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A study of US and Chinas Economy and its Impact on Indian Economy

MAJOR RESEARCH PROJECT

Submitted to the

Guided ByProf. Ruchi Bangur

Submitted ByGunjan mehta Shivi verma Arvind khade Azad khan pathan

Sapient Institute of Management Studies

YEAR 2010-12

DECLARATION

We the student of Sapient Institute of management studies, Indore, hereby declare that the work done by us on the topic A study on Impact of US and China Economy on Indian Economy is genuine and authentic.

1. Gunjan Mehta 2. Shivi Verma 3. Arvind Khade 4. Azad Khan Pathan

Date:-

Guide Remarks:-

Prof. Ruchi Bangur

CERTIFICATE

This to certify that Gunjan Mehta, Shivi Verma , Arvind Khade, Azad Khan Pathan of Sapient Institute Of Management Studies, Indore has completed Major Research Project entitled A study on Impact of US and China Economy on Indian Economy under my guidance and supervision of allotted guide. The candidate has performed the research work with full satisfaction and of sufficiently high standard to warrant its for external examination for the partial fulfillment of PGDM.

Guided By:Prof. Ruchi Bangur

Program Coordinator Prof. Arpit Loya

Director Academics Prof. Vishal Khasgiwala

Place: Indore Date:

ACKNOWLEDGEMENT

Vision without action is merely a dream, action without vision just passes the time and vision with action can change the world The most awaited moment of successful completion of an endeavor is always a result of persons involved explicitly or implicitly there in and it is impossible without the help and guidance of the people around.

I would like to express my sincere gratitude to Prof. Arpit Loya to give us an opportunity for this project, Prof. Ruchi Bangur For her constant support and guidance, without which the project could not have been completed.

This study work would have never seen the light of the day without the blessings of my parents. I am very much thankful to them for their constant support. Ultimately I would like to extend my thanks to one and all that extend their affectionate cooperation to complete this project directly and indirectly.

PGDM -Finance SIMS, INDORE

EXECUTIVE SUMMARY

The main focus of our project was on what is the Impact of US and China Economy on Indian Economy.

The new methodology new concept used in economy adopted by the Indian country, this experience was awesome for us and it was practical experience which was really unique experience. Our Faculty guide gave us task and guided us in each step of our work. We also have discussed the concept of finance form text book.

To sum up, there has been sustained efforts and dedication involve to make this study a comprehensive study but at the same time the researcher is open to any kind of suggestion that further needs to be considered in respect of the cause of his work.

CONTENT

S.No. Particulars 1 Introduction of US Economy

Page no. 1

Introduction of US Economy
The economy of the United States is the world's largest national economy. Its nominal GDP was estimated to be over $15 trillion in 2011, approximately a quarter of nominal global GDP. it was estimated to have a per capita GDP (PPP) of $48,147, the 7th highest in the world, thus making U.S. one of the world's wealthiest nations. The U.S. is the largest trading nation in the world. Its three largest trading partners as of 2010 are Canada, China and Mexico. It has been the world's largest national economy (not including colonial empires) since at least the 1890s. It was also the world's largest economic entity between 1941 and 2004 (before 1941 : British colonial empire ; after 2004 : European Union). Most of the economy is classified as services. The country remains the world's largest manufacturer, representing a fifth of the global manufacturing output. Of the world's 500 largest companies, 133 are headquartered in the United States. This is twice the total of any other country. About 60% of the global currency reserves has been invested in the United States dollar, while 24% has been invested in the euro. The country is one of the world's largest and most influential markets. Foreign made in the United States total almost $2.4 trillion, which is more than twice that of any other country. American investments in foreign countries total over $3.3 trillion, which is almost twice that of any other country. Total public and private debt was $50.2 trillion at the end of the first quarter of 2010, or 3.5 times GDP. The proportion of public debt was about 0.9 times the GDP. Domestic financial assets totaled $131 trillion and domestic financial liabilities totaled $106 trillion. As of 2010, the European Union as a whole was the largest trading partner of the U.S., whereas Canada, China, and Mexico were the largest individual trading nations. The United States has been the world's largest national economy since at least the 1890s. For many years following the Great Depression of the 1930s, when danger of recession appeared most serious, the government sought to strengthen the economy by spending heavily itself or cutting taxes so that consumers would spend more, and by fostering rapid growth in the money supply, which also encouraged more spending. Ideas about the best tools for stabilizing the economy changed substantially between the 1930s and the 1980s. From the New Deal era that began in 1933, to the Great Society initiatives of the 1960s, national policy makers relied principally on fiscal policy to influence the economy. The approach, advanced by British economist John Maynard Keynes, gave elected officials a leading role in directing the economy, since spending and taxes are controlled by the U.S. President and the Congress. The "Baby Boom" saw a dramatic increase in fertility in the period 19421957; it was caused by delayed marriages and childbearing during depression years, a surge in prosperity, a demand for suburban single-family homes (as opposed to inner city apartments) and new optimism about the future. The boom crested about 1957, then slowly declined. A period of high inflation, interest rates and unemployment after 1973 weakened confidence in fiscal policy as a tool for regulating the overall pace of economic activity. The "Baby Boom" saw a dramatic increase in fertility in the period 19421957; it was caused by delayed marriages and childbearing during depression years, a surge in prosperity, a demand for suburban single-family homes (as opposed to inner city apartments) and new optimism about the future. The boom crested about 1957, then slowly declined.

The U.S. economy grew by an average of 3.8% from 1946 to 1973, while real median household income surged 74% (or 2.1% a year). The economy since 1973, however, has been characterized by both slower growth (averaging 2.7%), and nearly stagnant living standards, with household incomes increasing by 10%, or only 0.3% annually. The worst recession in recent decades, in terms of lost output, occurred during the 2008 financial crisis, when GDP fell by 5.0% from the spring of 2008 to the spring of 2009. Other significant recessions took place in 195758, when GDP fell 3.7%, following the 1973 oil crisis, with a 3.1% fall from late 1973 to early 1975, and in the 198182 recession, when GDP dropped by 2.9%. Recent, mild recessions have included the 199091 downturn, when output fell by 1.3%, and the 2001 recession, in which GDP slid by 0.3%; the 2001 downturn lasted just eight months. The most vigorous, sustained periods of growth, on the other hand, took place from early 1961 to mid 1969, with an expansion of 53% (5.1% a year), from mid 1991 to late in 2000, at 43% (3.8% a year), and from late 1982 to mid 1990, at 37% (4% a year). A central feature of the U.S. economy is the economic freedom afforded to the private sector by allowing the private sector to make the majority of economic decisions in determining the direction and scale of what the U.S. economy produces. This is enhanced by relatively low levels of regulation and government involvement, as well as a court system that generally protects property rights and enforces contracts. Today, the United States is home to 29.6 million small businesses, 30% of the world's millionaires, 40% of the world's billionaires, as well as 139 of the world's 500 largest companies. From its emergence as an independent nation, the United States has encouraged science and innovation. As a result, the United States has been the birthplace of 161 of Britannica's 321 Great Inventions, including items such as the airplane, internet, microchip, laser, cell phone, refrigerator, email, microwave, LCD and LED technology, air conditioning, assembly line, supermarket, bar code, electric motor, and ATM. Venture capital, as an industry, originated in the United States and it is still dominated by the U.S. According to the National Venture Capital Association 11% of private sector jobs come from venture capital backed companies and venture capital backed revenue accounts for 21% of US GDP.

Financial position
The overall financial position of the United States as of 2009 includes $50.7 trillion of debt owed by US households, businesses, and governments, representing more than 3.5 times the annual gross domestic product of the United States. As of the first quarter of 2010, domestic financial assets totaled $131 trillion and domestic financial liabilities $106 trillion. Tangible assets in 2008 (such as real estate and equipment) for selected sectors totaled an additional $56.3 trillion.

International trade
The United States is the world's largest trading nation. There is a high amount of U.S. dollars in circulation all around the planet. The dollar is also used as the standard unit of currency in international markets for commodities such as gold and petroleum. In 2010, U.S. exports amounted to $1.3 trillion and imports amounted to $1.9 trillion. Trade deficit was $634.9 billion.[The deficit on petroleum products was $270 billion. The trade deficit with China was $273 billion, a new record and up from $304 million in 1983. The United States had a $168 billion surplus on trade in services, and $803 billion deficit on trade in goods in 2010. China has expanded its foreign exchange reserves, which included $1.6 trillion of U.S. securities as of 2009. In 2010, the ten largest trading partners of the U.S. were Canada, China, Mexico, Japan, Germany, the United Kingdom, South Korea, France, Taiwan, and Brazil. As a single economy the EU would be larger than Canada.

Currency and central bank


The U.S. dollar has maintained its position as the world's primary reserve currency, although it is gradually being challenged in that role. Almost two-thirds of currency reserves held around the world are held in US dollars, compared to around 25% for the next most popular currency, the Euro. Rising US national debt and the related rise of China have led to some, especially the Chinese, to call for replacing the dollar as the world's reserved currency, but thus far this has been only speculation. The dollar used gold standard and/or silver standard from 1785 until 1971, when it became a floating fiat currency because of problems experienced with attempting to fix prices of commodities.

Why The U.S. Economy Is Dying


Even though the U.S. financial system nearly experienced a total meltdown in late 2008, the truth is that most Americans simply have no idea what is happening to the U.S. economy. Most people seem to think that the nasty little recession that we have just been through is almost over and that we will be experiencing another time of economic growth and prosperity very shortly. But this time around that is not the case. The reality is that we are being sucked into an economic black hole from which the U.S. economy will never fully recover. The problem is debt. Collectively, the U.S. government, the state governments, corporate America and American consumers have accumulated the biggest mountain of debt in the history of the world. Our massive debt binge has financed our tremendous growth and prosperity over the last couple of decades, but now the day of reckoning is here.

Reasons 1.Tighter lending standards


Do you remember that massive wave of subprime mortgages that defaulted in 2007 and 2008 and caused the biggest financial crisis since the Great Depression? Well, the "second wave" of mortgage defaults in on the way and there is simply no way that we are going to be able to avoid it. A huge mountain of mortgages is going to reset starting in 2010, and once those mortgage payments go up there are once again going to be millions of people who simply cannot pay their mortgages. This chart reveals just how bad the second wave of adjustable rate mortgages is likely to be over the next several years.

2.Hard to find jobs


It is getting really hard to find a job in the United States. A total of 6,130,000 U.S. workers had been unemployed for 27 weeks or more in December 2009. That was the most ever since the U.S. government started keeping track of this statistic in 1948. In fact, it is more than double the 2,612,000 U.S. workers who were unemployed for a similar length of time in December 2008. The reality is that once Americans lose their jobs they are increasingly finding it difficult to find new ones.

3. 1 million discouraged workers


In December, there were also 929,000 "discouraged" workers who are not counted as part of the labor force because they have "given up" looking for work. That is the most since the U.S. government first started keeping track of discouraged workers in 1949. Many Americans have simply given up and are now chronically unemployed.

4.Depression in some cities


Some areas of the U.S. are already virtually in a state of depression. The mayor of Detroit estimates that the real unemployment rate in his city is now somewhere around 50 percent.

5.More jobs going overseas


For decades, our leaders in Washington pushed us towards "a global economy" and told us it would be so good for us. But there is a flip side. Now workers in the U.S. must compete with workers all over the world, and our greedy corporations are free to pursue the cheapest labor available anywhere on the globe. Millions of jobs have already been shipped out of the United States, and Princeton University economist Alan S. Blinder estimates that 22% to 29% of all current U.S. jobs will be offshorable within two decades. The days when blue collar workers could live the American Dream are gone and they are not going to come back.

6.Bankruptcies skyrocketing
The number of Americans who are going broke is staggering. 1.41 million Americans filed for personal bankruptcy in 2009 - a 32 percent increase over 2008.

7.The decline of the dollar as global reserve currency


For decades, the fact that the U.S. dollar was the reserve currency of the world gave the U.S. financial system an unusual degree of stability. But all of that is changing. Foreign countries are increasingly turning away from the dollar to other currencies. For example, Russias central bank announced on Wednesday that it had started buying Canadian dollars in a bid to diversify its foreign exchange reserves.

8.No money for pensions


The U.S. is facing a pension crisis of unprecedented magnitude. Virtually all pension funds in the United States, both private and public, are massively underfunded. With millions of Baby Boomers getting ready to retire, there is simply no way on earth that all of these obligations can be met. Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern's Kellogg School of Management recently calculated the collective unfunded pension liability for all 50 U.S. states for Forbes magazine. So what was the total? 3.2 trillion dollars.

9.Federal debt was already out of control


So will the U.S. government come to the rescue? The U.S. has allowed the total federal debt to balloon by 50% since 2006 to $12.3 trillion. The chart below is a bit outdated, but it does show the reckless expansion of U.S. government debt over the past several decades. To get an idea of where we are now, just add at least 3 trillion dollars on to the top of the chart.

10.Now the debt is a nightmare


So has the U.S. government learned anything from these mistakes? No. In fact, Senate Democrats last week proposed allowing the federal government to borrow an additional $2 trillion to pay its bills, a record increase that would allow the U.S. national debt to reach approximately $14.3 trillion.

11.Corporate tax revenue is way down


It is going to become even harder for the U.S. government to pay the bills now that tax receipts are falling through the floor. U.S. corporate income tax receipts were down 55% in the year that ended on September 30th, 2009.

12.Reckless inflation
The reckless expansion of the money supply by the U.S. government and the Federal Reserve is going to end up destroying the U.S. dollar and the value of the remaining collective net worth of all Americans. The more dollars there are, the less each individual dollar is worth. In essence, inflation is like a hidden tax on each dollar that you own. When they flood the economy with money, the value of the money you have in your bank accounts goes down. The chart below shows the growth of the U.S. money supply. Pay particular attention to the very end of the chart which shows what has been happening lately. What do you think this is going to do to the value of the U.S. dollar?

Economy of the United States

New York City, financial center of the United States

Rank: -

1st (nominal) / 1st (PPP)

Currency: - US$ (USD) Fiscal year: - October 1 September 30

Statistics
GDP: GDP growth: $15.088 trillion (2011) 1.7% (2011)

GDP per capita: - $48,147 (2011) Inflation (CPI):3.0% (December 2011)

Unemployment: - 8.3% (January 2012) Exports: $1.474 trillion (2011 est.)

Main export partners: - Canada 19.4%, Mexico 12.8%, China 7.2%, Japan 4.7% (2010) Imports: $2.239 trillion (2011 est.)

Main import partners:- China 19.5%, Canada 14.2%, Mexico 11.8%, Japan 6.3%, Germany 4.3% (2010) Public debt: Revenues: Expenses: Foreign reserves: $14.972 trillion / 99.7% of GDP $2.302 trillion (2011) $3.601 trillion (2011) US$140.607 billion (May 2011)

Introduction of Chinese Economy


The People's Republic of China (PRC) is the world's second largest economy after the United States. It is the world's fastest-growing major economy, with growth rates averaging 10% over the past 30 years. China is also the largest exporter and second largest importer of goods in the world. The country's per capita GDP (PPP) was $8,394 (International Monetary Fund, 90th in the world) in 2011. The provinces in the coastal regions of China tend to be more industrialized, while regions in the hinterland are less developed. As China's economic importance has grown, so has attention to the structure and health of that economy. In the 1949 revolution, China's economic system was officially made into a communist system. Since the wide-ranging reforms of the 1980s and afterwards, many scholars assert that China can be defined as one of the leading examples of state capitalism today. China has generally implemented reforms in a gradualist fashion. As its role in world trade has steadily grown, its importance to the international economy has also increased apace. China's foreign trade has grown faster than its GDP for the past 25 years. China's growth comes both from huge state investment in infrastructure and heavy industry and from private sector expansion in light industry instead of just exports, whose role in the economy appears to have been significantly overestimated. The smaller but highly concentrated public sector, dominated by 159 large SOEs, provided key inputs from utilities, heavy industries, and energy resources that facilitated private sector growth and drove investment, the foundation of national growth. In 2008 thousands of private companies closed down and the government announced plans to expand the public sector to take up the slack caused by the global financial crisis. In 2010, there were approximately 10 million small businesses in China.[ The PRC government's decision to permit China to be used by multinational corporations as an export platform has made the country a major competitor to other Asian export-led economies, such as South Korea, Singapore, and Malaysia. China has emphasized raising personal income and consumption and introducing new management systems to help increase productivity. The government has also focused on foreign trade as a major vehicle for economic growth. The restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978. Some economists believe that Chinese economic growth has been in fact understated during much of the 1990s and early 2000s, failing to fully factor in the growth driven by the private sector and that the extent at which China is dependent on exports is exaggerated despite the lack of full convertibility of the RMB. Nevertheless, key bottlenecks continue to constrain growth. Available energy is insufficient to run at fully installed industrial capacity, and the transport system is inadequate to move sufficient quantities of such critical items as coal. The two most important sectors of the economy have traditionally been agriculture and industry, which together employ more than 70 percent of the labor force and produce more than 60 percent of GDP. The two sectors have differed in many respects. Technology, labor productivity, and incomes have advanced much more rapidly in industry than in agriculture. Agricultural output has been vulnerable to the effects of weather, while industry has been more directly influenced by the government. The disparities between the two sectors have combined to form an economic-

cultural-social gap between the rural and urban areas. China is the world's largest producer of rice and is among the principal sources of wheat, corn (maize), tobacco, soybeans, peanuts (groundnuts), and cotton. The country is one of the world's largest producers of a number of industrial and mineral products, including cotton cloth, tungsten, and antimony, and is an important producer of cotton yarn, coal, crude oil, and a number of other products. Its mineral resources are probably among the richest in the world but are only partially developed. China has acquired highly sophisticated foreign production facilities and through "localization policies" also built a number of advanced engineering plants capable of manufacturing an increasing range of sophisticated equipment, including nuclear weapons and satellites, but most of its industrial output still comes from relatively ill-equipped factories. The technological level and quality standards of its industry as a whole are still disastrous, notwithstanding a marked change since 2000, spurred in part by foreign investment. A report by UBS in 2009 concluded that China has experienced total factor productivity growth of 4 per cent per year since 1990, one of the fastest improvements in world economic history. China's increasing integration with the international economy and its growing efforts to use market forces to govern the domestic allocation of goods have exacerbated this problem. Over the years, large subsidies were built into the price structure, and these subsidies grew substantially in the late 1970s and 1980s. By the early 1990s these subsidies began to be eliminated, in large part due to China's admission into the World Trade Organization (WTO) in 2001, which carried with it requirements for further economic liberalization and deregulation. China's ongoing economic transformation has had a profound impact not only on China but on the world. The market-oriented reforms China has implemented over the past two decades have unleashed individual initiative and entrepreneurship, whilst retaining state domination of the economy.

20002010
Following the Chinese Communist Party's Third Plenum, held in October 2003, Chinese legislators unveiled several proposed amendments to the state constitution. One of the most significant was a proposal to provide protection for private property rights. Legislators also indicated there would be a new emphasis on certain aspects of overall government economic policy, including efforts to reduce unemployment (now in the 810% range in urban areas), to rebalance income distribution between urban and rural regions, and to maintain economic growth while protecting the environment and improving social equity. The National People's Congress approved the amendments when it met in March 2004.[39] The Fifth Plenum in October 2005 approved the 11th Five-Year Economic Program (20062010) aimed at building a "harmonious society" through more balanced wealth distribution and improved education, medical care, and social security. On March 2006, the National People's Congress approved the 11th Five-Year Program. The plan called for a relatively conservative 45% increase in GDP and a 20% reduction in energy intensity (energy consumption per unit of GDP) by 2010.

China's economy grew at an average rate of 10% per year during the period 19902004, the highest growth rate in the world. China's GDP grew 10.0% in 2003, 10.1%, in 2004, and even faster 10.4% in 2005 despite attempts by the government to cool the economy. China's total trade in 2010 surpassed $2.97 trillion, making China the world's second-largest trading nation after the U.S. Such high growth is necessary if China is to generate the 15 million jobs needed annually roughly the size of Ecuador or Cambodiato employ new entrants into the national job market. On January 14, 2009, as confirmed by the World Bank[40] the NBS published the revised figures for 2007 fiscal year in which growth happened at 13 percent instead of 11.9 percent (provisional figures). China's gross domestic product stood at US$3.38 trillion while Germany's GDP was USD $3.32 trillion for 2007. This made China the world's third largest economy by gross domestic product.[41] Based on these figures, in 2007 China recorded its fastest growth since 1994 when the GDP grew by 13.1 percent.[42] China launched its Economic Stimulus Plan to specifically deal with the Global financial crisis of 20082009. It has primarily focused on increasing affordable housing, easing credit restrictions for mortgage and SMEs, lower taxes such as those on real estate sales and commodities, pumping more public investment into infrastructure development, such as the rail network, roads and ports. By the end of 2009 it appeared that the Chinese economy was showing signs of recovery. At the 2009 Economic Work Conference in December 'managing inflation expectations' was added to the list of economic objectives, suggesting a strong economic upturn and a desire to take steps to manage it.

2010present
By 2010 it was evident to outside observers such as The New York Times that China was poised to move from export dependency to development of an internal market. Wages were rapidly rising in all areas of the country and Chinese leaders were calling for an increased standard of living. In 2010, China's GDP was valued at $5.87 trillion, surpassed Japan's $5.47 trillion, and became the world's second largest economy after the U.S. China could become the world's largest economy (by nominal GDP) sometime as early as 2020. China is the largest creditor nation in the worldand owns approximately 20.8% of all foreignowned US Treasury securities. It has also appeared that Noopolitik and the knowledge economy had become salient interests of the PRC's economic policy across the 2000s, through which the country made clear its move from "Made in China" to "Innovated in China" as notes Adam Segal. Idriss Aberkane thus argued "With Chinas cosmopolitan and highly educated diaspora, it is no surprise that as of 2010, five of the top twenty most visited websites in the world are indexed in Mandarin. They include PRC-born behemoths such as Baidu.com, Taobao.com, and Sina.com.cn, and video sharing Tudou.com, which has gained users in both North America and Europe."

The Institute of Economic Research of Renmin University of China has conducted several studies and released several reports regarding China's economy. "Under the influences of 2009s stimulus policies, the spread of the economic bubble and implementation of the 12th Five-Year Plan, China was at a key stage of steering the economic recovery to stable growth. While prices increased steadily, Chinas GDP went back to the high-level growth rate and its economic structure gradually became market-oriented.". The foremost authorities on the Chinese economy -- those within the Chinese think-tanks and government -- give a unique, first-hand perspective. Their works, translated into English for a Western audience, are published only through an independent Hong Kong publishing house, Enrich Professional Publishing (EPP), and can be found at academic libraries throughout the world. The World Bank's chief economist Justin Lin in 2011 stated that China, which became the world's second largest economy in 2010, may become the world's largest economy in 2030, overtaking the United States, if current trends continue. Challenges include income inequality and pollution. The Standard Chartered Bank in a 2011 report suggested that China may become the world's largest economy in 2020. A 2007 OECD rapport by Angus Maddison estimated that if using purchasing power parity conversions, then China will overtake the United States in 2015. James Wolfensohn, former World Bank president, estimated in 2010 that by 2030 two-thirds of the world's middle class will live in China. The Director of the China Center for Economic Reform at Peking University Yao Yang in 2011 stated that "Assuming that the Chinese and U.S. economies grow, respectively, by 8% and 3% in real terms, that China's inflation rate is 3.6% and America's is 2% (the averages of the last decade), and that the renminbi appreciates against the dollar by 3% per year (the average of the last six years), China would become the world's largest economy by 2021. By that time, both countries' GDP will be about $24 trillion." In 2011, the IMF warned that government controlled banks could be building up imbalances that could hamper growth and leave the system "severely impacted"

Development
China, economically frail before 1978, has again become one of the world's major economic powers with the greatest potential. In the 22 years following reform and opening-up in 1979 in particular, China's economy developed at an unprecedented rate, and that momentum has been held steady into the 21st century. China adopts the "five-year-plan" strategy for economic development. The Twelfth Five-Year Plan (20112015) is currently being implemented. It was not an obvious path to growth. But for nearly 30 years China had indeed been growing, thrusting its citizens into prosperity and its goods across the world. Between 1978 and 2005, China's per capita GDP had grown from $153 to $1284, while its current account surplus had increased over twelve-fold between 1982 and 2004, from $5.7 billion to $71 billion. During this time, China had also become an industrial powerhouse, moving beyond initial successes in lowwage sectors like clothing and footwear to the increasingly sophisticated production of computers, pharmaceuticals, and automobiles.

Just how long the trajectory could continue, however, remained unclear. According to the 11th five-year plan, China needed to sustain an annual growth rates of 8% for the foreseeable future. Only with such levels of growth, the leadership argued, could China continue to develop its industrial prowess, raise its citizen's standard of living, and redress the inequalities that were cropping up across the country. Yet no country had ever before maintained the kind of growth that China was predicting. Moreover, China had to some extent already undergone the easier parts of development. In the 1980s, it had transformed its vast and inefficient agricultural sector, freeing its peasants from the confines of central planning and winning them to the cause of reform. In the 1990s, it had likewise started to restructure its stagnant industrial sector, wooing foreign investors for the first time. These policies had catalysed the country's phenomenal growth. Instead, China had to take what many regarded as the final step toward the market, liberalizing the banking sector and launching the beginnings of a real capital market. This step, however, would not be easy. As of 2004, China's state-owned enterprises were still only partially reorganized, and its banks were dealing with the burden of over $205 billion (1.7 trillion RMB) in non-performing loans, monies that had little chance of ever being repaid. The country had a floating exchange rate, and strict controls on both the current and capital accounts.

Regional development
These strategies are aimed at the relatively poorer regions in China in an attempt to prevent widening inequalities:

China Western Development, designed to increase the economic situation of the western provinces through capital investment and development of natural resources. Revitalize Northeast China, to rejuvenate the industrial bases in Northeast China. It covers the three provinces of Heilongjiang, Jilin, and Liaoning, as well as the five eastern prefectures of Inner Mongolia. Rise of Central China Plan, to accelerate the development of its central regions. It covers six provinces: Shanxi, Henan, Anhui, Hubei, Hunan, and Jiangxi. Third Front, focused on the southwestern provinces.

Foreign investment abroad:

Go Global, to encourage its enterprises to invest overseas.

Inflation
During the winter of 20072008, inflation ran about 7% on an annual basis, rising to 8.7% in statistics for February 2008, released in March 2008. Shortages of gasoline and diesel fuel developed in the fall of 2007 due to reluctance of refineries to produce fuel at low prices set by the state. These prices were slightly increased in November 2007 with fuel selling for $2.65 a gallon, still slightly below world prices. Price controls were in effect on numerous basic products and services, but were ineffective with food, prices of which were rising at an annual rate of 18.2% in November 2007. The problem of inflation has caused

concern at the highest levels of the Chinese government. On January 9, 2008, the government of China issued the following statement on its official website: "The Chinese government decided on Wednesday to take further measures to stabilize market prices and increase the severity of punishments for those guilty of driving up prices through hoarding or cheating." Pork is an important part of the Chinese economy with a per capita consumption of a fifth of a pound per day. The worldwide rise in the price of animal feed associated with increased production of ethanol from corn resulted in steep rises in pork prices in China in 2007. Increased cost of production interacted badly with increased demand resulting from rapidly rising wages. The state responded by subsidizing pork prices for students and the urban poor and called for increased production. Release of pork from the nation's strategic pork reserve was considered. By January 2008, the inflation rate rose to 7.1%, which BBC News described as the highest inflation rate since 1997, due to the winter storms that month. China's inflation rate jumped to a new decade high of 8.7 percent in February 2008 after severe winter storms disrupted the economy and worsened food shortages, the government said March 11, 2008. Throughout the summer and fall, however, inflation fell again to a low of 6.6% in October 2008. By November 2010, the inflation rate rose up to 5.1%, driven by a 11.7% increase in food prices year on year. According to the bureau, industrial output went up 13.3 percent. As supplies have run short, prices for fuel and other commodities have risen up.

External trade
International trade makes up a sizeable portion of China's overall economy. Being a Second World country at the time, a meaningful segment of China's trade with the Third World was financed through grants, credits, and other forms of assistance. The principal efforts were made in Asia, especially to Indonesia, Burma, Pakistan, and Ceylon, but large loans were also granted in Africa (Ghana, Algeria, Tanzania) and in the Middle East (Egypt). However, after Mao Zedong's death in 1976, these efforts were scaled back. After which, trade with developing countries became negligible, though during that time, Hong Kong and Taiwan both began to emerge as major trading partners. Since economic reforms began in the late 1970s, China sought to decentralize its foreign trade system to integrate itself into the international trading system. On November 1991, China joined the Asia-Pacific Economic Cooperation (APEC) group, which promotes free trade and cooperation the in economic, trade, investment, and technology spheres. China served as APEC chair in 2001, and Shanghai hosted the annual APEC leaders meeting in October of that year. After reaching a bilateral WTO agreement with the EU and other trading partners in summer 2000, China worked on a multilateral WTO accession package. China concluded multilateral negotiations on its accession to the WTO in September 2001. The completion of its accession protocol and Working Party Report paved the way for its entry into the WTO on December 11, 2001, after 16 years of negotiations, the longest in the history of the General Agreement on

Tariffs and Trade. However, U.S. exporters continue to have concerns about fair market access due to China's restrictive trade policies and U.S. export restrictions.

With bilateral trade exceeding US$38.6 billion, China is India's largest trading partner. Shown here is a Chinese container ship unloading its cargo at Jawaharlal Nehru Port, Navi Mumbai, India. China's global trade exceeded $2.4 trillion at the end of 2008. It first broke the $100 billion mark in 1988, $200 billion in 1994, $500 billion in 2001 and $1 trillion mark ($1.15 trillion) in 2004. The table below shows the average annual growth (in nominal US dollar terms) of China's foreign trade during the reform era. Period 198185 198690 199195 Two-way trade Exports Imports +12.8% +10.6% +19.5% +8.6% +16.1% +17.8% +4.8% +19.1% +19.9% +10.9% +11.3% +25.0% +24.0% +19.9% +23.8% +20.8% +23.4%

19962000 +11.0% 200005 2006 2007 +24.6% +27.2% +25.6%

With bilateral trade exceeding US$38.6 billion, China is India's largest trading partner. Shown here is a Chinese container ship unloading its cargo at Jawaharlal Nehru Port, Navi Mumbai, India.

The vast majority of China's imports consists of industrial supplies and capital goods, notably machinery and high-technology equipment, the majority of which comes from the developed countries, primarily Japan and the United States. Regionally, almost half of China's imports come from East and Southeast Asia, and about one-fourth of China's exports go to the same destinations. About 80 percent of China's exports consist of manufactured goods, most of which are textiles and electronic equipment, with agricultural products and chemicals constituting the remainder. Out of the five busiest ports in the world, three are in China. The U.S. trade deficit with China reached $232.5 billion in 2006, as imports grew 18%. China's share of total U.S. imports has grown from 7% to 15% since 1996.

Introduction of Indian Economy


The Economy of India is the ninth largest in the world by nominal GDP and the third largest by purchasing power parity (PPP).[1] The country is one of the G-20 major economies and a member of BRICS. In 2011, the country's GDP PPP per capita was $3,703 IMF, 127th in the world, thus making a lower-middle income economy.[13] The independence-era Indian economy (before and a little after 1947) was inspired by the Soviet model of economic development, with a large public sector, high import duties combined with interventionist policies, leading to massive inefficiencies and widespread corruption. However, later on India adopted free market principles and liberalized its economy to international trade under the guidance of Manmohan Singh, who then was the Finance Minister of India under the leadership of P.V.Narasimha Rao the then Prime Minister. Following these strong economic reforms, the country's economic growth progressed at a rapid pace with very high rates of growth and large increases in the incomes of people.[14] India recorded the highest growth rates in the mid-2000s, and is one of the fastest-growing economies in the world. The growth was led primarily due to a huge increase in the size of the middle class consumer, a large labor force and considerable foreign investments. India is the fourteenth largest exporter and eleventh largest importer in the world. Economic growth rates are projected at around 6.9% for the 2011-12 fiscal year. The Indian economy has continuously recorded high growth rates and has become an attractive destination for investments, according to Ms Pratibha Patil, the Indian President. "Today India is among the most attractive destinations globally, for investments and business and FDI had increased over the last few years," said Ms Patil. India's economic growth is expected to remain robust in 2012 and 2013, despite likely headwind of double-dip recessions in Europe and the US, according to a United Nations' annual economic report - World Economic Situation and Prospects 2012. The Indian economy is expected to grow between 7.7 per cent and 7.9 per cent this year, as per the report. India is the second most preferred destination for foreign investors, according to the report 'Doing Business in India' by Ernst & Young. The report explores India's key sectors, investment climate, funding scenario, laws and regulations, to aid companies that are doing, or plan to do business in India. The wealth of high net worth individuals (HNIs) in India, is set to grow by a compounded annual growth rate (CAGR) of 23 per cent over the next four years and will touch a staggering Rs 249 trillion (US$ 5.05 trillion), highlighted a report by Karvy Private Wealth - the wealth management arm of the financial services firm Karvy Group. India has emerged as the world's top recipient of officially recorded remittances for the fourth straight year. India is expected to receive US$ 58 billion this year, followed by China, and Mexico, as per the latest issue of the World Bank's Migration and Development Brief.

The Economic Scenario


Innovation and efficiency are the keys to boost the growth of exports from the country, according to Mr M Veerappa Moily, Union Minister for Corporate Affairs. He also suggested that there is a need to develop innovation centres at the district levels to boost exports.

Exports from special economic zones (SEZ) grew by 17 per cent to Rs 260,973 crore (US$ 52.99 billion) during April-December 2011 from Rs 223,132 crore (US$ 45.31 billion) during the corresponding period in the previous year, according to a statement by the Export Promotion Council for Export-oriented Units and SEZs (EPCES) The total amount of foreign direct investment (FDI) equity inflows during April 2011November 2011 stood at US$ 22,835 million, according to the latest data published by Department of Industrial Policy and Promotion (DIPP) The Government of India has approved 20 proposals of FDI worth Rs 1,935.24 crore (US$ 392.94 million), according to an official statement. The approvals were given, based on the recommendations of the Foreign Investment Promotion Board (FIPB) "India's GDP is expected to grow at 7.7 per cent, which clearly underlines India's potential as an investment destination. The fact that FDI has increased by 31.5 per cent across major sectors further evidences the attractiveness of the Indian economy, as per Gaurav Karnik, Tax Partner, Ernst & Young Foreign exchange reserves stood at US$ 293.383 billion for the week ended February 10, 2012, according to the Reserve Bank of India's (RBI) weekly Statistical Supplement With 56 deals, November 2011 has recorded the maximum number of private equity (PE) investment deals in a month. Real estate, hospitality and construction (RHC) sectors received the highest amount of investments. The investment activity during November 2011 was also significantly higher compared with the corresponding period last year, which was US$ 402 million across 18 deals in November 2010 India Inc raised US$ 1.6 billion through external commercial borrowings (ECBs) in November 2011. Under the automatic route, 78 companies raised US$ 1.3 billion. At present, the Government allows the companies to raise up to US$ 750 million under the automatic route in a year Overseas direct investment by Indian companies has increased at a steady pace in 201112, with cumulative investments amounting to US$ 23.81 billion, according to the Reserve Bank of India (RBI) data. Investments by Indian companies in overseas joint ventures (JV)/ wholly-owned subsidiaries (WOS) aggregated US$ 2.74 billion in November 2011

Growth Potential Story


Consumer spending in India is likely to grow nearly four times to touch US$ 3.6 trillion by 2020, driven by rising incomes and aspirations, widespread media proliferation and better physical reach across the country, according to a joint report titled, 'The Tiger Roars - How a billion plus people consume and shop' by Boston Consulting Group (BCG) and Confederation of Indian Industry (CII).

India's manufacturing sector expanded to 57.9 in December 2011 from 52.8 in November 2011, index rising to a six month high on back of new orders. The HSBC Markit India Manufacturing Purchasing Managers' Index (PMI) increased to 54.2 from 51.0 in November 2010 Indian employers have emerged as the most optimistic, as far as hiring goes, among 41 countries surveyed by the Manpower Group, a world leader in the workforce solutions The revenues from the Indian media and entertainment (M&E) industry is expected to reach over US$ 25 billion in the next four years, according to an Ernst & Young report 'Spotlight on India's Entertainment Economy.' Growing digitisation, media consumption and improving demographics are the most important drivers responsible for the growth of this industry The Indian handset market witnessed a 14.1 per cent growth in 2011 to touch a total volume of 182 million handsets. The total handset volume is expected to reach 335 million units by 2017, according to ABI Research, a US-based market intelligence company Smartphone shipments touched 10 million units in the first eleven months of the calendar year 2011, according to a report titled 'India Monthly Mobile Handsets Market Review', by CyberMedia Research (CMR). Total 3G phone shipments touched 15.5 million in the first eleven months of 2011, according to CMR analysts, with close to 224 models launched by 26 vendors.Moreover, the multi-SIM mobile handset shipments accounted for 54 per cent of the total India mobile handsets market in November 2011 In addition, the Indian banking sector is poised to become the world's third-largest in terms of assets over the next 14 yearswith its assets poised to touch US$ 28,500 billion by 2025according to a report titled 'Being five-star in productivityRoadmap for excellence in Indian banking', prepared for the Indian Banks' Association (IBA) by The Boston Consultancy Group (BCG), IBA and an industry body The entire textile and apparel industry in India is expected to grow by 11 per cent to touch Rs 10.32 trillion (US$ 209.5 billion) by 2020. Currently, menswear is the major chunk of the market at 43 per cent, according to Technopak Advisors, a retail consultancy. Industry estimates peg the formal suits, jackets and blazers segment at Rs 4,500 crore (US$ 913.71 million) Driven by fashion trends, many Indian consumers now spend as much on footwear as on apparels, as they associate variety of shoes to different occasions. The footwear industry in India has almost doubled in the past five years to an estimated Rs 20,000 crore (US$ 4.06 billion) The Indian food processing industry is set to triple to reach US$ 900 billion by 2020, provided the key issues are addressed, as per a study by Boston Consulting Group (BCG) and an industry body

Road Ahead
The Government of India has been ranked fifth in wielding economic clout globally after the US, China, Japan and Germany, and ahead of European powers France and the UK, according to a study authored by Kaushik Basu, Chief Economist Advisor. "The M&E industry in India has been, and will continue to be, one of the biggest beneficiaries of India's favorable demographics," highlighted Farokh Balsara, Ernst & Young's media and entertainment leader for Europe, West Asia, India and Africa. India's increasing per capita income, growing middle class and working population are generating huge domestic demand for leisure and entertainment, thereby making the M&E industry a lucrative option for investments. India's favorable regulations and reforms further assisst in creating investment opportunities for global media and entertainment companies. In an Endeavour to give a stimulus to the 'Incredible India' campaign and cinema as a sub-brand of Incredible India, at various international film festivals abroad, the Ministry of Information and Broadcasting (I&B) and Ministry of Tourism have signed a memorandum of understanding (MoU) to provide support for film tourism. Exchange rate used INR 1= US$ 0.02031 as on February 20, 2012. References: Ministry of Finance, Press Information Bureau (PIB), Media Report, Department of Industrial Policy and Promotion (DIPP), Foreign Investment Promotion Board (FIPB)

Investments
India has emerged as an important investment destination for domestic as well as international investors and it is the key element which has taken the country on a robust growth trajectory. India was ranked the ninth most attractive investment destination in 2009 and is considered as an ideal destination for investments on the back of vibrant democratic setup, presence of a vast network of bank branches, financial institutions, and a well-organised capital market. There are different investment options available in India. These include Bank Fixed Deposits (FD), Stock Market, Mutual Funds, National Saving Certificate (NSC), Gold, Real estate, Equity etc.

Domestic Investments
Introduction The Indian economy has been catching up quite fast during the past two decades, and weathered the global recession well. A series of ambitious economic reforms intended at deregulating the Indian economy and stimulating investment has moved India firmly into the front runners of the rapidly growing Asia Pacific Region. Today India is one of the most exciting emerging markets in the world and is perceived as the second most favorable investment destination. The Indian economy has continuously recorded high growth rates and has become an attractive destination for investments, according to Ms PratibhaPatil, the Indian President. "India's growth offers many opportunities for mutually beneficial cooperation," added Ms Patil. The domestic investment in India increased from US$ 203 billion in 2004-05 to US$ 350 billion in 2009-19, according to a report by Ministry of Finance. The Indian information technology (IT) sector continues to be one of the sunshine sectors of the Indian economy. Tamil Nadu (TN) and Chennai have become the destination of choice for IT investments, according to Ms Jayalalithaa, Chief Minister of Tamil Nadu. According to the Global Competitiveness report 2010-11, India ranks 51 among 139 countries. India ranks higher than many countries in key parameters such as market size (4th) and innovation (39th). It also has a sound financial market (17th). Furthermore, the total value of domestic deals in 2011 was US$ 5.04 billion (356 Deals). Private equity deal value amounted to US$ 8.75 billion (373 Deals) in 2011 as compared to US$ 6.23 billion (253 Deals) in 2010, according to the data released by Grant Thornton India, The domestic investment announcements of India Inc registered a growth of 16 per cent during 2009 over 2008 with Gujarat, Odisha and Andhra Pradesh emerging as frontrunners, according to an analysis of a leading industrial body. As per the assessment report for corporate investments across States and Sectors, total investment plans of India Inc increased considerably from Rs 13.8 trillion (US$ 278.58 billion) in 2008 to Rs 15.94 trillion (US$ 321. 80 billion) in 2009. Gujarat has emerged as the most popular investment destination in India, attracting the highest number of live investment proposals worth Rs 16.28 trillion (US$ 328.62 billion) at the end of 2011, according to a leading industrial body. The power sector has got the majority share of investments in the states of Gujarat, Odisha, Maharashtra, Andhra Pradesh and Tamil Nadu.

Investment options in India


There are various investment opportunities available in India. The different domestic investment options in India include Bank Fixed Deposits (FD), Stock Market, Mutual Funds, National Saving Certificate (NSC), Gold, Real estate, Equity etc. Investments

Enterprise data services company Tulip Telecom has established a 900,000 sqft data centre 'Tulip Data City' in Bengaluru, the world's third largest data centre, at a total investment of Rs 900 crore (US$ 181.67 million) A subsidiary of GVK Power & Infrastructure Ltd, and construction major L&T have signed a pact for execution of a Rs 1,937 crore (US$ 390.99 million) order for a road project in Madhya Pradesh (MP) The GVK group has awarded the contract to L&T to execute the road project on design, engineering, procurement and construction basis of a four-lane road of Shivapuri-Dewas section of National Highway-43 in MP State-run Indian Oil Corporation (IOC) plans to invest Rs 7,700 crore (US$ 1.55 billion) by 2015 to expand its pipeline network. IOC plans to lay more than 20 new pipelines to expand its network from 10,900 km to 15,000 km by 2015, according to KK Jha, Director-pipelines, IOC The urology and laparoscopy chain, RG Stone Hospital, would invest Rs 120 crore (US$ 24.22 million) in Uttar Pradesh over the next two years to set up a chain of hospitals at a dozen locations The Kandla Port Trust (KPT) has awarded the Rs 1,060 crore (US$ 215.21 million) dry bulk terminal development project to its perceived competitor-cum-neighbour, Adani Port and SEZ Ltd (APSEZ). The project will bring in 14 million tonnes (MT) of cargo annually to Kandla Port

Government Initiatives

The Ministry of Road Transport plans to more than double private participation in highway construction during the 12th Five Year Plan starting April 2012. The overall investment in the sector will also double to Rs 3.23 trillion (US$ 65.20 billion) The Government of Maharashtra has decided to set up a manufacturing zone spread over 5,000 hectares under the National Manufacturing Policy. The policy seeks to give a boost to the manufacturing sector so that by 2022, it can contribute at least 25 per cent to the National gross domestic product (GDP) and add 100 million new jobs to the market. It has recognised large integrated areas called National Investment and Manufacturing Zones (NIMZ), which will be the growth drivers for the sector The Government of India plans to increase investments for the development of road infrastructure in the country and the Government would increase funds from around US$ 15 billion per year to over US$ 23 billion in 2011-12 for the same In its endeavour to promote higher investments, the Indian railways have introduced numerous policies to assist its business associates. Some of the policies by the Ministry of Railways are:

o o o o o o o o

Railways Infrastructure for Industry Initiative Private Freight Terminal (PFT) Special Freight Train Operators (SFTO) Automobile Freight Train Operators (AFTO) Automobile and Ancillary Hubs Kisan Vision (Cold Chains) New Catering Policy Rail Connectivity to Coal and Iron ore mines

Road Ahead
India has undergone a paradigm shift due to its competitive stand in the world. The Indian economy is on a robust growth trajectory and boasts of a stable annual growth rate, rising foreign exchange reserves and booming capital markets among others. The recent economic reforms undertaken by the Government during the last few years have made the investment environment conducive for development. If we consider the present state of affairs then Indian operations have occupied a centre stage in the global network. The huge and increasing market, strong financial sector, developing infrastructure, flexible regulatory environment along with the stable and strong outlook of economy makes India an attractive destination for investment. Exchange rate used: INR 1 = 0.02019 as on February 16, 2012

Indian Investments Abroad


India Inc's strong economic base, self-relying model and the ability to adapt are making it spread its wings to overseas markets. Indian companies are no longer shying away to look for opportunities abroad for investments or procurement or anything else. According to recent data available, there were outward foreign direct investments (FDI) from India worth US$ 25.3 billion during April-October 2011 wherein Singapore, Mauritius and the Netherlands were the favourite overseas places for investments. Major investments, recent developments and Government measures pertaining to Indian overseas investments are discussed hereafter. Indian Investments Abroad: Recent Developments & Investments For the month of January 2012, overseas investments by Indian companies stood at US$ 797 million, with Tata Group, infrastructure major IL&FS and pharma major Lupin emerging as major investors.

Tata Steel, Tata Chemicals, L&T and Aditya Birla group flagship Hindalco has recently inked separate in-principle agreements with Kizad (Abu Dhabi government-owned industrial zone) which is establishing one of biggest industrial zones in UAE and has signed 40 deals worth US$ 10 billion. Almost half of this capital is estimated to be from Indian investors.

NTPC, the Government-owned power generation entity, is ready to commence its first overseas project in Bangladesh by May 2012 when the company would work on a 1,320 MW (mega watt) power plant in Khulna. Indian manufacturer Jindal Steel and Power intends to spend US$ 300 million in developing new and existing mines in Africa wherein the company's subsidiary, Jindal Africa would invest US$ 250 million in developing a coalmine in Mozambique's coalrich Moatize region and remaining funds would be used to enhance the capacity of its mine in Piet Retief. The move is part of the company's strategy to source coal assets abroad to meet raw material demand of its steel and power plants in India. Ethiopia- the world's third fastest growing economy and an emerging hot-spot for Indian investments - is seeking trade tie-ups with India. The country is quite keen on investments from India in sectors such as plantation, farming, leather, textiles, steel, hospitality, food processing and education. Bharti Airtel has recently launched its highly innovative mobile money platform named 'Airtel Money' in Uganda. The service, accessible to all Airtel customers in Uganda, would allow them to top up their cellphones with airtime, send and receive money, pay utility bills, access their bank accounts and even withdraw Airtel money across all interswitch ATMs countrywide. India's largest software services exporter Tata Consultancy Services (TCS) has entered into an alliance with Japan's Mitsubishi Corporation for offering full service range of IT, BPO and infrastructure services. The US$ 5 million 60:40 joint venture (JV) between TCS and Mitsubishi would lead to establishment of a near-shore delivery center in Japan. Personal care and food products manufacturer Dabur India plans to invest US$ 20 million to build plants in Africa in a bid to consolidate its global presence. The company already has capacities in Nigeria and Egypt and would invest Rs 1 billion (US$ 20.3 million) over 2012-14 to build facilities in Morocco and in southern and eastern Africa.

Indian Investments Abroad: Government Initiatives The Government of India is in full swing to support India Inc to make global investments. The Government has even strategised plans aimed to support smaller players to go for foreign acquisitions. As a part of the same strategy, the Department of Industrial Policy and Promotion (DIPP) has identified South East Asia, Eastern Europe and Africa as zones where it will assist Indian companies regarding assets as well as companies buy-outs. Also, in 2011, the Government of India had approved a policy to support raw material asset purchases made by public sector undertakings (PSUs) abroad under which the investment limit for 'Navratna' firms to was raised to Rs 3,000 crore (US$ 608.88 million) from Rs 1,000 crore (US$ 202.97 million) for any asset buy-out. Now further consolidating this support, the Government has directed its missions to provide 'critical' inputs to state-run firms looking for acquisitions in overseas markets wherein the missions would not only actively participate in the process but would also facilitate information on infrastructure development, grant of concessional credit or other inputs that could make the acquisition a successful one.

On the similar lines, the Department of Public Enterprises, a nodal agency for all 246 state-run companies, has asked the PSUs to inform the Ministry of External Affairs about any buy-out plans at the preliminary stage itself. Seeing Government involvement to such an extent, 17 large state-run firms have disclosed that they intend to invest Rs 140,000 crore (US$ 28.41 billion) in their expansion. Furthermore, in a bid to enhance connectivity between Bangladesh and India, the Government of India has commissioned a US$ 51 million railway project to connect Bangladesh's southeastern border town Akhaura with Agartala, capital of Indian state Tripura. The project, estimated to be completed by 2014, is completely funded by India and Bangladesh would ensure timely completion of the same. Road Ahead India Inc is on an upsurge when it comes to marking global presence. Be it for raw material sourcing, technical support or investments, the companies are completely confident in their approach and are not hesitant towards foreign competitors and markets. This confidence is further strengthened by the kind of support Government of India is lending to the companies. The Government is leaving no scope in helping the firms make their overseas investments. Officials have stated that a flurry of free trade agreements (FTAs) inked as well as in-process have boosted companies to take advantage of the opportunities available internationally. For instance, a company would prefer to import a reasonably-priced component or raw material due to low or zero duty. Similarly, companies engaged in sectors such as power, in coastal areas are looking to acquire coal mines abroad. Latin America and Eastern Europe are hot destinations for several IT and pharma companies due to easy legal requirements. The current situation goes well with a comment made by Sahara India group boss Subrata Roy which says "This, according to me, is just a beginning. It is a pleasure to see India and Indians achieving success globally..." Exchange Rate Used: INR 1 = US$ 0.0203 as on February 15, 2012.

Trade and External Sector


Investments from overseas entities in terms of foreign direct investment (FDI), foreign institutional investment and capital inflows are fuelling India's foreign trade and external sector. India's efforts in the avenue are paying-off well as the country is increasingly being designated as an important nation, particularly during the times when the rest of the countries are suffering from the ripple effects of financial meltdown. India's performance with respect to foreign trade and external business is discussed below.

Capital Inflows
According to the weekly statistical supplement of the Reserve Bank of India (RBI), India's foreign exchange reserves (forex) stood at US$ 293.54 billion for the week ended January 6, 2012. Foreign currency assets aggregated to US$ 259.80 billion and the value of gold reserves stood at US$ 26.62 billion for the week. The value of special drawing rights (SDRs) was calculated at US$ 4.41 billion, and India's reserves with the International Monetary Fund (IMF) came out to be US$ 2.69 billion.

FDI
FDI inflow rose by 36 per cent to US$ 23.69 billion during January-October 2011, while the cumulative amount of FDI equity inflows from April 2000 to October 2011 stood at US$ 226.05 billion, according to the latest data released by the Department of Industrial Policy and Promotion (DIPP). The services (including financial and non-financial) sector attracted highest FDI equity inflows during April-October 2011-12 at US$ 3.43 billion. India received maximum FDI from countries like Mauritius, Singapore, and the US at US$ 61.2 billion, US$ 15.2 billion and US$ 10 billion, respectively, during April 2000-October 2011. Global consultancy firm Ernst & Young (E&Y) has stated that the value of mergers and acquisition (M&A) deals involving Indian companies aggregated to US$ 34.4 billion in 2011 involving 806 transactions. There were 177 outbound deals with an aggregate disclosed value of US$ 8.8 billion in 2011; forming 25.6 per cent of the total M&A pie. Adani Enterprises' acquisition of Abbot Point Coal Terminal in Australia (US$ 2 billion) and the GVK Group's purchase of Australia-based Hancock Coal's Queensland coal assets (US$ 1.3 billion) were among the biggest outbound deals recorded in 2011. According to data released by auditing and consultancy firm KPMG, India Inc witnessed a 31 per cent increment in PE investment to US$ 7.89 billion during the first three quarters of 2011. PE firms like Blackstone India and Kohlberg Kravis Roberts & Co (KKR & Co) are betting high on Indian markets. The Blackstone India chief was reported to have said that he intends to close 5-6 deals a year in India whose financial valuations would revolve around roughly US$ 100 million to US$ 120 million each. FII According to the data released by Securities and Exchange Board of India (SEBI), foreign institutional investors (FIIs) purchased stocks worth Rs 600,000 crore (US$ 119.25 billion) during 2011. FIIs were also seen attracted to the debt market in 2011 wherein they infused Rs 42, 067 crore (US$ 8.36 billion). This intense interest in debt markets helped India get a net FII inflow of Rs 39, 353 crore (US$ 7.82 billion) for the year (taking both- debt and stocks- into account).

FIIs invested over US$ 1 billion in Indian debt market in the month of January 2012 itself (till January 5), as per the SEBI data. According to the data available with the Bombay Stock Exchange (BSE), FIIs have consolidated their holdings in 11 out of the 30-Sensex firms during the July-September quarter of 2011. The number of FIIs registered with SEBI stood at 1, 749 as of October 2011, while the number of FII sub-accounts was 6, 058 during the month. Exports India's exports for the period of April- December 2011 have surged by 25.8 per cent to US$ 217.6 billion. Petroleum and Oil products made the highest growth at 55 per cent at US$ 43.9 billion in value. Gems & Jewellery, engineering and drugs & pharmaceuticals registered a growth of 38.5 per cent, 21.6 per cent and 21.5 per cent respectively. Merchandise exports for the month of December 2011 grew by 6.7 per cent at US$ 25 billion. External Sector The Government of India is highly active in terms of establishing and maintaining its relations with foreign countries. The efforts are paying off well as the country is getting recognised on the global map as a growth-oriented and investor-friendly nation. Certain foreign countries have taken steps to increase trade and business with India. Some of the recent developments in this space are discussed below:

The exporters' body - Federation of Indian Export Organisations (FIEO), has recently stated that countries from Latin America and the Caribbean (LAC) intend to double their trade with India to US$ 50 billion by 2013-14. India made a trade of US$ 24.43 billion with LAC countries in 2010-11 out of which India's exports were US$ 10.23 billion. Hungary is very keen on investments from India in automobile industry, including auto components segment. Janos Terenyi, Ambassador of Hungary to India, has indicated that the European country is not only interested to strengthen trade and business ties with India, but also desires bilateral co-operation in political, cultural and economic relationship.

Currently, bilateral trade between India and Hungary is projected at US$ 30 million.

Foreign Trade Policy Foreign Trade Policy (FTP) or Exim Policy is a set of guidelines pertaining to import and export of goods and services. In India, Directorate General of Foreign Trade (DGFT) is the apex body governing Exim policy. Mr Rishad Bathiudeen, Minister of Industry and Commerce, Democratic Republic of Sri Lanka, anticipates the Indo-Sri-Lankan bilateral trade to have crossed the mark of US$ 4 billion in 2011. Pointing out that India could tap immense business opportunities in Sri Lanka's hospitality sector; he mentioned that the two countries' partnership would make them scale new heights of economic growth. The Indo-Lanka Free Trade agreement (FTA) has largely helped Sri Lanka to diversify its portfolio of exports to India. Pakistani High Commission has formally invited Mr Anand Sharma, Indian Union Minister of Commerce, Industry and Textiles.to close three agreements removing non-tariff barriers in bilateral trade. The proposed agreements (on customs cooperation, mutual recognition and redressing grievances), if signed by the two countries, would remove all tariff and non-tariff barriers. India-European Union (EU) FTA is heading towards its final stage. The two nations have aligned their thoughts in various areas such as pharmaceuticals. Negotiators are now working on achieving the consensus for agricultural products and automobiles. The Government of India is taking all the possible initiatives to strengthen its foreign ties. Bilateral agreements, FTAs, negotiations et al are on an all-time-high which indicates that the country is increasingly being recognised as a global strategic player. Exchange Rate used: INR 1 = US$ 0.0199 as on January 19, 2012.

US Economy v/s Indian Economy


U.S.-INDIA RELATIONS http://www.state.gov/r/pa/ei/bgn/3454.htm Recognizing India as a key to strategic U.S. interests, the United States has sought to strengthen its relationship with India. The two countries are the world's largest democracies, both committed to political freedom protected by representative government. India is also moving gradually toward greater economic freedom. The U.S. and India have a common interest in the free flow of commerce and resources, including through the vital sea lanes of the Indian Ocean. They also share an interest in fighting terrorism and in creating a strategically stable Asia. There were some differences, however, including over India's nuclear weapons programs and the pace of India's economic reforms. In the past, these concerns may have dominated U.S. thinking about India, but today the U.S. views India as a growing world power with which it shares common strategic interests. A strong partnership between the two countries will continue to address differences and shape a dynamic and collaborative future. In late September 2001, President Bush lifted sanctions imposed under the terms of the 1994 Nuclear Proliferation Prevention Act following India's nuclear tests in May 1998. The nonproliferation dialogue initiated after the 1998 nuclear tests has bridged many of the gaps in understanding between the countries. In a meeting between President Bush and Prime Minister Vajpayee in November 2001, the two leaders expressed a strong interest in transforming the U.S.-India bilateral relationship. High-level meetings and concrete cooperation between the two countries increased during 2002 and 2003. In January 2004, the U.S. and India launched the Next Steps in Strategic Partnership (NSSP), which was both a milestone in the transformation of the bilateral relationship and a blueprint for its further progress. In July 2005, President Bush hosted Prime Minister Singh in Washington, DC. The two leaders announced the successful completion of the NSSP, as well as other agreements to further enhance cooperation in the areas of civil nuclear, civil space, and high-technology commerce. Other initiatives announced at this meeting included: a U.S.-India economic dialogue, the fight against HIV/AIDS, disaster relief, technology cooperation, a democracy initiative, an agriculture knowledge initiative, a trade policy forum, an energy dialogue, and a CEO forum. President Bush made a reciprocal visit to India in March 2006, during which the progress of these initiatives was reviewed, and new initiatives were launched. In December 2006, Congress passed the historic Henry J. Hyde United States-India Peaceful Atomic Cooperation Act, allowing direct civilian nuclear commerce with India for the first time in 30 years. U.S. policy had opposed nuclear cooperation with India because the country had developed nuclear weapons in contravention of international conventions and never signed the Nuclear Non-Proliferation Treaty. The legislation cleared the way for India to buy U.S. nuclear reactors and fuel for civilian use.

In July 2007, the United States and India reached a historic milestone in their strategic partnership by completing negotiations on the bilateral agreement for peaceful nuclear cooperation, also known as the "123 agreement." This agreement, signed by Secretary of State Condoleezza Rice and External Affairs Minister Pranab Mukherjee on October 10, 2008, governs civil nuclear trade between the two countries and opens the door for American and Indian firms to participate in each other's civil nuclear energy sector. In July 2009, Secretary of State Hillary Clinton traveled to India to launch the Strategic Dialogue, which called for collaboration in a number of areas, including energy, climate change, trade, education, and counterterrorism. Prime Minister Singh visited Washington, DC in November 2009 for the first state visit of the Barack Obama administration. The inaugural session of the U.S.-India Strategic Dialogue was held in June 2010 in Washington, DC. The event was successful and showed progress in the U.S. India relationship. President Obama visited India in November 2010.

India-U.S. Economic and Trade Relations


Economic and trade relations between the United States and India have been problematic in the past, but are currently considered comparatively cordial. U.S. policymakers often identify in the Indian political system shared core values, and this has facilitated increasingly friendly relations between the U.S. and Indian governments. In addition, the trade and investment reforms implemented by India over the last 15 years have generally fostered improved trade relations. Indian officials opine that the two national economies present complimentary business interests rather than a standard developed-developing relationship.81 However, the improvement in trade relations has been punctuated by episodic problems, generally based on political rather than economic differences of opinion. A major divergence came on May 13, 1998, when the United States imposed trade sanctions on India in response to its nuclear weapons tests.

Trends in Merchandise Trade


Regardless of which nations trade statistics are considered, the value of merchandise trade between India and the United States has picked up dramatically over the last 20 years. In 1986, according to U.S. trade statistics, the total value of bilateral trade with India was $4.0 billion. By 2006, the total value of bilateral trade had risen to $31.9 billion nearly an eight-fold increase. However, despite the rapid growth in the value of trade, the relative importance of the other nation to its total trade declined markedly in the late 1960s a decline from which it has not recovered.

Indias Merchandise Trade with the United States The value of Indias exports to and imports from the United States from 1958 to 2006, according to data reported by the Indian government to the International Monetary Fund (IMF). The graph

shows that both Indias exports to and imports from the United States were relatively low in value and subject to fluctuations from 1958 to about 20 years ago. However, since the mid1980s, U.S. imports from India have steadily increased in value while Indias exports to the United States have shot up dramatically. Despite the recent strong growth in trade flows in both directions, the relative importance of the U.S. for Indias imports has actually declined over the last 40 years, while its share of Indias exports has rebounded In the mid- 1960s, nearly one-fifth of Indias exports went to the United States, and the United States supplied India with over one-third of its imports. In 1981, the United States had declined in importance, purchasing just over 11% of Indias exports and supplying less than 10% of its imports. In 2006, the United States purchased 17.4% of Indias exports almost the same percentage as in 1961 but only provided India with 5.9% of its imports. As a result, the United States was Indias largest export market in 2006, and its third largest source of imports. Indias Merchandise Trade with the United States,1958-2006 (U.S. $ Billions)

U.S. Share of Indias Merchandise Trade, 1958-2006

U.S. Merchandise Trade with India An examination of U.S. statistics for bilateral trade with India reveals a similar pattern as Indias data. Figure 8 shows official U.S. trade statistics for the same time period as. In value terms, U.S. exports to India and Indias exports to the United States are comparatively low in value and flat until the mid-1980s. After a significant increase in the 1980s, U.S. imports from India rise rapidly starting in the early 1990s. U.S. exports to India also pick up in value starting in the early 1990s, but not at the same pace as imports from India. U.S. Merchandise Trade with India, 1958-2006 (U.S. $ Billions)

The role of India in U.S. merchandise trade flows has undergone a similar, but less dramatic, change as was seen for the importance of the United States for Indias trade. In the mid-1960s, India provided the United States with about 3% of its imports and purchased about 1.5% of its exports. Both of these percentages slid to under 1% in the 1970s. Since then, Indias importance as a supplier of U.S. imports has risen slightly and slowly to 1.2% while Indias share of U.S. exports has increased modestly to 1.0% after falling to 0.4% in the early 1990s. As a result, India was the 21st largest export market for the United States in 2006 and its 18th largest supplier of imports. Indias Share of U.S. Merchandise Trade, 1958-2006

Top Traded Commodities There are some differences between official U.S. and Indian trade data on what the top traded commodities are between the two countries. In some cases, the difference is only in the value and ranking of the leading traded goods. However, in other cases, there are significant differences in the value of goods exchanged, leading to differences in the top traded items. Lists the top five commodities imported and exported according to U.S. and India trade statistics in 2006.

Top Five Traded Commodities: U.S.-Indian Bilateral Merchandise Trade, 2006 (U.S. $ Billions)
Rank First Second Third Fourth Fifth Exports (HS Code) Machinery (84) Aircraft (88) Electrical Machinery (85) Jewelry (71) Optical & Medical Equipment (90) Jewelry (71) Woven Apparel (62) Knitted Apparel (61) 1.671 1.623 1.091 0.924 0.688 Imports (HS Code) Jewelry (71) Woven Apparel (62) Electrical Machinery (85) Knitted Apparel (61) Misc. Textile Articles (63) 5.866 2.079 1.245 1.163 1.105

U.S. Data

Indian Data
Machinery (84) Electrical Machinery (85) Optical & Medical Instruments (90) Fourth Misc. Textile Articles (63) 1.014 Fertilizers (31) Fifth Machinery (84) 0.940 Aircraft (88) Source: Global Trade Atlas; HS chapter numbers in parentheses. First Second Third 4.760 1.839 1.098 1.814 1.254 0.764 0.685 0.625

The United States and India agree that the top U.S. exports to India in 2006 included machinery, electrical machinery, optical & medical instruments, and aircraft, but disagree on the value of those exports and their relative ranking. Similarly, both nations report that the top Indian exports to the United States in 2006 included jewelry, woven apparel, knitted apparel, and miscellaneous textile articles. There are differences between the two countries over the last commodity in their Respective top five exports to each other. U.S. data indicates that missing commodity category for top five exports to India is jewelry, but Indian data says it is fertilizer. Similarly, Indian trade authorities list machinery as its fifth largest export to the United States, but U.S. trade figures place electrical machinery as the countrys third largest import from India.

Emerging Competition from China


While there are minor differences in the trade figures for bilateral U.S.-India merchandise trade, both nations recognize that China is a rising competitor to the United States.82 According to Indias trade statistics, China became Indias leading source of imports in 2004, displacing the United States. In 2000, U.S. exports to India were worth nearly $2.9 billion nearly twice the value of Chinas exports to India. By 2004, Chinas exports to India totaled $6.0 billion, and U.S. exports to India were $5.7 billion. In 2006, U.S. exports to India totaled $9.9 billion, but Chinas exports to India had risen to $15.6 billion. The United States remains Indias leading trading partner on the strength of Indias exports to the United States. The value of such exports more than doubled from $9.3 billion in 2000 to $18.7 billion in 2005. Over the same time period, Indias exports to China increased from $0.7 billion to $7.8 billion a more than 10-fold increase. As a result, Indias total trade with the United States rose from $12.2 billion in 2000 to $28.6 billion in 2006, while its total trade with China jumped from $2.2 billion to $23.3 billion.

Indias Trade with the United States and China, 2000-2006

To summarize, from both the U.S. and Indian perspective, there has been a recent rapid increase in bilateral merchandise trade flows, with Indias exports to the United States our performing U.S. exports to India. However, despite the rise in the value of bilateral trade, the relative importance of the other country to the nations external trade volume has remained small and is well below levels seen in the decade immediately following Indias independence. Also, over the last five years, Indias trade with China has grown more rapidly than trade with the United States. As a result, China has already surpassed the United States as Indias leading source of Imports and May soon becomes Indias largest trading partner.

Trade in Services
According to the U.S. Bureau of Economic Analysis, bilateral trade in services in 2005 totaled just over $10 billion about one-third the size of the nations merchandise trade with India. However, many analysts believe that bilateral trade in services has greater potential for rapid growth in the near future than merchandise trade. As a result, there is increased interest in service trade relations between the United States and India, including a proposal for a U.S.-India free trade agreement in services.83 In contrast to merchandise trade, bilateral service trade was nearly balanced in 2005, after a period of service trade surpluses for the United States. Between 2000 and 2005, bilateral services trade increased 130%, compared to 90% growth in bilateral merchandise trade over the same five year span.

Indo-U.S. Trade in Services, 2000-2005 (US$ Billions)

Trade in transportation services is a major component of the bilateral trade. In 2005, the United States exported about $1.5 billion worth of transportation services to India, and imported a nearly identical amount of such services from India. India and the United States also exchanged a large amount of professional services, with U.S. exports worth $462 million in 2005 and imports of $597 million.

U.S.-India Economic Dialogue


During the Indian prime ministers July 2005 visit to Washington, D.C., he and President Bush agreed to revitalize the U.S.- India Economic Dialogue. The Economic Dialogue has four main fora the U.S.- India Trade Policy Forum, the Financial and Economic Forum, the Environmental Dialogue, and the Commercial Dialogue. At the July 2005 session, India and the United States agreed to three new initiatives under the Economic Dialogue the Information and Communications Technology Working Group, the CEO Forum, and the U.S.-India Agricultural Knowledge Initiative and reconstituted the High Technology Cooperation Group. The objective of the Economic Dialogue is to seek ways to resolve outstanding economic and trade issues, develop administrative capacity, and provide technical assistance. In general, meetings of the Economic Dialogue or its constituent groups consist of government officials from both nations, as well representatives of the Indian and U.S. private sectors.

Key Economic and Trade Issues


There are several sectoral or topical issues of significance between India and the United States. Some of these issues interplay with more general issues, such as the Doha Round negotiations or the bilateral trade balance. What follows is a brief summary of each of these issues, arranged in alphabetical order.

Agricultural Goods
In India and the United States, there is interest in improving market access to each others markets in anticipation of greater trade in agricultural goods. In 2006, the United States exported over $300 million in agricultural goods (including over $42 million in prepared foods) to India, and imported $1.3 billion in agricultural goods from India. Trade in Agricultural Goods: India and the United States, 2006 (US$ Millions)

U.S. exports of live animals and animal products are hindered by Indian import restrictions and cultural norms. Cattle and beef imports are subject to import controls because of the risk of mad cow and hoof in mouth disease, as well as the Hindi and Buddhist prohibitions of eating beef and Muslim prohibitions of eating pork. Similarly, on March 14, 2007, India stopped the import of poultry, poultry products, pigs, and pork products from countries infected with avian influenza to protect the public health.114 Other U.S. products such as coffee, tea and most grains115 are effectively kept out of India by tariff rates as high as 100%. A July 2007 Indian government reported determined that U.S. wheat was unfit to be imported into India due to the presence of pervasive weeds.On March 6, 2007, the United States requested WTO dispute settlement consultations with India over the customs duties it imposes on imports of wine and distilled spirits, claiming that charges for additional dutyand extra additional duty increased the imposed tariff rate to 150% to 550%. The European Union (EU) also requested consultations over the same issue. India has committed to the WTO to bind its tariff on wine and spirits to no more than 150%. On March 30, 2007, Indian Trade Minister Kamal Nath said that India knew its import duties on wine and alcohol were high and that this situation would be corrected. However, at an April 10 meeting of WTO Dispute Settlement Board, India blocked the first attempt by the European Union to request the creation of a dispute settlement panel to address Indias import regime for wine and alcohol. The dispute panel was approved at a subsequent meeting of the WTO Dispute Settlement Board on April 24, 2007. The United States has also expressed concern about Indias application of its sanitary and phytosanitary (SPS) regulations on certain U.S. exports.119 The United States questions some of the scientific basis for Indias SPS regulations. It also believes that some of the SPS standards are not in accord with internationally recognized standards. Plus, the United States has indicated that India has failed to

notify other nations of changes in SPS regulations in a timely fashion. In particular, the U.S. Trade Representative has objected to Indias proposed import and labeling requirements for genetically modified foods.

U.S. Trade Balance with India, 2000-2006

Exchange Rate: Indian Rupees per U.S. Dollar, 2005-2007

Chinese Economy v/s Indian Economy


China and India: Economic Performance, Competition and Cooperation China and India had similar development strategies prior to their breaking out of their deliberate insulation from the world economy and the ushering in of market-oriented economic reforms and liberalization. China began reforming its closed, centrally planned, non-market economy in 1978. India always had a large private sector and functioning markets which were subject to rigid state controls until the hesitant and piecemeal reforms of the 1980s. These became systemic and far broader after India experienced a severe macroeconomic crisis in 1991. The political environments under which reforms were initiated and implemented in the two countries and their consequences were very different. India continues to be an open, participatory, multiparty democracy, while China has an authoritarian, one party regime, though it is liberalizing. After recounting the differing rationales as well as the similarities and differences in the content of their reform agenda, I reviewed in Srinivasan (2002) the achievements of reforms and remaining challenges, particularly regarding reforms of state owned enterprises (SOEs). I concluded with an analysis of the competition between China and India in world markets and the potential for their cooperation in the Doha Round of multilateral trade negotiations under the auspices of the World Trade Organization (WTO).

Macroeconomic Prospects and Problems


1.Sustainability of Growth Estimates of Chinas and Indias per capita real incomes show that, starting from roughly equal levels in 1870, India forged ahead of China until the outbreak of the First World War. Though both experienced declines in their per capita incomes thereafter (China more so than India) by 1950, Indias per capita income was about 40% higher than Chinas, and it took roughly the next three decades for China to catch up. Since 1980, China has forged much farther ahead. China and India were the star performers in aggregate GDP growth in the 1980s and 1990s. Chinas average growth of 10% per year during 1980-2001 had slowed to a range of 7-8% per year during 19982002. It is projected to grow at 8% in 2003. In light of the facts that China was hit by the SARS epidemic in 2003, and economic growth in Chinas major markets in Europe and North American had slowed since 2000, its performance is remarkably good. Growth continues to be fueled by a rising ratio of fixed investment to GDP, which is expected to reach 42.2% in 2003. World Bank (2003b) notes that this rate of investment exceeded the levels reached in the early 1990s when the economy was believed to be overheating. Furthermore, much of the investment is apparently supported directly or indirectly by poorly monitored sub-national entities. Clearly, a rapid growth of such investment would erode its efficiency and could threaten future macroeconomic stability. In India, the average annual rate of growth of GDP was close to 6% during 1980-2001. It reached a peak of 7.8% in 1996-97 from the low of 1.3% in the crisis year of 1991-92. Since then, it has fluctuated between a low of 4.0% in 2002-03, a year in which the economy was affected by a serious drought to a high of 6.5% in 1998-99. With bountiful monsoon rains in 2003, growth is expected to be in the range of 7.5% to 8% in 2003-04, as per

the Finance Ministers budget speech to the Parliament in February 2004. Investment as a proportion of GDP has ranged between 23.1% to 27.7% of GDP since 1991-92. In both countries, the issue of sustainability into the future (of say, the next two decades or so) of current growth rates is important. Clearly, if the high rates of savings and investment are not sustainable, and the efficiency of investment is doubtful, then Chinese growth rates will decline. Indeed, with greater quality and a larger number of various consumer goods (including durables, such as passenger cars) becoming increasingly available in the market, Chinese households may consume more and save less out of their rising incomes than they are doing now. Also, the rocess of phasing out of SOEs and ushering in of truly private enterprises that respond to market signals may not be smooth and could affect growth adversely. On the other hand, Chinas accession to the WTO and its further integration with the world economy could be expected to improve the efficiency of resource use through greater competition, inflow and adoption of better technology, and improvements in financial intermediation from the operation of foreign banks and other intermediaries could more than offset the effects of any decline in investment. On balance, I do not foresee any significant decline in Chinese growth in the near to medium-term future.

2. Fiscal Situation
China appears to be in a much better fiscal position as compared to India, with a very modest fiscal deficit of 3.3% of GDP and a debt/GDP ratio of only 26.3% in 2002 (World Bank 2003b)3. In contrast, the central governments fiscal deficit in India in 2002-03 was 5.9% of GDP with the deficits of states adding another 4.6% of GDP. The overall debt/GDP ratio was 75.3% (RBI 2003a, Tables 223 and 224). However, World Bank (2003b) points out that a costly reform agenda lies ahead for China that includes pension/social security reforms and dealing with accumulated non-performing loans (NPLs) of the four largest publicly owned banks. Although NPL to assets ratio had declined to 26% by the end of 2002, this is believed to be the outcome of large increases in new loans rather than a contraction of old NPLs through better collections. The sterilization of the enormous inflows of foreign capital through the issue of ad hoc bills by the central bank at interest rates exceeding the rates earned on foreign assets of the bank in effect adds to the fiscal deficit, if it is properly treated in budget accounting. Although the current level of budget deficit could be sustained indefinitely by restricting expenditures to 22% - 23% of GDP, the costs of future reforms might require a combination of policies on the tax and expenditure sides. The potential budgetary impact of addressing the NPL of state-owned banks in India is more serious than in the case of China because of the better fiscal health of China, as noted earlier. This is so even though the ratio of gross NPL to total gross assets of commercial banks was only at 4.8% at the end of 2001-02 (RBI 2003b, Chart VI.I) compared to the reported figure of 26% for China. The reason is that first of all, the Indian norms for recognition of NPLs is more liberal compared to international norms and the practice of ever-greening, i.e., of rolling over loans so that they are not deemed non-performing, though denied by the regulatory authorities as happening, is said by other knowledgeable sources to be significant. Battacharya and Patel (2002) note that the Indian banking system suffers from a large and increasing role of the

Government in the financial sector, high regulatory forbearance and the absence of efficient bankruptcy procedures. With the dominance of large public sector banks in the financial sector, the too big to be allowed to fail syndrome is very much evident: one of the government owned Banks has been recapitalized three times in the last decade! With the rupee not convertible for capital account transactions, and with controls on capital outflows continuing, and foreign exchange reserves exceeding $105 billion in February 2004, there is no imminent threat of a speculative attack on the rupee. This in turn means that the pressure to clean up the NPLs of the banking system from a fear of exchange rate crisis is not there. However, the fact that NPLs of public sector banks represent contingent liabilities of the government is in part reflected in the rating of Indias sovereign debt by international credit rating agencies. Clearly, sooner or later the NPL problem has to be faced if the Indian rupee is to be made convertible on capital account.

3. Trends in Poverty
The fact that poverty has declined significantly in both countries since the 1980s after both experienced substantial acceleration in their growth of per capita GDP has been widely noted. However, in India, because of changes in design of the household expenditure survey in the 1990s, a problem of potential non-comparability of poverty estimates over surveys has emerged. This has led to research on alternative ways to check on the seriousness of non-comparability and to adjust for it to provide comparable estimates. In addition, there were issues relating to the price indices used to update poverty lines. Needless to say, some strong assumptions have to be made in all such exercises, and researchers naturally differed in their assumptions and methodologies and reached varying conclusions about the decline in poverty. It is fair to say that all of them agree that the poverty ratio did not increase in the 1990s, and differ only on whether it declined, and if so, whether the decline was faster in the 1990s than in the 1980s, when growth started to accelerate and poverty began to decline. Official estimates (GOI 2003, Table 10.6) show that the proportion of poor in the population (using national poverty lines) declined from 45.7% in 1983 to 27.1% in 1999-2000 in rural areas, and from 40.8% to 23.6% during the same period in urban areas. For the country as a whole, poverty declined from 44.5% to 26.1%. Sundaram and Tendulkar (2003) estimate the decline to have been from 49% to 29% in rural areas, from 38% to 23% in urban areas, and from 46% to 27% in the country as a whole. Deatons (2003a) calculations show that rural (urban) poverty declined from 37.3% in 1993-94 to 30.2% in 1999-2000 and from 32.2% to 24.7% in urban areas. Sen and Himanshu (2003) dispute some of the assumptions underlying the estimates of Sundaram and Tendulkar. Their exercise, based on survey data for 1987-88, 1993-94 and 1999-2000, lead them to conclude that, although the proportion of poor did probably decline, the reduction was no higher during 1994-2000 than it was during 1987-94, and the absolute number of poor did not decline. Historically, the Indian statistical system led the world in measurement of poverty. Larges cale sample surveys were pioneered by Processor P. C. Mahalanobis at the Indian Statistical Institute in the 1940s, and it was but natural that after independence in 1947 steps were taken to undertake large-scale household expenditure surveys, initially to supplement national accounts statistics and later to measure trends in levels of living. India also has a distinguished tradition of attempts to cross-check estimates from various sources of data and of vigorous debate about, as well as experiments with, alternative methodologies (Srinivasan and Bardhan 1974; Deaton and Kozel 2003). In China, household surveys and poverty estimates based on them, as well as a debate on

the statistical system, are fairly recent (Park and Wang, 2001). This has to be kept in mind in interpreting the data. Hu, Hu and Chang (2003, Appendix Table 1) report that, according to official data, the proportion of poor in the rural population of China fell steadily from 33.1% in 1978 to as low as 3.7% in 1999. World Bank (2003d, Table 1.4) estimates (using $a day consumption poverty line) suggest that the poverty proportion fell from 32.9% in 1990 to 16.1% in 2000.

4. Widening Regional Disparities


In both China and India, there was significant widening of regional disparities in growth and Poverty reduction. As is evident from Table 2, rural China and western regions lag far behind Urban China and coastal regions. The top panel of Table 3 provides data on growth of net state Domestic product in five fastest and slowest growing states among sixteen large states in India during the 1980s and 1990s (the crisis year of 1991-92 has been omitted). The bottom panel of Table 3 provides data on rural and urban poverty ratios for three years1987-88, 1993-94, and 1999-2000in five highest and lowest poverty states. It is seen that the fastest growing state, Delhi, grew at nearly 2.5 times or more than the slowest growing state of Kerala in the 1980s and more than five times the then slowest growing state of Assam in the 1990s. Also, the highest poverty state had a poverty ratio which was anywhere between 4.5 times to nearly 10 times the poverty ratio in the lowest poverty state, depending on the year and region (rural or urban). Turning to rural poverty, Bihar, Orissa and West Bengal are high poverty states in all three years. Punjab and Haryana are low rural poverty states in all three years. Four states are common among low rural poverty states in any two years. Orissa and Madhya Pradesh are high urban poverty states in all years. Three states are common among high poverty states in any two years. The same five states happen to be low urban poverty states in all three years. The relation between growth and poverty is rather muted. Delhi, which is largely urban, has low poverty in all years and high growth in both periods. Orissa has low growth in both periods with high rural and urban poverty in all years. Punjab and Haryana have low urban and rural poverty in all years, but Haryana had high growth in the 1980s and Punjab low growth in the 1990s. Put another way, while there is considerable stability over the three years in which states happened to have high or low poverty ratios, there is considerable change in growth ranking of states between the 1980s and 1990s. Unless rapid growth is sustained over a reasonably long period of time, its impact on reducing entrenched poverty cannot be expected to be significant. This is consistent with the lack of close association between poverty and growth states, there was a considerable change in growth ranking over time. In the Chinese case, the deliberate policy choice of the government to concentrate reforms and external opening to coastal cities and special economic zones contributed to their growing faster and moving ahead of the other regions, particularly in the West. In India, there was no such deliberate policy choice. However, as is to be expected and natural, those individuals, groups and states that were initially better placed in terms of their infrastructure and human capital grew faster than others not so well placed. To a considerable extent, this is also true of China. The real issue is not so much the widening disparity but whether there are forces and policies in place that would enable the lagging regions to catch up and converge to the leading ones over time. On this, the evidence is mixed, if one goes by the empirical findings of several cross-regional growth

regressions as reported in Srinivasan (2004). Clearly, if there are no prospects of relatively rapid convergence, the stability of Indias federal democracy and the control of the Communist Party in China could be put in doubt.

External Sector
1. Trade in Goods and Services China continues to outpace India in global integration. In 2002, it was the worlds fifth largest exporter of merchandise, with a share of 5% of world exports. China is tenth in commercial service exports, with a share of 2.5%. Its growth in the share of merchandise exports is henomenal, more than quadrupling during 1983-2002. India is a distant 30th in world merchandise trade, with a share of 0.8% in 2002, which represents a growth of only 60% during 1983-2002. A more disaggregated picture in terms of the changes in the shares of India and China of several labour-intensive exports in the world as well as in the major markets of North America (Canada and the US) and the European Union reveals Chinas success relative to Indias even more starkly. In almost every commodity and market, Chinas share has grown rapidly since 1978, whereas Indias share has grown much less, if at all. Gopalans (2001) estimates of labor productivity in manufacturing suggest that except in petroleum products and nonelectrical machinery, the productivity of a Chinese worker is higher than that of an Indian worker by anywhere from 30 percent to 180 percent, depending on the product. Of course, these estimates must be treated with caution, given a number of factors including the heterogeneity of labor and of products within broad manufacturing sectors; possible biases in the exchange rates used to convert each countrys output (or the value added in domestic prices) to US dollars; and the fact that the comparison is confined to the productivity of a single factor, namely, labor. Gopalan also provides cost comparisons for Chinese and Indian manufactured goods, some of which both countries sell in third markets and some of which China exports to India. These comparisons indicate that China has lower costs in many products than India, though once again, one has to keep in mind that the exchange rates used might be distorted. It is no surprise that China has gained, and India has lost, market shares in third markets. Unless India catches up and becomes internationally competitive, this trend is likely to continue in the future. There is one service sector, viz. Information Technology (IT), in which India has notably outstripped China. Last year (2002), Indias IT exports were almost $10 billion, compared with $1.5 billion from China. Interestingly and tellingly, according to a report by consultants, 40% of Chinas IT exports involved Indian IT companies based in China (Luce and Kynge 2003). The same authors quote the Chief Financial Office of Infosys, the Indian IT giant that has won contracts with Chinas financial sector, as saying that India is five to seven years ahead of China in the software sector, primarily because of the lack of facility with the English language among Chinese and the absence of experienced project managers in China. However, he expects that China will catch up with India very quickly. India is also ahead of China in pharmaceuticals. Luce and Kynge (2003) point out that the United Nations buys more than half of its vaccines from a private Indian company. Much of Chinas

vaccine production does not meet international standards. Recently, two Indian pharmaceutical companies, along with a South African company, have entered into a contract with the Clinton Foundation to supply generic anti-retroviral drugs to treat AIDS at a much lower cost than Western companies. The fact that in both software and pharmaceuticals it is Indias highly educated who are the driving force raises the possibility that: If India can turn into a fast-growth economy, it will be the first developing nation that used its brainpower, not natural resources or the raw muscle of factory labor, as the catalyst (Kripalani and Engardio, 2003, p. 70). Clearly, successful use of brain power by India, with service exports as the engine of growth, would be in sharp contrast to China, whose growth acceleration was driven by manufactured exports that exploited its cheap labour. 2. Fear of Chinese Competitiveness The competition from lower priced imports of manufactures from China elicited a defensive response from Indian industrialists to seek protection, and the government granted it through the levy of antidumping duties on Chinas imports. Recently, Indian entrepreneurs have joined their counterparts in the industrialized countries in viewing the huge and growing Chinese markets as commercial opportunity. Luce and Kynge (2003) quote K. K. Modi, the head of an Indian manufacturing company that exports specialty chemicals to Chinas leather industry as saying that, nobody fears the Chinese market any moreeverybody just wants a piece of it. Mr. Modi is not alonemany Indian executives, including those in Indias IT sector, are seeking to boost their presence in China. Some of the exporters to China are exploiting the relatively lower cost of IT professionals and engineers in India. This cost advantage in India has been recognized, not only by IT companies in the US and Europe, but also by Chinese manufacturers. Luce and Kynge cite the case of Huawei, a Chinese telecom equipment maker, which is planning to invest $100m to develop software in India. The perception of China as offering rapidly growing opportunities for Indian exporters is reflected in rapid growth of bilateral trade, which doubled in the last two years and is expected to reach $7.5 billion at the end of 2003. In the three years 1999-2000 to 2002-03, Indias exports to China increased at an average of 50.2% per year, and imports from China at 26.6% per year (RBI 2003c, Box VI.6). The infamous Multifibre Arrangement (MFA), under which quotas on various items of textiles and apparel are bilaterally negotiated between exporting (mostly developing countries) and importing (mostly industrialized countries) had governed textiles and apparel trade since 1974. In the Uruguay Round of multilateral trade negotiations, an agreement was reached to eliminate the quotas of MFA in a phased manner, starting from January 1, 1995, and concluding by January 1, 2005. With several products already free of quotas, China has been able to capture an increasing share of world trade in such products. As seen in Table 4, during 1998-2000, Chinas share in world exports of garments was 20.45% and of fabrics 9.36%. Indias shares were a modest 5.27% and 2.42%, respectively. Fritsch (2003) refers to an estimate from a World Bank study that, after the complete phase out of MFA quotas in 2005, Chinas exports will grow even more and capture nearly half of the worlds clothing exports by 2010. He correctly points out that without the assured markets of bilateral quotas, many developing countries have to compete with more efficient producers, such as China. In Bangladesh, which is the focus of Fritschs article, there is apprehension that such competition could devastate a garment industry that currently anchors the economy, sustains millions of families and employs mostly women. It is an

open question whether the Indian textile and apparel industry is, or could become, competitive enough to thrive and grow a quota-free market. Among other things, restrictions limiting production of garments to small-scale producers have only recently been removed. If more efficient producers who can bring costs down by exploiting scale economies enter the market, India would become competitive. It is too soon to tell whether such entry is taking place to any significant extent. 3. Protectionist Backlash Against China and India Periods of recessions, such as 2001-03, are breeding grounds for protectionist pressures. The phenomenal growth of Chinas exports, particularly during a recession, and the threat it pose to less competitive industries, particularly in industrialized countries, is generating a protectionist backlash directed against it. Taking advantage of the special safeguards provision in Chinas agreement with it as part of its accession to the WTO, the US decided to begin a three-month negotiation on temporary quotas to limit imports of bras, bathrobes and some other apparel4. Earlier, the US had increased, temporarily, tariffs on steel imports from the rest of the world, including China, on the grounds that a surge in imports was materially injuring its domestic steel industry. This US action was contested in the WTOs dispute settlement system whose Appellate Body ruled that the US action was in violation of US rules, thus opening the door for retaliatory action by its trading partners. China had threatened such action. Fortunately, the US has lifted the offending tariff and retaliation is no longer relevant. In any case, China has little to gain, and much to lose, in a trade war with its most important trading partner, the US. This being the case, the threat was not credible and perhaps served only as an expression of Chinas concern over the damage that rising protectionism in the US and elsewhere would inflict on it. India is also facing a backlash from its success in the IT sector. It is no surprise that with unemployment rates stubbornly resisting to come down despite recent signs of recovery in the US, many in the US view outsourcing of IT jobs as exacerbating, if not causing, a jobless recovery. Service sector activities, even those involving high technical skills, are being outsourced by the US and European companies to India (and China). According to the Financial Times (March 1, 2003), India has been on the front line of outsourcing for a decade, and roughly half of the worlds largest 500 companies and many government agencies now contract out IT and business process work to India. A less prosaic and more dramatic illustration of the nature of outsourcing to India was provided by the well-known columnist and writer, Thomas Friedman: If you lose your luggage on British Airways, the techies who track it down are here in India. If your Dell computer has a problem, the techie who walks you through it is in Bangalore, Indias Silicon Valley. Ernst & Young may be doing your companys tax returns here with Indian accountants. Indian software giants in Bangalore, like Wipro, Infosys and Mind Tree, now manage back-room operationsaccounting, inventory management, billing, accounts receivable, payrolls, credit card approvalsfor global firms like Nortel Networks, Reebok, Sony, American Express, HSBC and GE Capital. GEs biggest research center outside the US is in Bangalore, with 1,700 Indian engineers and scientists. The brain chip for every Nokia cell phone is designed in Bangalore. Renting a car from Avis online? Its managed here.

4. China and India as Drivers of Regional Growth There is little doubt that Chinas rapidly growing exports to countries outside of Asia-Pacific in Asia has generated equally rapid growth in imports by China from other Asian and Pacific countries, not just from its neighbors in East Asia but also from Australia, India and Indonesia. According to Perlez (2003), Japans current recovery is being driven by a surge in exports to China. Australias healthy economy is being kept that way by Chinese investments in liquid natural gas products. China is now South Koreas largest trading partner . . . In Indonesia, Malaysia and the Philippines (and to a lesser extent in Thailand) . . . Chinas main interest is to scoop up what it can for its modernization. Indonesians call this new relationship with Beijing as feeding the dragon. Although India is by far the largest (and rapidly growing) market in South Asia, it is yet to have a major impact on the trade of its neighbours in South Asia in spite of the creation of the South Asian Preferential Trade Area (SAPTA) in 1997. To a significant extent, this reflects the hostile relations between India and the next largest market in South Asia, viz. Pakistan. Pakistan is yet to grant a most favoured nation status to India. Unless the relation between the two normalize, the prospects of SAPTA are not bright. However, India-Sri Lanka bilateral trade and investment have grown rapidly since the conclusion of a free trade agreement between the two became operational in March 2000. Recent signs of a warming of IndoPakistani relations, if they lead to their normalization, could make India the engine of growth for South Asia, as China already is in the Asia-Pacific region. 5. Foreign Direct Investment China receives a much larger flow of net foreign direct investment (projected at $57 billion in 2003) than Indias (under $4 billion in 2001-02). In Srinivasan (2002), I discussed some of the reasons for this difference. In short, as Luce and Kynge (2003) succinctly point out, whether it is Chinas cheaper, more reliable power supply or the more rapid turnaround at its ports, China remains an incalculably better environment for most manufacturing than India, which is slowly waking up to this. This environment and the bureaucratic obstacles at all levels of government in India in large part explain the huge flow of FDI to China relative to India. The Indian government has recognized FDI as key for achieving the Tenth Plan target of 8% annual growth and appointed a steering committee on FDI in 2001. It reported in 2002 with several recommendations for making India more attractive as a destination for FDI. 6. Exchange Rates and Foreign Reserves Chinas trade surplus with the United States has been growing, its overall trade surplus is modest since it is running a growing trade deficit with Asia-Pacific countries that offsets in large part its trade surplus with the US. The economic logic that only a countrys overall trade and current account balances have economic significance and not its bilateral balances with any one or a subset of trading partners, has never been understood by politicians anywhere, and in particular, in the US. As Japanese trade surpluses created an anti-Japan backlash in the eighties, it is now Chinas turn to be at the receiving end of US pressure. China has accumulated a substantial (projected at $383 billion by the end of 2003) foreign exchange reserves, exceeding its annual imports. India has done the sameits reserves, around $92 billion at the end of 2003, exceed by a substantial margin the likely imports of $60 billion. The issues of the appropriate level of

reserves, and whether both countries have accumulated far too much relative to what would be needed to smooth volatility in export earnings and import expenditures and to contain any potential financial crisis like the one experienced by East Asia in 19975. Since neither the renminbi nor the rupee is convertible on capital account and capital controls are in place in both countries, prima facie the probability of an exchange rate crisis of the type experienced by countries with open capital account and fully convertible currencies is very low. This is not to say, of course, that a balance of payments crisis (BOP) that makes the prevailing exchange rate unsustainable cannot ariseafter all, despite capital controls and an inconvertible (on capital account) rupee, India experienced a severe BOP crisis in 1991, which resulted in the devaluation of the rupee and other policy changes. Still, given that partial insurance from other sources of external funds (e.g., from the IMF) is in principle available, should self-insurance through reserves be pushed as far as the current level of reserves in China and India seem to have done? It is not unlikely that if Indias reserves continue to climb, and outsourcing gathers further momentum, there would be charges of currency manipulation against Indian authorities, as the Chinese are currently being charged with. China and India should cooperate in resisting such accusations and pressures and decide on their exchange rate policies in their own interests. Finally, as Rogoff rightly points out, by continuing to accumulate reserves in terms of US dollar assets, China, India and other Asian countries are financing US current account deficits. As Alan Beattie (2003) points out: In theory, Asians role in financing the US current account deficit could give them enormous economic or even political leverage, since a sudden shortfall in capital inflows would spark a slide in the dollar and possibly a sharp rise in interest rates. But he rightly concludes that: A wholesale flight from the dollar, if it drove up interest rates and forced the US into a rapid tightening of consumers belts, would also hurt one of the principle buyers of Asias exports. Chinese and Indian policy makers are sophisticated enough to realize this and can be expected to slow the accumulation of reserves, if appropriate, and allow greater exchange rate flexibility in due course.

China, India and the Doha Round of Multilateral Trade Negotiations PostCancn
The opponents of outsourcing, who are increasingly vocal, are the more recent entrants to the anti-globalization movement. The latter, which organized violent street demonstrations on the occasion of the Third Ministerial meeting of the WTO in Seattle in December 1999, has since repeated it, though not so violently, at every annual meeting of the World Bank and IMF, and most recently, at the Fifth Ministerial of the WTO at Cancn, Mexico, during September 10-14, 2003. At the governmental level, the demand by the US and the EU that a social clause be instituted in the WTO to permit the use of trade sanctions to enforce labour standards is also a protectionist response to competition from low wage, developing countries such as China and India. Such a clause is already part of every regional trade agreement to which the US is a party, since the North American Free Trade Agreement. In fact, the then-President Clintons embrace of the demand on the eve of the Seattle Ministerial of the WTO in 1999 significantly contributed to its collapse. It is clear that China and India have a common and vital interest in diffusing protectionist threats.

The Cancn Ministerial Meeting of the WTO was expected to review the status of multilateral negotiations (MTNs) launched at the fourth meeting in Doha, Qatar in November 2001. In particular, it was to set the negotiations back on track after the setbacks of having missed several crucial deadlines set at Doha, and deciding on modalities6 by explicit consensus of members for negotiations in certain areas, such as, for example, the so-called Singapore issues of investment, competition policy, government procurement and trade facilitation. The meeting ended with no agreement on any of these. Leading developing countries (DCs), namely, Brazil, India, China, and South Africa, formed a group of twenty (G-20) plus members (Appendix I) to articulate and negotiate for the developing countries (DCs) at the meeting. In the ministerial at Punta del Este in 1986, which launched the Uruguay Round, there was also a group of ten DCs led by Brazil and India. But this group in effect disintegrated at the meeting. At Cancn, G-20 stuck to its positions until the end. There is no doubt the fact that the worlds fifth largest exporter and sixth largest importer, namely China, was a member of G-20 has a lot to do with why G-20 was taken far more seriously at Cancn than the G-10 was in Punta del Este in 1986. China and India have a vital interest in ensuring that the failures of Cancn get reversed and the Doha Round of negotiations resumed, their continued cooperation is very important. Robert Zoellick, the head of the US delegation at Cancn, petulantly reacted to the failure of the multilateral process at the Cancn ministerial railed against the developing countries and asserted that the US will pursue with renewed vigor bilateral and regional preferential trade agreements. Since the US was pursuing this option already with maximum vigor, it is not obvious that Zoellicks threat to go regional and bilateral has become more credible with the collapse of the Cancn meeting. Nonetheless, the fact that a proliferation of preferential trade liberalization is much less beneficial than multilateral trade liberalization suggests that if the US indeed succeeds in concluding regional agreements, those outside of such agreements, such as China and India, stand to lose significantly. The multilateralism of the WTO is incompatible with the preferential trading arrangement of any sort. Many such agreements, though called free trade agreements, have little to do with free trade. Their rules of origin (ROOS) for availing of preferential treatment are invariably complex and provide great opportunities to trade lawyers to create non-transparent and opaque protectionist measures by manipulating them. For example, the free trade agreement (FTA) between the US and Singapore apparently includes 203 pages of text on ROOS! China and India should propose a repeal of Article XXIV of GATT/WTO on Customs Unions and FTAs and replace it with one which ensures that trade preferences of any regional or other agreements are extended to all members of the WTO on a MFN basis within a specified (say, five years) period after the conclusion of such agreements. The rationale for this is that the primary driving force behind most regional agreements, as argued earlier, is political. The political benefits of such agreements ought to be adequate to prevent defection even if the incentives of trade preference are limited to minimize the damage they inflict on non-members, to a specified period. In the resumed negotiations, both countries should continue to insist that first, issues that are not trade related, such as labour standards, should not be in the mandate of the WTO. Second, both should resist giving direct representation to non-governmental entities in the WTO. The reason is that since national and international policies relating to trade would be the means for implementing any decisions in the WTO, it has to remain an inter-governmental organization. Clearly, the so-called civil society, national and multi-national, naturally should be heardbut

the fora for the hearing have to be primarily the national political arena. Through influencing the positions of national governments through a participatory process they will indirectly influencing the decisions at the WTO. Giving them a direct representation formally in some form, such as observer status, would be counterproductive. The deeper problem of the possible undemocratic and non-participatory character of some national polities such as Chinas, and hence their denial of hearing to their civil societies does indeed arisebut a sustainable solution to absence of democracy does not lie in giving representation to civil society in an inter-governmental organization. The notion of democracy in its decision-making process has no meaning, but transparency certainly has.

To conclude: China and India have a lot to gain, both from trading with each other and cooperating in the WTO. Each can learn from the others policies, their successes and failures. This paper discussed a subset of economic issues common to both countries without touching on others, such as privatization of SOEs, reforms of the labour market (e.g., dealing with the hokou system in China and labour laws in India), financial sector reforms and, above all, political reforms. Although it may sound chauvinistic and naive, there is no doubt that China can learn a lot from the functioning of a vibrant, but somewhat chaotic, multiparty participatory democracy in India. After all, as the Chinese become richer and economically free, they are likely to demand personal and political freedoms. Hopefully, the Communist Party of China will anticipate and accommodate such demands, as it seems to have started doing already. Making an in depth study and analysis of India vs. China economy seems to be a very hard task. Both India and China rank among the front runners of global economy and are among the world's most diverse nations. Both the countries were among the most ancient civilizations and their economies are influenced by a number of social, political, economic and other factors. However, if we try to properly understand the various economic and market trends and features of the two countries, we can make a comparison between Indian and Chinese economy. Going by the basic facts, the economy of China is more developed than that of India. While India is the 11th largest economy in terms of the exchange rates, China occupies the second position surpassing Japan. Compared to the estimated $1.3123 trillion GDP of India, China has an average GDP of around $4909.28 billion. In case of per capital GDP, India lags far behind China with just $1124 compared to $7,518 of the latter. To make a basic comparison of India and China Economy, we need to have an idea of the economic facts of the countries.

If we make the analysis of the India vs. China economy, we can see that there are a number of factors that has made China a better economy than India. First things first, India was under the colonial rule of the British for around 190 years. This drained the country's resources to a great extent and led to huge economic loss. On the other hand, there was no such instance of colonization in China. As such, from the very beginning, the country enjoyed a planned economic model which made it stronger.

Agriculture
Agriculture is another factor of economic comparison of India and China. It forms a major economic sector in both the countries. However, the agricultural sector of China is more developed than that of India. Unlike India, where farmers still use the traditional and old methods of cultivation, the agricultural techniques used in China are very much developed. This leads to better quality and high yield of crops which can be exported. IT/BPO One of the sectors where Indi enjoys an upper hand over China is the IT/BPO industry. India's earnings from the BPO sector alone in 2010 is $49.7 billion while China earned $35.76 billion. Seven Indian cites are ranked as the world's top ten BPO's while only one city from China features on the list.

Liberalization of the market

In spite of being a Socialist country, China started towards the liberalization of its market economy much before India. This strengthened the economy to a great extent. On the other hand, India was a little slow in embracing globalization and open market economies. While India's liberalization policies started in the 1990s, China welcomed foreign direct investment and private investment in the mid 1980s. This made a significant change in its economy and the GDP increased considerably. Difference in infrastructure and other aspects of economic growth

Compared to India, China has a much well developed infrastructure. Some of the important factors that have created a stark difference between the economies of the two countries are manpower and labor development, water management, health care facilities and services, communication, civic amenities and so on. All these aspects are well developed in China which has put a positive impact in its economy to make it one of the best in the world. Although India has become much developed than before, it is still plagued by problems such as poverty, unemployment, lack of civic amenities and so on. In fact unlike India, China is still investing in huge amounts towards manpower development and strengthening of infrastructure. Company Development

Tax incentives are one area where China is lagging behind India. The Chinese capital market lags behind the Indian capital market in terms of predictability and transparency. The Indian capital or stock market is both transparent and predictable. India has Asia's oldest stock exchange which is the BSE or the Bombay Stock Exchange. Whereas China is home to two stock exchanges, namely the Shenzhen and Shanghai stock exchange. As far as capitalization is concerned the Shanghai Stock Exchange is larger than the BSE since the SSE has US$1.7 trillion with 849 listed companies and the BSE has US$1 trillion with 4,833 listed companies. But more than the size what makes both these stock exchanges different is that the BSE is run on the principles of international guidelines and is more stable due to the quality of the listed companies. In addition to this the Chinese government is the major stake holder of most of its State-owned organizations hence the listed firms have to run according to the rules and regulations laid down by the government. Hence India is ahead of China in matters of financial transparency.

Company Management Capabilities

It is said that Indians have great managerial skills. India also leaves China behind as far as management abilities are concerned. As compared to China India has better managed companies. One of the major reasons for this is that management reform training in China began 30 years ago and sadly the subject has still not picked up as a matter of interest by the citizens of the country. Another important factor behind China not doing well in the business forefront is that most of the countries came to China and manufactured their goods. It was not Chinas exports that drove the economy instead it was the export products of outsiders. Even in the case of mergers and acquisitions China still has not managed to do too well. On the other hand Indian companies are rapidly expanding mergers and acquisitions. Some of the recent examples include; Tata Steel's $13.6 Billion Acquisition of Corus, Tata Tea's purchase of a controlling stake in Britain's Tetley for US$407 million, Indian Pharmaceutical giant Ranbaxy's acquisition of Romania's Terapia etc. China's Import & Export (2010/11)

As far as exports of both the countries are concerned both the countries managed to do pretty well in 2010.China's total imports and exports stood at US $2677.28 billion at the end of November 2010. India's exports grew by 26.8% and imports increased by 11.2%. Below is presented details about China's import and exports for the year 2010. China's import and exports for the year 2010

Impact of U.S Economy on Indian Economy


Economy? The economy is the realized social system of production, exchange, distribution, and consumption of goods and services of a country or other area. A given economy is the end result of a process that involves its technological evolution, civilization's history and social organization, as well as its geography, natural resource endowment, and ecology, among other factors. These factors give context, content, and set the conditions and parameters in which an economy functions. An economy does not have to be a specific size. An economy can mean the economy of a city (local economy), a country (national economy) or the world as a whole (international economy), provided that it is involved in the production of goods and services. "The economy" is the term used to describe the system of making, distributing, and consuming material goods and services. The many facets of a country's economy include the spending habits of consumers, labor issues, employment patterns, the banking and financial industries, taxes, and the government regulation designed to help keep the economy running smoothly. There are two distinct branches of economics: macroeconomics and microeconomics. Macroeconomics is the study of the economic big picture, measuring broad trends in the economy, such as employment or inflation, as well as the way these trends interact. Microeconomics analyzes the economy on a smaller scale, focusing on individual consumers and companies.

United States of America


Overview of economy Strength of U.S economy

The United States has the largest, most technologically-advanced, and most diverse economy in the world. While the United States accounts for only about 4 percent of the world's population, its GDP is 26 percent of the world's total economic output. The American economy is a freemarket, private enterprise system that has only limited government intervention in areas such as health care, transportation, and retirement. American companies are among the most productive and competitive in the world. In 1998, 9 of the 10 most profitable companies in the world were American (even the non-U.S. exception, Germany's Daimler-Chrysler, has a substantial part of its operations in the United States). The United States also has a clear edge over the rest of the world in many high-tech industries, including computers, medical care, aerospace, and military equipment. In the 1990s, the American economy experienced the second-longest period of growth in the nation's history. The economy grew at an average rate of 3-4 percent per year and unemployment fell below 5 percent. In addition, there were dramatic gains in the stock market and many of the nation's largest companies had record profits. This long period of growth ended in 2001, when

the economy slowed dramatically following a crash in the high technology sector. The United States has considerable natural resources. These resources include coal, copper, lead, phosphates, uranium, bauxite, gold, iron, mercury, nickel, silver, tungsten, zinc, petroleum, natural gas, and timber. It also has highly productive agricultural resources and is the world's largest food producer. The economy is bolstered by an excellent, though aging, infrastructure which makes the transport of goods relatively easy. Despite its impressive advantages, the American economy faces a number of problems. Most of the products and services of the nation are consumed internally, but the economy cannot produce enough goods to keep up with consumer demand. As a result, for several decades the United States has imported far more products than it exports. This trade deficit exists entirely in manufactured goods. The United States actually has trade surpluses in agriculture and services. When adjusted for the surpluses, the U.S. trade deficit in 2000 amounted to a record $447 billion. The United States has been able to sustain trade deficits year after year because foreign individuals and companies remain willing to invest in the United States. In 2000, there was $270 billion in new foreign investment in American companies and businesses. Another major problem for the American economy is growth of a 2-tier economy, with some Americans enjoying very high income levels while others remain in poverty. As the workplace becomes more technologically sophisticated, unskilled workers find themselves trapped in minimum wage or menial jobs. In 1999, despite the strong economic growth of the 1990s, 12.7 percent of Americans lived below the poverty line. There are other wage problems in the United States. Although the economy has grown substantially, most of the gains in income have gone to the top 20 percent of households. The top 10 percent of households earned 28.5 percent of the nation's wealth, while the bottom 10 percent accounted for only 1.5 percent. There is also a growing number of Americans who are not covered by medical insurance. The American economy depends on a combination of natural resources, labor, and technology to produce and distribute goods and services. It is the world's largest and, in many ways, most efficient economy: Americans make up just 5% of the world's population but produce more than 20% of its economic output. According to the World Bank in World Development Indicators (September 2004), the U.S. total GDP in 2003, at $10.9 trillion was more than double the nearest competitor, Japan, which had a GDP of $4.3 trillion. Other leading economies in 2003, according to the World Bank data, included Germany ($2.4 trillion), the United Kingdom ($1.8 trillion), and France ($1.7 trillion).

Indian Economy

India is the seventh largest and second most populous country in the world. India's economy is on the fulcrum of an ever increasing growth curve. With positive indicators such as a stable 8-9 per cent annual growth, rising foreign exchange reserves, a booming capital market and a rapidly expanding FDI inflows, India has emerged as the second fastest growing major economy in the world. The economy has been growing at an average growth rate of 8.8 per cent in the last four fiscal years (2003-04 to 2006-07), with the 2006-07 growth rate of 9.6 per cent being the highest in the last 18 years. Significantly, the industrial and service sectors have been contributing a major part of this growth, suggesting the structural transformation underway in the Indian economy. For example, industrial and services sectors have logged in a 10.63 and 11.18 per cent growth rate in 2006-07 respectively, against 8.02 per and 11.01 cent in 2005-06. Similarly, manufacturing grew by 8.98 per cent and 12 per cent in 2005-06 and 2006-07 and transport, storage and communication recorded a growth of 14.65 and per cent 16.64 per cent, respectively. Another significant feature of the growth process has been the consistently increasing savings and investment rate. While the gross saving rate as a proportion of GDP has increased from 23.5

per cent in 2001-02 to 34.8 per cent in 2006-07, the investment rate-reflected as the gross capital formation as a proportion of GDP-has increased from 22.8 per cent in 2001-02 to 35.9 per cent in 2006-07. During April-December 2007-08, gross fixed capital formation has accelerated to 32.6 per cent of GDP, from 30.5 per cent of GDP in the corresponding period in 2006-07. The 2007-08 Fiscal Year The growth process continues apace. On the back of 9.6 per cent growth April-December 200607, GDP grew by 8.9 per cent during April-December 2007-08. According to the third advance estimates of crop production by the agriculture ministry, food grain output grew by 4.6 per cent in 2007-08, nearly four times the average annual growth of 1.2 per cent between 1990 and 2007. Overall industrial production grew by 8.3 per cent during 2007-08. Significantly, manufacturing sector grew at the rate of 8.7 per cent. Services grew by 10.4 per cent in April-December 2007, on the back of 11.4 per cent during the corresponding period in 2006-07. Manufacturing grew by 8.7 per cent during April-February 2007-08, on the back of 12.5 per cent growth during 2006-07. Core infrastructure sector continued its growth rate recording 5.6 per cent growth in 2007-08. While exports grew by 23.02 per cent during 2007-08, imports increased by 27.01 per cent in the same period. Money Supply (M3) has grown by a robust 20.7 per cent growth (year-on-year) as of end-March 2008, compared to 21.5 per cent last year.

Why Indian Economy future is in hand of American Economy? Factors


1.The effect of military expenditure Most economic models have shown that military spending by the United States Government has diverted resources from productive uses such as consumption and investment, which has ultimately slowed growth and reduced employment. Estimates project that by 2017 the Iraq War and War in Afghanistan will have cost the U.S. budget between $1.7 trillion and $2.7 trillion. Interest on money borrowed to pay those costs could alone add a further $816 billion to that bottom line. Nobel Prize-winning economist Joseph E. Stiglitz even says that estimating all economic and social costs might push the U.S. war bill up toward $5 trillion by 2017. This figure includes the cost to the U.S. economy of global oil prices that have quadrupled since 2003, an increase blamed partly on the Iraq war.

2. GDP International gross $49,000,000,000,000 domestic product (GDP), top 10 countries, 2003 World

Adapted from "Rank Order GDP," in Rank Order GDP, CIA World Fact Book 1 United States 2 China 3 Japan 4 India 5 Germany 6 France 7 United Kingdom 8 Italy 9 Russia 10 Brazil $10,400,000,000,000 $5,700,000,000,000 $3,550,000,000,000 $2,660,000,000,000 $2,184,000,000,000 $1,540,000,000,000 $1,520,000,000,000 $1,438,000,000,000 $1,350,000,000,000 $1,340,000,000,000

United state of Americas GDP growth

Indias GDP growth

3. Trade Though, the trade between the United States and India is relatively small, it has risen sharply over the years. In terms of India's major trading partner, USA continues to lead. However, India's share in US trade is 24th in US export and eighteenth in US imports. The two countries have been making efforts to strengthen institutional structure of bilateral economic relations. Signing of "India-US Economic Dialogue" by Indian PM AB Vajpayee and US President Bill Clinton in 2003, aims at deepening the Indo-American partnership through regular dialogue and engagement. India's sizable population and growing middle and higher income class makes India a potentially large market for U.S. goods and services. According to the figure from government sources, U.S. exports to and imports from India in 2003, totalled US $5.0 billion and US $13.1 billion, respectively. India's main exports to US are precious stones, metals (worked diamonds & gold jewellery), Woven apparel, Knit apparel, miscellaneous textile article, Fish and seafood (frozen shrimp), Textile floor coverings, Iron/steel products, Organic chemicals and Machinery (taps, valves, transmission shafts, gears, pistons, etc) India imports sophisticated machinery (computers and components, gas turbines, telecom, etc), Electrical machinery (recording/sound media), Medical and surgical equipment/instruments, Aircraft, spacecraft (small aircraft), Precious stones, metals (diamonds, not mounted or set), jewellery, Organic chemicals, Plastic, Cotton and cotton waste and Wood pulp, etc.

What's a recession? How will US slowdown hit India The fear of a recession looms over the United States. And as the cliche goes, whenever the US sneezes, the world catches a cold. This is evident from the way the Indian markets crashed taking a cue from a probable recession in the US and a global economic slowdown. Weakening of the American economy is bad news, not just for India, but for the rest of the world too. So what is a recession? A recession is a decline in a country's gross domestic product (GDP) growth for two or more consecutive quarters of a year. A recession is also preceded by several quarters of slowing down. What causes it? An economy which grows over a period of time tends to slow down the growth as a part of the normal economic cycle. An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years. A recession normally takes place when consumers lose confidence in the growth of the economy and spend less. This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment. Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment. Stock markets & recession The economy and the stock market are closely related. The stock markets reflect the buoyancy of the economy. In the US, a recession is yet to be declared by the Bureau of Economic Analysis, but investors are a worried lot. The Indian stock markets also crashed due to a slowdown in the US economy. The Sensex crashed by nearly 13 per cent in just two trading sessions in January. The markets bounced back after the US Fed cut interest rates. However, stock prices are now at a low ebb in India with little cheer coming to investors. Analysts in India tried to make the point that the Indian economy didn't change overnight, so there is no reason for this panic. This is true, but if the United States suffers through a crippling recession then India will take a beating due to decreased investment in the country. When a company is trudging through a rough patch due to a bad economy, the first thing that they usually do is cut their research and development. Current crisis in the US The defaults on sub-prime mortgages (homeloan defaults) have led to a major crisis in the US. Sub-prime is a high risk debt offered to people with poor credit worthiness or unstable incomes. Major banks have landed in trouble after people could not pay back loans The housing market soared on the back of easy availability of loans. The realty sector boomed but could not sustain the momentum for long, and it collapsed under the gargantuan weight of crippling loan defaults. Foreclosures spread like wildfire putting the US economy on shaky ground. This, coupled with rising oil prices at $100 a barrel, slowed down the growth of the economy. How to fight recession

Tax cuts are the first step that a government fighting recessionary trends or a full-fledged recession proposes to do. In the current case, the Bush government has proposed a $150- billion bailout package in tax cuts. The government also hikes its spending to create more jobs and boost the manufacturing and services sectors and to prop up the economy. The government also takes steps to help the private sector come out of the crisis. Past recessions The US economy has suffered 10 recessions since the end of World War II. The Great Depression in the United was an economic slowdown, from 1930 to 1939. It was a decade of high unemployment, low profits, low prices of goods, and high poverty. The trade market was brought to a standstill, which consequently affected the world markets in the 1930s. Industries that suffered the most included agriculture, mining, and logging. In 1937, the American economy unexpectedly fell, lasting through most of 1938. Production declined sharply, as did profits and employment. Unemployment jumped from 14.3 per cent in 1937 to 19.0 per cent in 1938. The US saw a recession during 1982-83 due to a tight monetary policy to control inflation and sharp correction to overproduction of the previous decade. This was followed by Black Monday in October 1987, when a stock market collapse saw the Dow Jones Industrial Average plunge by 22.6 per cent affecting the lives of millions of Americans. The early 1990s saw a collapse of junk bonds and a financial crisis. The US saw one of its biggest recessions in 2001, ending ten years of growth, the longest expansion on record. From March to November 2001, employment dropped by almost 1.7 million. In the 1990-91 recession, the GDP fell 1.5 per cent from its peak in the second quarter of 1990. The 2001 recession saw a 0.6 per cent decline from the peak in the fourth quarter of 2000. The dot-com burst hit the US economy and many developing countries as well. The economy also suffered after the 9/11 attacks. In 2001, investors' wealth dwindled as technology stock prices crashed.

Impact of a US recession on India


A slowdown in the US economy is bad news for India. Indian companies have major outsourcing deals from the US. India's exports to the US have also grown substantially over the years. The India economy is likely to lose between 1 to 2 percentage points in GDP growth in the next fiscal year. Indian companies with big tickets deals in the US would see their profit margins shrinking. The worries for exporters will grow as rupee strengthens further against the dollar. But experts note that the long-term prospects for India are stable. A weak dollar could bring more foreign money to Indian markets. Oil may get cheaper brining down inflation. A recession could bring down oil prices to $70. Between January 2001 and December 2002, the Dow Jones Industrial Average went down by 22.7 per cent, while the Sensex fell by 14.6 per cent. If the fall from the record highs reached is taken, the DJIA was down 30 per cent in December 2002 from the highs it hit in January 2000. In contrast, the Sensex was down 45 per cent. The whole of Asia would be hit by a recession as it depends on the US economy. Asia is yet to totally decouple itself (or be independent) from the rest of the world, say experts. A slowdown in the US economy is bad news for India. Indian companies have major outsourcing deals from the US. India's exports to the US have also grown substantially over the years. The India economy is likely to lose between 1 to 2 percentage points in GDP growth in the next fiscal year. Indian companies with big tickets deals in the US would see their profit margins shrinking.

The worries for exporters will grow as rupee strengthens further against the dollar. But experts note that the long-term prospects for India are stable. A weak dollar could bring more foreign money to Indian markets. Oil may get cheaper brining down inflation. A recession could bring down oil prices to $70. Between January 2001 and December 2002, the Dow Jones Industrial Average went down by 22.7 per cent, while the Sensex fell by 14.6 per cent. If the fall from the record highs reached is taken, the DJIA was down 30 per cent in December 2002 from the highs it hit in January 2000. In contrast, the Sensex was down 45 per cent. The whole of Asia would be hit by a recession as it depends on the US economy. Asia is yet to totally decouple itself (or be independent) from the rest of the world, say experts. Stock markets & recession The economy and the stock market are closely related. The stock markets reflect the buoyancy of the economy. In the US, a recession is yet to be declared by the Bureau of Economic Analysis, but investors are a worried lot. The Indian stock markets also crashed due to a slowdown in the US economy. The Sensex crashed by nearly 13 per cent in just two trading sessions in January. The markets bounced back after the US Fed cut interest rates. However, stock prices are now at a low ebb in India with little cheer coming to investors. Majority of BPO/KPO/IT business of India is from US.besides, the majority of FIIs investing ( or playing) in Indian stock markets are USA. A lot of Indians working in US send money back home ( India) . For everything-like Pizza ,burger, multiplex, malls ,clothing etc we blindly follow Americans. Any slowdown in US economy will effect them and hence will effect we Indians and our Indian companies. Even if the slowdown of US economy may not effect us directly, it does have psychological impact on us. To conclude, if one is dependant on only one person for all its needs, any effect on the 2nd one is blound to effect the first one. Its time to get out of the USA umbrella which is leaking now....

'Risk of a US recession high, India to be hit' BS Reporter in Mumbai


Stephen S Roach, chairman of Morgan Stanley Asia, warned that Asia and India will be hit hard due to a likely recession in the US in 2008, saying "if US sneezes, Asia will catch a cold." Predicting a significant correction in emerging market equities, which would also not spare the fast rising Indian stock markets, Roach, who is regarded as one of the Wall Street's most influential economists, said he did not believe in the global de-coupling theories. "The risk of a recession in the US in 2008 is high and rising. If the US goes into recession, you are going to feel it in Asia, you are going to feel it in India," he said.

We need a balanced economy to pull us through global recession And from hands of U.S economy
With the ongoing economic meltdown, we are passing through a very exciting and challenging phase. The need of the hour is to dwell on the existing capitalist and socialist models and draw out a new model suiting the financial needs and requirements of our country. And none other than academicians, scholars and students of economics and management can perform this job better. This was said by Finance Minister of Punjab, Manpreet Singh Badal we are living

through the middle of a storm, necessitating us to chalk out a programme for an early recovery from the economic recession. Quoting various social and political leaders, Badal said the spirit of discipline and nationhood, coupled with a sense of dignity needed to be rekindled for the overall progress of the country. While presiding over the seminar, Vice-Chancellor Jaspal Singh said that a new model based on the principle of socialisation of benefits, giving out enough to meet the basic needs of all and barest minimum for the few greedy needs to be devised. He advocated the cause of a balanced economy rather than a mixed economy. Home Secretary Jarnail Singh said, When you reform the markets, you are able to increase the growth rate but at the cost of poverty. He suggested the implementation of strong regulations to monitor the functioning of companies.

Impact of Chinese Economy on Indian Economy

Impact of Chinese goods on Indian economy There seems to be no way to escape the DRAGON!!! Chinese are using the big Indian market merely to dump their products and by doing so they are killing the Indian units. For example last year during Diwali, China made crackers were sold in the Indian market. These crackers reportedly contained Sulphur. Sulphur is more harmful than Nitrate, which is used in India to make crackers. Since the Chinese crackers were cheaper than the Indian crackers, so they managed to attract innocent and largely illiterate Indian lot. As a result the Indian cracker industry saw a decline in the revenue. Because of cheaper prices products made in China are becoming more popular among the Indian masses. This has had a very negative effect on our own manufacturing units and as a result many of them have had to shut shop. For instance, data reveals that 60 per cent of the industrial units in the industrial belts of Thane and Bhivandi near Mumbai have been closed down. ( Indian cottage industries i.e handicraft). Due to its cheap labour, China offers lowpriced imports such as textiles and clothing, electronic devices, machinery, etc . According to official data, Chinese imports stood at $3I9 million (Rs 1,435 crore) during AprilJune this year as compared to $223 million (Rs 1000) crore during the corresponding period of the previous year. ( data source www.indiamart.com/new ). It has also affected Indian Export market,as china has replaced indian goods in the foreign market as being cheaply produced. DRAGONs designs of capturing a major share They are killing the economy of not only India but also the economy of the whole world very slowly. They are selling their cheap products on very cheap rates and we people are getting addicted of these cheap rated things and after few years there will come a time when you will see only the chinese goods in the markets because all the other manufacturers will become bankrupt and after that China will start to rise the rates of their products i.e. there will be complete monopoly of china on the goods market. Thats the policy on which china is working now a days. Made in China, Sold in India With the world turning into a global village and competition getting stiff, countries like China are ruling the roost in many a market in varied spheres. India is the hub of diverse business opportunities, and slowly yet steadily, Chinese products like electronics, crackers, idols, apparels , etc. are predominating similar Indian products.

Eg : This year, one saw the flooding of the Indian markets with Chinese made idols which were welcomed with open arms by the Indian consumers. Pros & Cons + Positive aspects

Relatively Cheaper than the regular/known brands. Advanced Features Affordability, common man can easily purchase. Widely available Higher profit margins for dealers.

- Negative aspects Unsafe products Non Long-lasting Resulted in closure of many businesses, which lead to unemployment, lower turnover. Outflow of capital Increased in Imports & decrease in exports.

Media has recently highlighted the technical issues about the Chinese products. E.g. The continuous explosion in china phones, has resulted in the ban of Chinese phone retailing in Indian market. China Cuts GDP Target to 7.5% as Exports Slow China pared the nations economic growth target to 7.5 percent from an 8 percent goal in place since 2005, a signal that leaders are determined to cut reliance on exports and capital spending in favor of consumption. Officials will also aim for inflation of about 4 percent this year, unchanged from the 2011 goal, according to a state- of-the-nation speech that Premier Wen Jiabao delivered to about 3,000 lawmakers at the annual meeting of the National Peoples Congress in Beijing today. Asian stocks fell as Wen, 69, said the nation needs to shift to a more sustainable and efficient economic model and achieve higher-quality development over a longer period of time. China must boost the incomes of ordinary people, count less on exports and investment and reduce the

states role in favor of private enterprise, Zong Qinghou, the countrys second- richest man, said in a March 3 interview. The growth target indicates the lowest level that the government is comfortable with and is also a signal to local officials that they shouldnt solely focus on the rate of expansion, said Michael Buchanan, chief Asia-Pacific economist at Goldman Sachs Group Inc. in Hong Kong. Chinas trend growth rate is coming down but its still higher than this -- more like around 9 percent. Fiscal, Monetary Policy When reiterated that the government will maintain a proactive fiscal policy and a prudent monetary policy. The government in February lowered banks reserve requirements for the second time in three months to boost lending and sustain growth, following five interest-rate increases from October 2010 to July 2011 aimed at slowing inflation. The MSCI Asia Pacific Index (SHCOMP), which has gained for 11 straight weeks, fell 1 percent as of 2:20 p.m. in Tokyo. The benchmark Shanghai Composite Index dropped 0.4 percent at 1:21 local time. The gauge, while up 12 percent in 2012, has declined 16 percent from a year ago as Chinas growth decelerated to the slowest since the second quarter of 2009. The yuan weakened 0.1 percent against the dollar to 6.3047. Elsewhere in Asia, Indias services industries expanded at a slower pace in February, according to a purchasing managers index released today by HSBC Holdings Plc and Markit Economics. Taiwan may say inflation slowed in February from January, according to the median estimate of economists surveyed by Bloomberg. Europe Slowing European services and manufacturing contracted last month, a final composite gauge may show today. Italy, France and Germany will also release services PMI data today. Euro zone retail sales probably fell 0.1 percent in January from the previous month, the third consecutive decline, economists predicted ahead of the report.

The Institute for Supply Management may say service industries in the U.S. grew at a slower pace in February, while a Commerce Department report may show orders to U.S. factories fell in January. Chinas government plans a budget deficit of 800 billion yuan ($127 billion), or 1.5 percent of GDP, Wen said. That compares with last years target of 900 billion yuan, or 2 percent of GDP, and the actual deficit of 850 billion yuan, a figure altered by the use of a so-called budget stabilization fund and shifting some local-government spending, according to the speech. The Ministry of Finance in January gave preliminary budget data indicating a 2011 deficit of 519 billion yuan, or 1.1 percent of GDP. Analyst Forecasts The growth target matched the median forecast of 15 economists surveyed by Bloomberg News last month. Twelve of 15 economists forecast a 4 percent inflation goal, while the median estimate of 13 respondents was for a budget deficit of 1 trillion yuan. Officials are targeting money-supply growth of 14 percent, according to the report, in line with the median forecast of 15 analysts for the rise in M2, the broadest measure. China has a goal of increasing fixed-asset investment by 16 percent this year, the National Development and Reform Commission said in a report. Thats below the 18 percent median estimate of 12 economists. Wen and fellow officials from the ruling Communist Party are preparing to begin a once-in-adecade handover of power later this year to a new set of leaders. President Hu Jintao and Wen will step down from their roles and let a younger generation of leaders step in thats likely to include Vice President Xi Jinping and Vice Premier Li Keqiang.

India outpaces China Winning the growth World Cup


Apr 15th 2011, 17:44 by S.C. | HONG KONG

DID India grow faster than China last year without anyone so much as noticing? Many pundits, including this newspaper, have speculated about when India's growth might outpace China's. (The debate even spawned a meta-debate in India about whether the debate was worth having.) So it would be ironic if the moment had already come and gone, without any fuss, fanfare or felicitation. China grew by 10.3% last year, a punishing pace to beat. India, according to the advance estimate by its Central Statistics Office (CSO), grew by 8.6%. Fast, but not fast enough. But

today a colleague pointed me to the IMF's latest World Economic Outlook (Table 1.1), released earlier this week. It says that India grew by 10.4% in 2010. How can that be? India has two idiosyncrasies in the way it reports its GDP figures. First, it reports growth for the fiscal year, not the calendar year. So the 8.6% estimate refers to the 12 months ending on March 31. That in itself makes little difference. But the second idiosyncrasy is more important. India typically reports its GDP "at factor cost". That means it adds up all the income earned in the course of producing the country's goods and services. Other countries, including China, typically report their GDP "by expenditure", adding up all the spending on domestically produced goodies. Since every purchase is a sale, expenditure should equate to income: every rupee spent by one person is a rupee earned by someone else. But a couple of things get in the way: taxes and subsidies. A sales tax adds to the amount you have to spend on a good. This boosts measures of GDP by expenditure, relative to income-based measures. A subsidy has the opposite effect.* If these taxes and subsidies remained steady as a percentage of output, they would not affect the growth rate of GDP, even if they do affect its level. But in India net indirect taxes rose from 7.5% of output in 2009 to 9.2% in 2010, boosting the growth rate of GDP by expenditure for that year.** That was enough to lift India's growth by this measure to 10.36% in 2010. That's fully 0.06 percentage points faster than China. Jai Hind! * A numerical example might help to illustrate the difference. In the first three months of 2010, India's GDP at factor cost amounted to 12,051 billion rupees. But the buyers of that output paid an additional 1,888 billion in indirect taxes, adding to the expenditure measure of GDP. They also benefited from 544 billion in subsidies, subtracting from the expenditure measure. The net result was that India's GDP by expenditure in January-March 2010 was 13,395 billion (=12,051+1,888-544). ** All the figures required to reach this conclusion were available from February 28, when the CSO released its estimates of GDP (at factor cost and by expenditure) for the third quarter of last fiscal year, otherwise known as the fourth quarter of 2010.

Reference Samples

1. http://en.wikipedia.org/wiki/Economy_of_the_United_States 2. http://en.wikipedia.org/wiki/Economy_of_the_People%27s_Republic _of_China 3. http://www.ibef.org/artdispview.aspx?in=36&art_id=31080&cat_id=1 40&page=2 4. www.fas.org/sgp/crs/row/RL34161.pdf 5. http://www.econ.yale.edu/~srinivas/C%26I%20Economic%20Perfor mance%20Update.pdf 6. http://business.mapsofindia.com/india-economy/india-vs-china.html 7. http://www.slideshare.net/sagar_agrawal/impact-of-chinese-goods-onindian-economy 8. http://www.businessinsider.com/20-reasons-why-the-us-economy-isdying-and-is-simply-not-going-to-recover-2010-2#the-second-waveof-foreclosures-1 9. http://www.scribd.com/doc/13748147/Impact-of-American-Economyon-Indian-Economy 10.http://www.businessinsider.com/20-reasons-why-the-us-economy-isdying-and-is-simply-not-going-to-recover-2010-2#the-second-waveof-foreclosures-1#ixzz1oOuYsZI4