CHENNAI

THE HINDU ● BUSINESS LINE

9쑸
FRIDAY, NOVEMBER 6, 2009

OPINION www.businessline.in/opinion

Wiring up Sino-Indian trade The BL Review

Regulatory process is
쑺 An FTA with
China that assures
a reliable supply of
the key, not regulators
Arun S.
intermediate inputs
A
joke that I chanced upon went, “What’s a banking
regulator? Someone who rescues and rescues and
may help boost rescues banks until there are no banks left.” That is a
India’s mild one, you’ll agree, given the severe impact of the ‘financial
tsunami’ on the lives of many across the world.
manufacturing India’s banking regulator, however, got some credit for
efficiency and doing the right thing, or let’s say for not doing the wrong
thing, during the financial crisis and sheltering the country’s
international banking sector from
competitiveness. the burst of the
speculative bubble.
쑺 The book looks at the
Jokes apart, regulatory
Suparna Karmakar regulators are often
mechanisms in India,

F
or reasons good or
bad, the large emerg-
ing economies of In-
dia and China are
increasingly linked in popular
commentaries. Comparing
their relative strengths ap-
pears to be a favoured parlour-
game these days.
The focus ranges from poli-
tico-strategic issues like ‘Is In-
dia a rival or partner to
China?’ and ‘Which will be the
more important power in the
21st century?’ to analysis of ec-
onomic issues like ‘Which na-
tion can grow faster?’, ‘Which
has a better model for
growth?’ and ‘Can economic
cooperation overcome border
tensions?’
It is only lately that the two
쑺 TRADE WINDS
emerging Asian giants have
embarked on closer economic
cooperation and integration,
really an aberration when one
considers the close economic
relation that first-mover Chi-
na has enjoyed with the other
Asia-Pacific economies over
the past few decades.
RAPID TRADE GROWTH
Notwithstanding the late
start, trade between India and
China has accelerated rapidly
in recent years amid contin-
uing high growth and trade
liberalisation on both sides.
Since China joined the World
Trade Organisation in 2001,
Sino-Indian bilateral trade has
grown from $2.3 billion a year
to $40.6 billion — an average
annual increase of 50 per cent.
It is likely to touch $60 bil-
lion by the year end, according
to a CII estimate.
Since 2003-04, Sino-Indian
China is now India’s biggest source of imports. — Bloomberg
bilateral trade has grown at al-
most double the rate of their
trade with other countries.
China is now India’s largest
trading partner while India is
one of its important partners;
in terms of trade value, China
is the third-largest destination
for exports from India.
But just like China’s trade
with the G3, Sino-Indian bilat-
eral trade is also highly imbal-
anced. Against bilateral
exports of $9.26 billion, In-
dia’s imports from China to-
talled $31.33 billion in
2008-09.
This deficit has been grow-
ing over the past few years;
since 2005-06, India’s imports
from China have been increas-
ing at a faster rate than its ex-
ports to that country.
ROBUST INDIAN IMPORTS
Recent research at the Insti-
tute of South Asian Studies,
National University of Singa-
pore, shows that Indian im-
ports have been the main
driver of the robust increase in
Sino-Indian trade.
China is now India’s biggest
source of imports, accounting
for 10.7 per cent of its total
imports.
The top five Indian imports
from China (at two-digit level)
comprise electrical and elec-
tronic machinery, organic
chemicals, iron and steel, min-
eral fuels, and waxes; they
constitute two-thirds of the
total imports.
Notably though, about
45.85 per cent of the imports
last fiscal comprised electrical
and electronic machinery, and
this share remained un-
changed from the year before.
Further, in these two product
categories (which are among
the most dynamic export sec-
tors for India), China supplied
nearly 30 per cent of India’s
total imports last fiscal.
On the other hand, India’s
exports to China are dominat-
ed by resource-based and la-
bour-intensive products.
Mineral products (for exam-
ple, ores, slag and ash, salt and
sulphur, and mineral fuels and
oil) are prominent exports;
ores comprise more than half
of them.
It is also notable that India’s
major exports to China are dif-
ferent from its main exports to
the rest of the world.
If Indian exports were cate-
gorised in terms of their value-
based significance from a
global perspective, then the
Chinese market, until now, re-
mains a less important desti-
nation for the most significant
exports such as gems and je-
wellery and refined petroleum
products.
SCOPE FOR FTA
So what could this imply for
the future of Sino-Indian
trade and, in particular, the
trade imbalance? What
threats will a bilateral FTA
(liberalisation of the goods
trade) hold for India?
It may be remembered that
Indian industry associations
remain extremely wary of the
proposed Sino-Indian goods
FTA and have, in fact, been
lobbying for a cautious ap-
proach to protect domestic in-
dustry.
In 2008, the Government
also agreed that an FTA with
China was not a ‘priority’ ow-
ing to ‘deep divisions’ within
the Government and opposi-
tion from the industry.
The Government has also
taken safeguard actions
against Chinese exports; of the
68 antidumping actions initi-
ated by India from January-
June 2009 alone, the bulk is
against China.
A detailed analysis of the
costs and benefits for consum-
er and producer welfare is
needed to assess the net im-
pact of a Sino-Indian FTA.
A quick analysis of trade da-
ta shows that the increasing
trade deficit of India vis-à-vis
China emanates in the very
product categories which in
value-terms are among India’s
top five exports (at two-digit
level) to the rest of the world.
China is an important supplier
in these key product catego-
ries, namely, mineral fuels,
electronic and electrical ma-
chinery, iron and steel, and or-
ganic chemicals. Given the
high intra-industry invest-
ment, production and trade in
these key export industries, an
FTA with China that assures
reliable and assured supply of
intermediate inputs may help
boost India’s manufacturing
efficiency and international
competitiveness.
(The author is a Visiting Research
Fellow with the Institute of South
Serials
Asian Studies, National University
Publications
of Singapore. The views are
Price: Rs 995
personal. blfeedback@thehindu.co.in)
Pages: 352
seized with the
fantasy to create a Cambodia, Indonesia,
perfect or near-
perfect world where Vietnam, Kenya,
the playing field or South Africa and
markets are levelled
and everyone gets an Zambia in sectors
equal chance to such as financial
perform, while the
consumers get to services, telecom,
choose the best. energy, water and
But take a look at
the regulator-talk or transport.
why some of the
regulators in the country were in the news of late, and you
will understand that efforts to ensure ‘perfect competition’
through ‘perfect regulation’ are likely to remain just a fantasy.
Sample these: The much-publicised bizarre fight between
the oil regulator and the Anil Ambani group, with the latter
making allegations of favouritism against the former and the
former alleging threat to him. Or the controversy surrounding
the country’s bio-technology regulator — the Genetic
Engineering Approval Committee — giving its nod for the
commercial cultivation of genetically modified Bt brinjal even
as international organisations such as Greenpeace raise voices
against the move.
There was also the Telecom Regulatory Authority of India
proposing to make it mandatory for mobile service providers
to offer their users a pay-per-second billing plan, which led to
fears that the regulator was attempting to fix
rates. TRAI had to then listen to the industry’s
apprehensions on revenues.
The market regulator SEBI and the audit and
accountancy regulator ICAI were struggling to
lay their hands on details of the Satyam scam
during the initial stages, because of lack of
powers or for other reasons, including political.
Then we had the banking regulator fighting the
anti-monopoly watchdog, the Competition
Commission of India, to retain its sectoral
powers even on competition issues.
SUPER REGULATOR
Amidst all this, there is talk of the Government
mulling a super-regulator for the entire financial
services sector and for all public-private
partnership projects in infrastructure sectors.
There are also proposals for regulators in
growing sectors such as retail and realty. Then
there are recommendations to set up Oversight Agencies to
monitor regulators.
If all this is too confusing and disillusioning, you need to get
a clearer view on regulators and their functioning. Not much
material is available to give a bird’s eye view of the Indian
perspective of a modern regulatory framework vis-à-vis other

It’s multi-racial, Down Under

developing countries. Now an effort has been made towards
this end by Jaipur-based
consumer group CUTS
International. 쑺 Instead of establish-
The organisation’s ing regulatory
쑺 The attacks on the mix are: alcohol, xenopho- latest book, Creating
bia, the need to fund drug hab- Regulators is not the frameworks that suit
Indian students in its, fear of losing one’s End, Key is the
identity, etc. Consequently, it Regulatory Process, their peculiar
Australia has been easier politically to edited by the CUTS national context, the
highlight a lack of term these incidents as founder Secretary-
‘crimes’ instead of as manifes- General, Pradeep S. developing countries
economic tation of social challenge(s) Mehta, tries to examine have chosen to draw
opportunities, and confronting Australia. “how regulation actually
If treated as a criminal mat- works in a cross-section inspiration from
the absence of ter, the incidents do not re- of developing countries industrial
networks or social quire a policy response. They that have taken
become police matters. significant steps country models.
institutions where towards liberalisation.”
Australian society HAS THE PENNY DROPPED? In this regard, the book analyses the regulatory situation in
Both at Federal and State lev- a cross-section of seven developing countries from Asia and
and Indian els, the problem is being seen Africa — India, Cambodia, Indonesia, Vietnam, Kenya, South
students may either as a problem of product Africa and Zambia — looking into regulated sectors such as
quality control (asking all the financial services, telecom, energy, water and transport in
interact. private education providers to these countries. CUTS International was able to undertake
re-register) or a public-rela- the study with the financial support of Groupe Agence
Vidya S. Sharma tions problem best articulated Francaise de Developpement (AFD), Paris.

S
ome time ago, I was
invited to speak to the
Rotarians in Chennai
on business opportu-
nities in Australia. After my
talk, the first question I was
asked was, “Why does Austra-
lia pursue a white Australia
policy?”
It is truly remarkable that a
nation born out of “white Aus-
tralia policy” has developed
into a modern multi-racial so-
ciety peacefully. There have
been no “Brixton or Paris
riots” or assassinations of civil
rights leaders.
In 2008, there were over
half-a-million Australian resi-
dents who were born in China
or India (Chart 1). The 2006
Census found that 16.2 per
cent of Australians spoke a
language other than English in
their homes: Chinese (14.8 per
cent), Italian (10.1 per cent),
Greek (8 per cent), Arabic (7.7
per cent), Vietnamese (6.2 per
cent) and Hindi (2.2 per cent).
About 25.7 per cent of all Aus-
tralian residents were born
overseas. The majority of the
new Australian residents from
India and China are in their
early twenties and thirties
(Chart 2). These are mainly in-
ternational students.
I wish to explore three is-
sues here. First, why have the
majority of attacks on Indian
students taken place in Mel-
bourne? Does it mean that
Melbourne is more racist than
other Australian cities? Sec-
ond, generally the Indian
media has painted these at-
tacks as racial in character.
Therefore, it seems worth ex-
ploring to what extent popular
conception of Australia as a
racist society stands scrutiny.
Third, have the Federal and
Victorian Governments taken
sufficient steps to markedly
improve the situation?
A REALITY CHECK
When a new ethnic group im-
migrated to Australia in seem-
ingly large numbers (as is the
case with the Indians present-
ly) it has generally generated
some hostility, especially from
those who fear the new im-
migrants would take away
their jobs. These people have
common characteristics: so-
cially disadvantaged back-
ground, semi-literate and
xenophobic.
However, the Vietnamese
immigrants were more easily
accepted in Australia. This
was because Prime Minister
Malcolm Fraser set up or
strengthened structures such
as migrant resources centres,
free English education classes,
SBS Television and radio sta-
tions (that broadcast non-En-
glish programmes). He also
added the function of multi-
cultural affairs to the Depart-
ment of Immigration to reflect
modern Australia.
In the late 1980s, Australia’s
immigration policy changed
from family reunion to skills
migration. Consequently, the
funding to such structures
was reduced. Prime Minister
John Howard did not see any
need for such structures as he
believed multi-culturalism di-
luted “the Australian identi-
ty”. Since Fraser, only two
other politicians have tackled
racism boldly: ex-PM Keating
and ex-Victorian Premier
Kennett.
All others, irrespective of
their political affiliations, in-
cluding all current incum-
bents, have been almost
frightened to face xenophobia
and racism. They have pre-
ferred to treat such incidents
as any other crime: which they
are, but they also reflect ugly
social phenomena.
WHY IN MELBOURNE?
The dismantling of structures
set up by Fraser explains the
rise of racism in Australia.
Second, Melbourne culture is
more conservative. Third,
Melbourne ethnic communi-
ties are considered as relative-
ly less integrated. Fourth,
Indian students have made lit-
tle effort to be part of the com-
munity here. Fifth, Melbourne
attracts more Indian students
as it is cheaper to live here. It
also is a more liveable city in
terms of public transport to
fringe suburbs and other
amenities.
Sixth, racism is not the sole
motivator in most cases as has
been depicted in the Indian
media. Some other factors in
by the Victoria Premier, Mr
John Brumby, “Some of the EFFECTIVE IMPLEMENTATION
events of the last few months The book conveys the lesson learnt due to the financial crisis
have damaged our brand and and the associated regulatory letdown — that “establishment
the Australian brand in India.” of regulatory commissions is not enough, effective
However, these attacks rep- implementation is equally important.”
resent civilisational issues fac- It rues that instead of establishing regulatory frameworks
ing contemporary Australia, that suit their peculiar national context, the developing
i.e., what steps are needed, countries have chosen to draw inspiration from industrial
what structures need to be es- country models.
tablished to ensure harmony As a conclusion, Mehta says in the book that “strong
between new and old Austra- political commitment on the part of Government to the
lians so that neither would feel reform process and
threatened. These attacks
highlight a lack of economic
consistent policy
쑺
objectives are necessary There is sustained
opportunities, a lack of net- preconditions for bureaucratic
work or social institutions successful regulatory
where Australian society and reforms.” interference in the
Indian students may interact, The study also regulatory process
and corruption in education confirms some of our
export. suspicions — that there to protect personal
These attacks also demon- is sustained interests... the less
strate the failure of State go- bureaucratic
vernments to adequately fund interference in the the governmental
vocational education (about regulatory process to
60 per cent of international protect personal
intervention, the
students). If this happens, interests and also the greater the success.
then government-owned fact that the less the
TAFE (Technical and Further governmental intervention, the greater will be the success.
Education) institutions would The book is a concise compilation as well as a good
become leading education ex- comparative account of the regulatory scene and its evolution
porters, thus largely inhibiting in the African and Asian countries that were studied.
the proliferation of disreput- But, instead of confining itself to a mere academic
able private education approach, this project of CUTS International — that has
providers. offices in India, Zambia, Kenya, Vietnam, Britain and
Switzerland — could have been more interesting had it
(The author, based in Melbourne, incorporated the viewpoints of actual stakeholders, including
specialises in organising joint consumers in those countries, on the different regulatory
ventures between Australian and regimes.
Asian companies.)

CH-X