Study of Comparison between Indian and China Economy

Submitted to : External Mentor :Ms. Parul mam Internal Mentor :Ms. Palak Gupta

Submitted By: Ritika Bansal Roll no.35 Course:PGDM (IB)

Submitted in the partial fulfilment for the requirement of Post Graduate Diploma in Management At Jagannath International Management School

Acknowledgement

The MENTORSHIP program was designed in such a way that it provided a full learning opportunity throughout the program. I would like to express my gratitude towards all the people who guided me throughout the program and their direct or indirect help was priceless for me, without their guidance and support this project would not have been completed successfully. I express my sincere gratitude to NEELAM MAM (Jims) to guide me which all parameters I should consider. There was a great learning from my team who not only behave in a co-operative manner but also provide constant help in the completion of the project, thus, I thank to my each team member in the mentoring program. Last but surely not the least, I am very much thankful to my faculty guide, Ms. PALAK GUPTA (INTERNAL MENTOR) core faculty at Jagannath International Management School, for her continuous guidance and support from the proceeding of the project to its completion. I cannot think of the accomplishment of the project without her assistance and guidance.

INSTA POWER LIMITED

INSTAPOWER, a TUV certified ISO 9001 & 14001 organization, has been a leading name in power electronics for over two decades. Promoted by an alumnus of IIT Delhi, Instapower is recognized as an R&D house by the Department of Scientific and Industrial Research, Government of India. The Bureau of Energy Efficiency, Govt. of India, recognizes Instapower as an ESCO organization. Instapower is the largest manufacturer of LED Aviation Obstruction lights in India and has over 100,000 aviation lights installed in India and other countries. It has a range of aviation products that are approved by ICAO (Canada), Airports Authority of India and Department of Civil Aviation-Malaysia. Instapowers vast product range is well accepted by various government, semigovernment organizations / institutions and private companies and has received satisfactory performance test certificates from them. The key client list comprises of such names as RDSO, CPWD, DDA, BSNL, VSNL, MTNL, Airtel, Vodafone, Nokia, Indian Railways, BHEL, L&T, DMRC, NBCC, IOCL, ONGC, GAIL, OBC, Apollo Hospital, RML Hospital, Maruti Suzuki amongst others. Its products have been supplied and installed during Commonwealth Games 2010 in New Delhi, India and at prestigious places such as The Rashtrapati Bhawan and Parliament House. Products are also being exported to over 30 countries in Africa, South East Asia, Middle East and South America besides UK, USA and Australia.

Top ten players and competitors :

The shift towards renewable energy and the demand for energy efficiency has pushed the market towards more efficient products such as light emitting diodes (LEDs). LED technology has been globally recognised as extremely efficient and eco friendly in comparison to the incandescent lamps (ICLs) and fluorescent lamps (FTLs/CFLs). With the entry of LEDs, the Indian lighting market has become more buoyant.

LED lamps and luminaires exhibit the strongest growth trends among all lighting technologies. The Indian lighting market is expected to grow at a CAGR of 45.5 per cent till 2015, and by 2021 LED technology will penetrate 57 per cent of the lighting market in India. Recognising the benefits of this technology, the Bureau of Energy Efficiency (BEE) is working with lighting associations to define standards. Disclaimer: While the Electronics Bazaar editorial team has taken the utmost care to contact all possible sources to make the list of the Top LED Players comprehensive, we may have inadvertently left out a few companies from this list.

PRODUCT SUMMARY
Insta power product range include Aviation Obstruction Lights ( Low Intensity & Medium Intensity), Street Light, Home Light, Traffic Light, RGB Wall Washers, Fountain Light, Underwater/Walk over Lights, T5 Tube lights. The product basket keeps on adding quite frequently and their focus is to design products.

Executive Summary

In last few years, the growth and development story of India has seen different stages. From the time of independence to 1991, the time of liberalization in India and then to the twenty first century, the markets have shown tremendous changes. Today consumers have got the power and the income to spend on products. Different firms entered in the market and lost but many succeeded and make their mark. All the markets start with nascent stage and later grow to its maturity. India and China are the two most popular countries in the world. India and China together contain about 37.5% of world population. So, India and China are huge markets. As these two countries play a massive role in world economy, theireconomy has a significant impact on world economy. But they differ largely in their trading pattern. China economic has grown by increasing investment in the manufacturing industry and increasing foreign trade, and for Indian economic growth mainly service sector is responsible. China is the one of the largest trading partner of India. In past few years trade between India and China has increased rapidly. so I have research on comparison between India and china economy.

TABLE OF CONTENTS
CHAPTER 1
INTRODUCTION OBJECTIVES 7 8

CHAPTER- 2
COMPARISONOF INDIA AND CHINA POPULATION BRICS 9 11

CHAPTER 3
EXCHANGE RATE REVIEW GDP COMPARISON OF INDIA AND CHINA 12

CHAPTER-4
PROBLEM OF INDIA AND CHINA 27

CHAPTER-5
RESEARCH METHODOLOGY 37

CHAPTER -6
FINDINGS AND RECOMMENDATIONS 39

CHAPTER 7
CONCLUSION 40

CHAPTER 8
BIBLIOGRAPHY 41

CHAPTER-1

INTRODUCTION
India and China are the two most popular countries in the world. India and China together contain about 37.5% of world population. So, India and China are huge markets. As these two countries play a massive role in world economy, their economy has a significant impact on world economy. But they differ largely in their trading pattern. China economic has grown by increasing investment in the manufacturing industry and increasing foreign trade, and for Indian economic growth mainly service sector is responsible. China is the one of the largest trading partner of India. In past few years trade between India and China has increased rapidly. The economy of China is third largest in the world and still growing very rapidly. India is also developing with a fast rate. So, the trade between them leads to mutual cooperation and helps each other to develop. In this paper, I aim to find out the Chinas and Indias characters of few industries and changes in their trade during a certain period. I will mainly focus on bilateral intra industry trade of chosen commodities between India and China. By researching the data from various sources.I have calculated RCA of India over China and RCA of China over India. And after this analysis we will conclude that what changes can be made in Indias and Chinas trading patterns.

OBJECTIVES
This paper attempts to explain the trade patterns between India and China. The questions which this paper attempts to answer are following

What are the major exports and imports between both countries? Is

there any change in exports and imports over last few years?

Is there any attempt to reduce the barriers to trade by both countries?

Objectives :

Comparison of import and exports. Comparison of gold reserves between India and china. Foreign trade policy between India and china

Chapter-2
COMPARISON OF INDIA AND CHINA POPULATION

Data for Population : Population of India and China - Although, India and China are the most
talked about countries, when it comes to problems arising from the increasing population, many believe it is actually a blessing in disguise. With more than 50% population below the age of 25 and about 65% below 35, the average age of an Indian after 10 years is likely to be 29 years, whereas the average age of a Chinese and Japanese, will be 37 and 48 respectively. In addition, India's dependency ratio by 2030 is expected to be just over 0.4. According to estimated figures, the Population of India will be largest in the World in year 2030. On the other hand, Population of China will witness a decline in their growth after 2030. So

Population explosion will somehow benefit in India considering in mind its growing economy. But it will bring lots of serious issues related to health problems in India.

Population of India in 2013 Population of China in 2013 Population of India in 2008 Population of China in 2008 In 1950 India's Population was Population of China In 2040 Population of India will be Population of China will be Proportion to World's Population

1,220,200,000 (1.22 billion) 1,360,000,600 (1.36 billion) 1,147,995,904 (1.14 billion) 1,330,044,605 (1.3 billion)

350 million 563 million

1.52 billion 1.45 billion

India represents almost 17.31% of the world's Population China represents a full 20% of the world's population

Facts and Comparison of Population between India and China stands in favour of India:

According to latest figures, India is all set to exceed China in total

population by the year 2030.

In the next 25 years, India's Population will rise by almost 350 million. In year 2013, China's population was higher than India by over 200 million.

In year 2050 India's Population is expected to surpass China by over 200 million.

By 2030, India's working population will be youngest in the world as

compared to China, USA and other countries.

10

BRICS

In economics, Bric is Brazil, Russia, India and China, which are all deemed

to be at a similar stage of newly advanced economic development countries. It is typically rendered as "the BRIC countries" or "the BRIC economies" or alternatively as the "Big Four". A related acronym is BRICS which includes South Africa.

Projections on the future power of the BRIC economies vary widely. Some

sources suggest that they might overtake the G7 economies by 2027. More modestly ,although the four BRIC countries are developing rapidly, it was only by 2050 that their combined economies could eclipse the combined economies of the current richest countries of the world.

In 2010, however, while the four BRIC countries accounted for over a

quarter of the world's land area and more than 40% of the world's population, they accounted for only one quarter of the world gross national income.

According to a paper published in 2005, Mexico and South Korea were the

only other countries comparable to the BRICs, but their economies were excluded initially because they were considered already more developed, as they were already members of the OECD.

Several

of

the

more

developed

of

the N-11 countries,

in

particular Turkey, Mexico, Indonesia and South Korea, were seen as the most likely contenders to the BRICs. Some other developing countries that have not yet reached the N-11 economic level, such as South Africa, aspired to BRIC status. So India and china are considered to be main countries in Bric.

Chapter-3

11

EXCHANGE RATE REVIEW 2014

Indian Rupee (INR) v/s Chinese Yuan (CNY), todays exchange

rate

This page is the Indian Rupee, code INR, versus Chinese Yuan, code

CNY exchange rate page. Information provided includes the current exchange rate and todays lowest or minimum and highest or maximum values.

It is optimised to Indian Rupee Chinese Yuan, Indian Rupee versus

Chinese Yuan. Latest exchange rates, based on 1000 units of currency 1000 Indian Rupee 1000 Chinese Yuan is worth 96.00 Chinese Yuan is worth 10415 Indian Rupee 28 January 2014 EDT 28 January 2014 EDT

Average bid Average ask Latest price Maximum price

0.0971 0.0971 0.0971 0.0976

GDP COMPARISON OF CHINA

12

CHINA GDP GROWTH RATE

The Gross Domestic Product (GDP) in China expanded 1.80 percent in the fourth quarter of 2013 over the previous quarter. GDP Growth Rate in China is reported by the National Bureau of Statistics of China. GDP Growth Rate in China averaged 1.99 Percent from 2011 until 2013, reaching an all time high of 2.60 Percent in the second quarter of 2012 and a record low of 1.40 Percent in the first quarter of 2013. In China, the growth rate in GDP measures the change in the seasonally adjusted value of the goods and services produced by the Chinese economy during the quarter. China's economy is the second largest in the world after that of the United States. During the past 30 years China's economy has changed from a centrally planned system that was largely closed to international trade to a more market-oriented that has a rapidly growing private sector. A major component supporting China's rapid economic growth has been exports growth. This data contains GDP ACTUALY AND IT IS FORECASTED FOR FUTURE. (2015). ACTUAL 1.80 PREVIOU S 2.20 HIGHEST 2.60 LOWEST FORECAST DATES 1.40 UNIT

REQUEN

1.49 | 2014/02 2012 - 2013 PERCENT QUARTER

TRADE DEFICIT IN CHINA AND INDIA

13

China is India's largest trade partner also the most talked about 'rival'. The IndiaChina trade stands at about $ 70 Billion, expected to increase to 100 Billion USD .

So what's a trade deficit?

Its just trade imbalance between two sides. One side exports more to the other, than it imports. Currently, India exports goods and services to China, 40 Billion USD less than what it imports from it. India's trade deficit with China was just $ 1 Billion in 2002, it has now boomed to 40. First of all, we have to understand that in today's world, economy is not purely economy. Economy plays a very important role in Geo-Strategic planning in this scenario of the world where nations don't indulge into wars, neither into any other kind of violence, they just try making a nation kneel down by damaging it economically. What US is doing with Iran, they just put economic sanctions (barriers), and encourage others also to do so. By doing this, they try damaging Iran economically. So that shows how much economy is important today.

Now lets take two scenarios one by one:

1st Scenario: LETS SEE economically: Economy should be taken as 'extensively just economy' and other things should be kept out of loop. The beauty of international trade lies in the fact, you export what you are specialize in producing. China is such a big producer of goods as well as services because of affordable costs of labour and the manufacturing and business environment Chinese government has worked hard to create.

There are two things in trading (Export and Import.)Export what you are surplus at, 14

and import what you are deficit at. If there is a demand for goods and services in India, which India itself doesn't produce adequately, it would obviously look to other nations who are surplus at those goods and services. A long list of nations would be formed, and the cheapest supplier will get elected, and find the cheap area for purchase.

Trade isn't an equation that you start simplifying for each and every nation separately. We should think sensibly, if India gets what it needs from China, at cheaper price than others, then why isn't it good? Lets place it in the case of Pakistan. Pakistan runs a trade deficit with India, and if it liberalizes its market with India (as it is saying so), the trade deficit with India of Pakistan would considerably increase. India should export more to nations like Bangladesh or Pakistan or Sri Lanka who are not much competitive. Also, it shouldn't shy of getting its services and goods from competitive export markets like China.

China provides excessive subsidies, whereas the Indian businessmen are quick to demand anti-dumping duties, and Indian government obliges. India has imposed anti-dumping duties more than any other nation. In the telecom sector, India has imposed additional curbs on Chinese telecom goods citing security issues. But the trade deficit continues to grow.. only proving that it isn't duties, its actually the productivity difference between both the nations, obviously manufacturing.

Any economist would say that Exports are usually a secondary thing, basically a balancing act to imports. First and foremost, the local demands have to be addressed, and for that if there is any need to import, that should be done.

China has put many obstructions on imports, like the medicine sector on which India has a command, that's a serious issue and that should be negotiated by India. But, managing trade deficit isn't a right approach in international trading. India should focus on making its own manufacturing industry bigger and better, also it should create an environment for other countries to import from. The right approach is to focus on productivity gap, not on trade gap.

15

2nd scenario: Lets think diplomatically:

The India China trade deficit becomes a problem if we take the bilateral relations, 1962 War, border dispute, and other things in mind. Keeping India to a trade deficit significantly provides China with a psychological advantage, It also forms an image of India as being inferior to it.

The USA is indebted to China the most with about $ 1.1 Trillion. USA has lost a psychological advantage to China because of its own declining economy, and China's elevating economy. That could happen to India too in future if trade deficit continues.

Trade deficits also mean that you have a hold on foreign market, and if that hold of China grows from goods to banking and other sectors, that could be dangerous. If Indian government opens up other sectors for investment (FDI and others), and if Chinese government through its businessmen starts holding Indian corporate and banking sectors at hand, that would be a ceiling POINT.

However, the trade deficit isn't that large (though 1/3rd of India's total trade deficit) to create a big impact today. I also believe that Indian government won't be too charitable with providing free access to Chinese. But nevertheless, risks can't be taken in 21st century civilization, where wars won't be fought with guns and tanks but with diplomacy and economy.

BILATERAL TRADE RELATION BETWEEN INDIA AND CHINA

China has emerged as Indias largest trading partner as it replaced the US in March 2008. When India initiated its comprehensive reforms in 1991, the level of bilateral trade between the two countries was insignificant as the trade basket was 16

restricted to a limited number of products. However within a short period, China has become Indias single most important trading partner even though India itself has reached at an unsustainable bilateral trade deficit of US$ 26.3 billion in 2010 (IMF, 2012a). Policy makers will have to find ways to manage this huge deficit given that India can neither afford to limit its economic engagement with China nor continue with such a huge bilateral trade asymmetry for a long period of time. China has been on a high growth trajectory for more than three decades, while even maintaining a sustainable rate of growth at more than 9 per cent per annum during the period 2002-12. The rate of domestic expansion has been robust since its accession to the WTO in 2001. As is evident from statistics, the main drivers of Chinas economic growth have been its export and a subsequent expansion of the domestic sector, accompanied by its import surge. During the above reference period, Chinas export share in the world economy increased from 3.4 per cent to 10.4 per cent, and the corresponding shares for its imports were 4.4 per cent to 9.1 per cent, respectively. The global economy started recovering from recession in 2010, but with the deepening of the financial situation in Europe once again entered the danger zone until third quarter of 2013. However, the US economy has shown positive forward movements in GDP growth and a persistent development in the employment situation in 2013.The global situation continued to remain fragile in 2012, and its adverse impact was felt in most of the emerging countries that included China and India. Though it suffered from global downturn, China has strategy to take advantage from the expected recovery of the global economy. As China emerges as the largest trading partner of India, there are many bilateral issues that require close scrutiny. Indias bilateral trade gap is increasing along with the countrys overall trade gap with the rest of the world. It is important to exami ne to what extent is this bilateral trade imbalance contributing to the overall trade imbalance of India. How to sustain the present level of bilateral trade while at the same time narrowing the existing bilateral trade gap is an important challenge for policy? A comparative analysis of the tariff policies of both countries is important because of their increased engagement with the world economy. Moreover, their participation in various Regional Trading Agreements (RTAs) in Asia and in other parts of the world, is expanding rapidly over years. Reform processes in tariff policies in both countries are again, linked to their external sector performances. 17

Relative

external sector performance

in both

countries

requires further

investigation in the light of ongoing trade policy reforms. The Global Value Chain (GVC) has emerged as an important vehicle of trade in the global economy. While the 1950s and 1960s, usage of this trade process was mostly in the domain of developed countries, presently, it is an important source of trade engagement between North-South and South-South. Global value chain remains relatively an unexplored policy option with India. However, China and India are becoming important players in such activities for both developed and developing countries particularly in their engagement with the US and the EU.

MACRO ENVIRONMENT
As India and China are the two fastest growing countries of the world, the possibility of an economic approach among them to seize the synergies of their development is an interesting issue for discussion. Both the countries have witnessed transitions in their economic policies during the last two-three decades, and the irreversible nature of economic liberalisation has enabled each nation to integrate with the world economy. While analysing the existing patterns of their trade and the sector complementarities for further economic engagement, the comparative macroeconomic performance of both economies may be examined in recent years. The robustness of these economies may be seen from their macroeconomic performances.

Sustaining High Growth

China has increasingly attracted the attention of the global economic community during the last three decades due to its excellent track record in maintaining a high growth rate unparallel in the annals of the world economy. Since 1980, China has been maintaining an average GDP growth of about 9 per cent per annum and has 18

taken major strides in elevating large sections of its population above the poverty global buoyancy which spanned the year 2005 to 2013, its GDP growth rate accelerated to more than 10 per cent per year, while its highest growth rate in recent time was recorded in 2074 .The reoccurrence of the Global Financial Crisis in 2008 tapered global economic activities substantially. However, China continued to maintain higher growth despite the persistence of a global economic downturn. In the Post-Asian Financial Crisis period, the external sector has emerged as the key source of Chinas growth, and its exports and imports grew at t he rate of 28.1 per cent and 25.4 per cent, respectively during 2003-08 and declined significantly during 2009-10.Foreign direct investment added up to $378 billion cumulatively with about $108 billion in 2008.

Trade and Trade Policies in Key Sectors of Interest to India

The sectoral composition of Chinas exports has some interesting characteristics. While China is usually seen as specialising in exports of labour-intensive products, its export basket is rapidly moving towards high technology products. The cutting edge of Chinas exports is now provided by relatively high technology products involving machinery and transportation equipment, particularly office machines and telecommunication equipment and parts. Exports of these products have increased more than five-fold in the last seven years and they now account for nearly half of the manufactured products. One important gap in Chinas export drive is evident in the service sector. Since market, the national income statistics include services, but the service sector is still relatively underdeveloped. With respect to external trade too, China is lagging in exports in this sector. In 2013, China is expected to have a significant trade deficit in the service sector.India on the other hand has a large service sector and its exports of services are increasing rapidly.

AGRICULTURE

19

The tariff liberalisation policy in agriculture has been striking in China since its accession to WTO. Applied tariffs on agricultural products fell from 23.2 per cent in 2001 to 14.5 per cent in 2009. There has been a considerable reduction in the average rate of applied tariff in sectors like dairy products, grain and oilseeds. Tariffs on sugar and tobacco remained high for sometime.

AUTOMOBILE

China has been the worlds fourth largest automobile manufacturer since 2003, after the United States, Japan and Germany. In 2004, China became the third largest market in the world, after the United States and Japan. According to forecast made by Goldman Sachs reported in The Economist, 16 September 2006, the car ownership in China may exceed that of the US by 2025 and may become twice as high (over 400 million vehicles) as the level of US ownership by 2040. China has become the worlds second largest car market in terms of sal es as millions of Chinese are buying cars for the first time. India cannot afford to ignore this market. India should start preparing for penetrating this market. Just as Japan and Korea succeeded in competing with the giant car manufacturers of the US, India can succeed in competing with the manufacturers in China, which are generally joint ventures between state-owned enterprises and foreign car majors. A few home grown companies like Cherry have come up rapidly as producers of cheap cars. However, quality and reliability concerns have affected their plans to move into the developed country markets until 2008. Foreign investment plays an important role in Chinas automotives sector and FIEs accounted for around three fourth of Chinas passenger car production. Chinas electronic and communications equipment industry is the third largest in the world in terms of output, after the United States and Japan. Electronic and communications equipment also account for the largest share of Chinas exports. The export revenue of the sector constitutes nearly one-third of Chinas total export value. In the total export proceeds, the share of domestic firms has been 20

insignificant. The central government has adopted several measures to assist the development of the electronic and communications equipment industry, in particular to improve the technological capabilities of domestic enterprises. Under this policy, the government allocates funds to software and IC industries for the establishment of software design centres in, inter alia, universities and research institutes. Preferential policies include VAT rebates, tariff exemptions for imported equipment for own use, export loans provided by EXIM Bank and export credit insurance provided by SINOCUE at favourable terms, government procurement preferences, and a special fund to promote domestic enterprises R&D ability in the semi-conductor industry.

Services
The services sector in China has been underdeveloped during the planning era and now presents a significant potential in view of the rapid growth of the economy. In order to tap that potential, the Chinese government has identified the development of services sector as a priority sector in the 11th and 12th Five-year Plans for National Economic and Social Development. With the spectacular performance of exports and imports over the past few years, the contribution of services to GDP in terms of value added has surged from 39.7 per cent in 2005 to 40.1 per cent in 2008. Some of the most important export sectors in services are transport and other business services during the last decade. Potentially other important export sectors are communication, construction, computer and information, insurance, finance and royalties and license fees, which are expanding fast in recent years.

China decided to significantly liberalise foreign investment in its service sectors. In its Accession Agreement, China committed itself to the substantial opening of a broad range of services particularly, in sectors of possible importance to India such as banking, insurance, distribution, telecommunications and professionals services. These commitments are in principle far reaching particularly, when compared to services commitments of many other WTO members. These areas also happen to be of interest to the US and there is much potential for India to work 21

jointly with the US companies in expanding Indias presence in China in these areas.

While China continued to keep pace nominally with the openings required by its WTO accession agreement, it frequently maintained or erected terms of entry that were so high or cumbersome as to prevent or discourage many foreign suppliers from gaining access. For example, despite some progress, excessive capital requirements continue to restrict market entry for foreign suppliers in many sectors, such as insurance, banking, securities, non-bank motor vehicle financing, asset management, direct selling.

Finance:
Financial sector reforms began in China in 1979, when the monopoly of the Peoples Bank of China (PBC) was removed and its commercial functions were separated into four state-owned banks. Joint-stock banks were introduced later to diversify the ownership structure in the banking sector. A notable feature of the financial sector is the high degree of government ownership.

Structure of Indias Import from China

In recent years, Indias imports from China have been diversified, and certain sectors continue to dominate in the bilateral trade. Other imports are spread thinly in almost all the manufacturing sectors. Indias imports from China comprise both agricultural and manufacturing products. India imports small quantities of agricultural products and they cover, nearly 1 per cent of its total bilateral imports. These products are mainly from the fruits and vegetable category Indias bilateral imports are mostly concentrated in the manufacturing sector. Four dominant sectors comprising of chemicals, machinery, base metals and textile & clothing contributed around 85 per cent to bilateral imports in 2012. Among these 22

sectors, the largest and the most dynamic sector has been that of machinery import. Its share in the total bilateral imports increased from 76.5 per cent in 2005 to 81.0 per cent in 2012, growing at a CAGR of 31.8 per cent per annum between 2005 and 2012. The chemical sector has registered a CAGR of 35.9 per cent during 2008-12, but its share declined during the period due to significant growth in overall bilateral imports. Some of the sectors such as minerals, plastic products, auto sector and cinematography also witnessed substantial penetration in the domestic market. According to the UN statistics32, Indias bilateral imports were US$ 24.2 billion in 2009 and increased to US$ 28.9 billion in 2012, despite being affected adversely by the recent global meltdown. In terms of composition of Indias bilateral imports from China, sectoral shares are declining for minerals, pulp products, textiles & clothing, and base metals. Indias bilateral pattern of imports clearly indicates that demand for technology-intensive products is becoming strong in the domestic market whereas demand for labour intensive and resource-based products is gradually becoming weak in recent years. Chinas global pattern of export is similar to its bilateral exports to India. Agricultural products constitute a small proportion of Chinas total export, but are expanding over the years. Contrary to its earlier practices, mineral exports are declining in the countrys trade basket and form 2 per cent of the total exports in 2008. Manufacturing exports dominate Chinese global export. Some of the major sectoral drivers of exports are textiles and clothing, machinery, auto sector, and chemicals. Other important export sectors are plastics, footwear, cinematography, etc. and many of these have grown fast in the pre-crisis period.

Indias Bilateral Trade Imbalance with China: Sustainability Issue

There is growing concern in India relating to sustainability of mounting bilateral trade along with surging trade imbalance between them in the medium term. Some argue that India is an emerging country with a large demand for imports to enhance its exports and also to meet growing domestic demand for consumption including modernisation of its industrial sector. While others argue that excess of consumption over production may lead to an unsustainable current account deficit. Both arguments assume that import from China is competitive compared to many other suppliers in the domestic market. However, cost efficiency of Indian imports from China is an empirical question which needs to be examined. 23

In the 1950s, several studies took this argument further to emphasise that trade based on least cost principle became the basis for formation of Regional Trading Agreements (RTAs). The basis of production fragmentation has been to bring down the cost of production to maintain global competitiveness. Present global trade flows indicate that China is a major global player in production fragmentation in diversified sectors, and Indias imports may be surging from China in these product segments because of its competitive imports. Such trade activities would promote trade in intermediate products at the bilateral level. India is a major importer of primary and technology intensive products for sustaining its ambitious programme of industrialisation and the countrys growing needs for energy consumption. However, the competitiveness of Chinese products in the Indian market is an empirical question, which needs empirical examination.

Constraints to Indias Exports to China

In general, tariffs in China are lower than those in India particularly, for Indias major export items such as ores, pharmaceutical products, plastics, manmade staple fibers, and iron and steel. The non-tariff barriers and informal restrictions are of greater concern. Such restrictions in China on imports of goods and services apply to imports from India as well. Indian industry and business organisations have identified similar constraints in promoting their exports to China, for example: customs procedures, standards, certification and regulatory practices, and quantitative restrictions. It was noted while examining the customs procedures that even after the issuance of valuation regulations in accordance with WTO Customs Valuation Agreement, many customs officials continue to use the minimum or reference price rather than the actual transaction price for valuation of goods. Re-exporters are allowed to import raw material only through a specified port. If they operate through 24

other ports, they have to follow extremely difficult procedures to avail of duty free clearance of cargo. This problem is especially serious for Indian traders because of the limited transport links between India and China, which do not allow free choice of ports for landing. Rules and regulations pertaining to standards and certification as applied to imports are different from those applied to domestic goods and these are frequently changed, the details of which are not easily available in a published form in the English language.. In cases of trade disputes, the international system of arbitration for trade disputes is not recognised.Though such trade barriers are tough in China, India can yet explore the opportunity of a large trade potential in China in diversified sectors. Considering the trade opportunities in China and Indias competitiveness in several lines of exports, the present trend of trade imbalances may be settled without limiting the size of bilateral trade.

Indias Export Potential in China

India has been maintaining a high export growth to China since 2004, but this has been adversely affected by the recent episode of global recession. Growth of imports in most of the important export markets of India became either negligible or negative since September 2008. This trend is slowly turning around in recent months. China is one among the important market destinations in which Indias export potential has been inadequately realised on account of the recent global turmoil. Indias large trade potential is yet to be tapped in diversified sectors of the Chinese market ranging from primary .

China recently became Indias largest trading partner, and its exports have increased so sharply that it is inflicting an unsustainable trade deficit on India which has achieved a moderate bilateral export growth only so far. For reversing the 25

problem of trade imbalances without interrupting the present flow of bilateral trade, sharp focus on the growth of Indias exports may be emphasised for the balance d growth of the domestic external sector. For addressing trade imbalances, India should substantially improve its presence in the Chinese export market. In this context, an attempt has been made to estimate Indias export potential in China at a disaggregated product level based on the export competitiveness of India.

PROBLEM OF CHINESE ECONOMYAND INDIAN ECONOMY PROBLEM OF CHINESE ECONOMY

POPULATION SHORTAGE OF POWER GROWING INCOME INEQUALITY INEFFICIENT BANKING SECTOR UNEMPLOYMENT UNDERVALUATION OF YUAN HUGE BALANCE OF PAYMENT SURPLUS

26

INDIAN ECONOMY PROBLEM: INFLATION POOR EDUCATION POOR INFRASTRUCTURE BALANCE OF PAYMENT

GOLD TRADING
IN2011

Three weeks ago it became clear that in its fight to curb consumer thirst for gold products, India, whose population is the largest single source of gold consumer demand (at least for now, soon to be replaced with China) is losing said fight, after its finance minister made it very clear that "demand for gold must be moderated" leading to a hike in import taxes to 4%. Needless to say, there is no more certain way to increase demand for a given commodity than to hint that the government will make its procurement problematic. Sure enough India blamed its record current account deficit on precisely this: the soaring imports of gold as locals revert to a

27

currency far more appreciated and respected than paper, a topic further explained

It is precisely the importing of gold that India is once again doing its best to curb, this time by boosting import duties on gold bars by a 150% from 2% to 5%, a day after it once again hiked gold import taxes, this time by 50% from 4% to 6%. Rising imports of gold have worried the government, which is battling a record high current account deficit. It is trying to curb gold imports to about $38 billion in the year to March 31, 2013, down from $58 billion a year earlier. Ironically, while the ongoing piecemeal attempts to deal with the "current account imbalances" driven by the people's desire to park their money in real money will fail, what the government's intervention will do is force even more demand for gold in anticipation of even more government attempts to make procuring gold increasingly more difficult. But don't tell the BIS - for them this headline is nothing more than what it implies superficially, and thus, a good reason to sell gold.

28

FOREIGN TRADE POLICY:

No. Economic or Social Unit factor 1. Total Area (out of China India

measurement of millions of sq 9.60 (2.8%) km millions of sq 1.48 km 1.79 3.29 (9.5%)

which water) 2. Arable Land

3.

Irrigated Land

millions of sq 0.53 km

0.61

4. 5.

Railways - length

in km '000

71.90 1,447

63.23 2,411

Roadways - paved - in km '000 length

6. 7.

Waterways - length

in km '000

123

14.5 854

Natural Gas - Proved in billion cu m 2,530 Reserves

8. 9.

Oil - Proved Reserves billion bbl Airports Total/paved/unpaved - numbers

18.60 489/389/89

5.70 334/239/995

10. Coastline 11. Steel Production

in km million tons/year

14,500 280

7,000 45

12. Food grain production million tons/year 13. Cement Production million tons/year 14. Crude Oil production million tons/year

418

210

650

150

180

40

29

15. Coal Production

million tons/year

1,300

300

16. Electricity generated

Billions Kilowatts

of 2,190

557

17. Transmission distribution losses 18. Electricity tariff 19. Cost of

& as % of total 6.8 power US$ / 100 KW 4 to 5

23.4

8 to 10 8 16

commercial as % interest/ 6 - 7 year lines millions 311

borrowing 20. Telephone connected

67

21. TV sets in households millions 22. Mobile/cellular phones millions 23. Internet users millions

500 400 111

85 100 51

24. Foreign trade (China+ US$ Hong Kong) billions/year

1038+923=1961 260

25. External debt (China+ US$ billions Hong Kong) 26. Exports (China+ Hong US$ Kong) billions/year

242+416= 658

120

752+286= 1038 120

27. Imports (China + Hong US$ Kong) 28. Tourist Arrivals billions/year millions/year

632+291= 923

138

87 3240 369/259/49

4 562 153/91/68

29. TV broadcast stations numbers 30. Radio stations broadcast AM/FM/short wave

31. FDI inflow (China + US$ Hong Kong) billions/year 30

106

32. Forex

Reserves US$ billions

1017+122= 1,139 2102+179= 2,281

175

(China+ Hong Kong) 33. GDP Kong) 34. GDP Growth (2006) (China+ Hong US$ billions

750

in % rate over 9.3 last year

7.9

35. Labour Composition

Agriculture %/Industry %/ Services %

49/22/29

60/17/23

36. Population 37. Population per year 38. Birth rate

millions increase millions

1,314 7.2

1,095 15.3

Numbers per 13 1000

22

39. Per Capita income

US$

per 1,498

658

year/person 40. Life expectancy 41. Investment Years % of GDP 74 44 64 25 25/273

42. Poverty line - numbers %/Numbers in 10/131 millions 43. Inflation Rate 44. Median age % Number years 45. Population Rate 46. Infant mortality rate Growth % population Death per 1,000 47. GDP (PPP) US$ billions 8,182 Rate 23 of 0.59 1.9 of 33

4.6 25

1.38

55

3,699

31

48. GDP person

(PPP)

per US$

per 6,300

3,400

person/year children born/woman 1.73 2.73

49. Fertility Rate

50. Literacy

Rate

- can

read

& 91

60

Defined as age 15 and write - % of over 51. Death Rate Pop Rate 1,000 pop 52. Public Debt 53. Unemployment rate % of GDP % workforce 54. Labour force 55. People HIV/AIDS 56. Government budget US$ billions 392/424 111/126 living in millions with '000 (2003) 797 840 496 5110 29 of 20 82 30 per 6.97 8.18

Revenues/Expenditure

0 million,

ial figures

e numbers we d 1 billion = 1000 million, 1 million = 10 lacs, 1crore = 100lacs = 10million

Foreign trade policy between INDIA AND CHINA The Govt. of India, Ministry of Commerce and Industry announce Export Import Policy every five years. The current policy covers the period 2002-2007. The Export Import Policy (Foreign Trade Policy) is updated every year on the 31st of 32

March and the modifications, improvements and new schemes are effective 1sTApril. .

Context of new Foreign Trade Policy

For India to become a major player in world trade, an all encompassing, comprehensive view needs to be taken for the overall development of the country.

While increase in exports is of vital importance, we have also to facilitate those imports which are required to stimulate our economy. Coherence and consistency among trade and other economic policies is important for maximizing the contribution of such policies to development. Thus, while incorporating the existing practice of enunciating an annual Foreign Trade Policy, it is necessary to go much beyond and take an integrated approach to the developmental requirements of India's

The Foreign Trade Policy is built around two major objectives. These are:

To double our percentage share of global merchandise trade within the next

five years;

To act as an effective instrument of economic growth by giving a thrust to

employment generation.

Strategy For achieving these objectives, the following strategies need to be adopted:

Unshackling of controls and creating an atmosphere of trust and

transparency to unleash the innate entrepreneurship of our businessmen, industrialists and traders.

Simplifying procedures and bringing down transaction costs. Neutralizing incidence of all levies and duties on inputs used in export

products, based on the fundamental principle that duties and levies should not be exported.

Facilitating development of India as a global hub for manufacturing, trading

and services. 33

Identifying and nurturing special focus areas which would generate

additional employment opportunities, particularly in semi-urban and rural areas, and developing a series of 'Initiatives' for each of these.

Facilitating technological and infrastructure up gradation of all the sectors of

the Indian economy, especially through import of capital goods and equipment, thereby increasing value addition and productivity, while attaining internationally accepted standards of quality.

Activating our Embassies as key players in our export strategy and linking

our Commercial Wings abroad through an electronic platform for real time trade intelligence and enquiry dissemination.

The new Exim-Policy is essentially a roadmap for the development of India's foreign trade. It contains the basic principles and points the direction in which we propose to go. By virtue of its very dynamics, a trade policy cannot be fully comprehensive in all its details. It would naturally require modification from time to time. We propose to do this through continuous updating, based on the inevitable changing dynamics of international trade. It is in partnership with business and industry that we propose to erect milestones on this roadmap. With a view to doubling our percentage share of global trade within 5 years and expanding employment opportunities, especially in semi urban and rural areas, certain special focus initiatives have been identified for the agriculture, handlooms, handicraft, gems & jewellery and leathersectors.

The thrust sectors indicated below shall be extended the following facilities:

Agriculture A new scheme called the Vishesh Krishi Upaj Yojana (Special Agricultural Produce Scheme) for promoting the export of fruits, vegetables, flowers, minor forest produce, and their value added products has been introduced.

Funds shall be earmarked under ASIDE for development of Agri Export Zones (AEZ). 34

Units in AEZ shall be exempt from Bank Guarantee under the EPCG Scheme.

Import of capital goods shall be permitted duty free under the EPCG Scheme.

Units in AEZ shall be exempt from Bank Guarantee under the EPCG Scheme.

. Handicrafts

Duty free import entitlement of trimmings and embellishments shall be 5% of the FOB value of exports during the previous financial year. The entitlement is broad banded, and shall extend also to merchant exporters tied up with supporting manufacturers.

The Handicraft Export Promotion Council shall be authorized to import trimmings, embellishments and consumables on behalf of those exporters for whom directly importing may not be viable Specific funds would be earmarked under MAI & MDA Schemes.

CVD is exempted on duty free import of trimmings, embellishments and consumables.

Gems and Jewellery Import of gold of 18 carat and above shall be allowed under the replenishment scheme. Duty free import entitlement of consumables for metals other than Gold, Platinum shall be 2% of FOB value of exports during the previous financial year. Duty free import entitlement of commercial samples shall be Rs 100,000. Duty free re-import entitlement for rejected jewellery shall be 2% of the FOB value of Exports. Cutting and polishing of gems and jewellery, shall be treated as manufacturing for the purposes of exemption under Section 10A of the Income Tax Act.

35

Leather and Footwear

The duty free entitlement for the import of trimmings, embellishments and footwear components for footwear (leather as well as synthetic), gloves, travel bags and handbags shall be 3% of FOB value of exports of the previous financial year. The entitlement shall also cover packing material, such as printed and non printed shoeboxes, small cartons made of wood, tin or plastic materials for packing footwear

Export Promotion Schemes:

Target plus scheme to accelerate growth of exports. Vishesh krishi upaj yojna for agro-exports. Served from India scheme. Additional flexibility under EPCG. Import of fuel under DFRC entitlement allowed to be transferred to

marketing agencies authorized by Min of Petroleum and Natural Gas.

The DEFB scheme will be continued. EOUs shall be exempted from Service Tax in proportion to their exported

goods and services.

A scheme to establish Free Trade and Warehousing Zone is introduced to

create trade-related infrastructure to facilitate import and export with freedom to carry out trade transactions in free currency.

A Note on Special Economic Zones (SEZ) SEZ are growth engines that can boost manufacturing, augment exports and generate employment. The private sector has been actively associated with the development of SEZs. The SEZs require special fiscal and regulatory regime in order to impart a hassle free operational regime encompassing the state of the art infrastructure and support services. The proposed legislation on SEZs to be enacted in the near future would cover the concepts of the developer and codeveloper , incorporate the provision of virtual SEZs, have fiscal concessions under the Income Tax and Customs Act, provide for Offshore Banking Units

36

(OBUs)

Chapter-5
Research Methodology

Research methodology is the arrangement of condition for collection and analysis of data in a manner that aims to combine the relevance to the research purpose with economy in procedure. Research is conceptual structure within which research is conducted.

Research Design:
Research design begins with the identification of management decision problem and the success of the research highly depends on the well description of management decision problem. A Research Design is a frame work or blue print for conducting the marketing research project .MY RESEARCH IS DESCRIPTIVE...

37

Descriptive: Descriptive study is an extension of exploratory study and it contains people surveyed, method of analysis, data collection and analysis of proBLEM of India and China.

In this project, Descriptive Research Design has been used.

The major objective of descriptive research is to describe something, usually market characteristics or functions. Descriptive research is conducted for the following: To describe the characteristics of relevant groups, such as

consumers, sales people, organizations, or market areas. To estimate the percentage of units in a specified population

exhibiting a certain behaviour. To determine the perception of product characteristics. To determine the degree to which marketing variables are associated. To make specific prediction.

The Descriptive research can be classified in two methods: 1) Survey Methods 2) Observation methods

In this project, Observation method IS USED .As the research is done by anaysing the data from diferent secondary methods.Secondary Data: The data which has already been collected, complied and presented earlier by any agency may be used for purpose of investigation. The data collected through: Various publications in form of annual reports, various papers and journals published from time to time.

THOSE ARE: 1. Internet 2. Newspaper 3. Magzines 4. journals

38

CHAPTER NO.6

FINDINGS AND RECOMMENDATIONS: 1. IN THIS PROJECT I HAVE ACHIVED ALL OBJECTIVES

MENTIONED ABOVE. 2. I have analysed that china will demand more gold than

India in next5 year.

3.

FOREIGN

TRADE

POLICY

BETWEEN

THESE

COUNTRIES. It says that china is more focused on technology products than labour Intensive .

4.

From the facts and figures in above data I have analysed

that china demand for gold increased by 5% in year 2010-11.

39

5.

China demand was 1700 in 2011 from 1600 in 2010 but

India demand was constant through out the year.

6.

The china demand in comparison to world demand was

increasing from 1999 to 2011.But India demand in relation to world demand was fluctuating during this period.

40

Chapter-7
Conclusion
Whether or not India overtakes china in the next two decade, it is clear that both countries will be economic power houses in the medium term. Undoubtedly, their growth will have significant impacts on the world economy. Their increasing competition for the worlds raw materials and increasing shares in the global markets for a range of goods and services is a threat to their prosperity and growth.

41

CHAPTER-8 Bibliography

References JOURNALS: Dimaranan Betina, Lanchovichina Elena, and Martinr Will, 2007, China, India, and the Future of the World Economy, Policy Research Working Paper 4043, The World Bank Development Research Group, August Wilson Dominic and Purushothaman Roopa, 2003, Dreaming with BRICs: The Path 2050, Goldman Sachs, Global Economics Paper no : 99, October. McDonald Scott, 2007, Asian growth and Trade Poles, World Development Vol. 36, Oxford Brookes University, UK , June.

http://www.slideshare.net/AnuragKanoongo/india-and-chinaan-

economycomparison16433169ist.com/blogs/dailychart/2010/12/comparingindia-and-china. http://ibef.org/indiachina.aspx http://buysiness.maps 42

http://www.hwtang.com/uploads/3/0/7/2/3072318/world_economy.pdf https://www.lawschool.cornell.edu/research/ILJ/upload/Sweeney.pdf http://articles.economictimes.indiatimes.com/keyword/gold-reserves http://en.wikipedia.org/wiki/Gold_reserve http://in.reuters.com/article/2013/11/14/gold-demand-wgc-india-

idINDEE9AD02X20131114 http://www.slideshare.net/AnuragKanoongo/india-and-chinaan-

economy-comparison-16433169

43