shop CJ, Mirae Asset among others are present in India. Mr Modi’s visit is likely to see the signing of Double Taxation Avoidance Treaty between the two countries and facilitating the South Korean steel major to get a mining lease to start operations in Odisha.


India and Mongolia have a defence agreement and the bilateral Nomadic Elephant military exercise is an annual event. India also participates in Khaan Quest along with Mongolia and US Pacific Command. India and Mongolia may upgrade their relations to a Strategic Level during this first-ever visit by an Indian Prime Minister. New Delhi is also likely to fulfil the Mongolian request for setting up an English-medium school. Mr Modi will also have the privilege of addressing the Mongolian Parliament.


One hopes the Prime Minister’s visit helps in garnering investments for the Make in India programme, minimizes the trade deficit with China and counter-balances growing Chinese influence in the region.    

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