Keynote Address by H.E. (Mrs) Nirupama Rao, Ambassador of India at the Inauguration of the India Business Forum Beijing

Mr. Wang Jinzhen, Vice Chairman of the China Council for Promotion of International Trade, and distinguished member of the India-China Eminent Persons Group, Shri Chandrajit Banerjee, Director General of the Confederation of Indian Industry, Shri J.J Shrikhande, Chairman of the ‘India Business Forum’, Our Consuls General in Hong Kong, Guangzhou and Shanghai who are here with us today, Ladies and Gentlemen, We are witness today to the opening of a significant new chapter in the trade and business interaction and discourse between India and China. I refer of course, to the establishment of the India Business Forum, a welcome and most timely initiative. Institution-building in this case not only provides for structure in such a dialogue, but also harnesses the energy and provides a platform to our business representatives in China to project their interests and their priorities, and also the opportunity to exchange ideas and develop coherent and coordinated strategies to further promote their business in this vast country which has grown into one of the world’s top economies. I therefore warmly felicitate the Confederation of Indian Industry and I particularly appreciate Mr. Shrikhande’s contribution.

We are meeting today in midst of a global economic and financial crisis unprecedented in over eighty years. It is a crisis that affects the financial channels, the real channels, and as it has been termed in a recent address by the Governor of the Reserve Bank of India, the confidence channel. The downturn is much deeper than was anticipated only a few months ago. The IMF has marked down its estimate of global growth in 2009 to a range of minus 1.0 to minus 0.5 per cent. This is the first global economic contraction in 60 years. As has been observed, the impact of the crisis from the financial sector to the real sector has been unforgiving and total. Jobs are being lost in cascading order, demand has slumped, manufacturing is affected, and credit markets are in disarray. The International Labor Organization has estimated that 50 million jobs will be lost by end-2009. Global trade has contracted in 2009 in the fastest pace of shrinkage for the last 80 years. The pain is being felt both in developed countries and in developing countries exposing the fact that the decoupling hypothesis does not work. No country is an island and the force of globalization in the last decade has left no country untouched. For instance, India’s two-way trade which covers merchandise exports plus imports, as a proportion of GDP, increased from 21.2 per cent in 1997-98, the year of the Asian crisis, to 34.7 per cent in 2007-08. The Indian corporate sector’s exposure to external funding has also markedly increased in the last five years. We have been hit by the global crisis because of our rapid and increased integration into the global economy.

The prescriptions to deal with the situation are of course an effective credible fiscal stimulus; resumption of credit flows; cleaning up of the balance sheet of the financial institutions. A well-functioning financial system is necessary for the revival of the world economy. The problems of emerging economies should be taken on board. Capital flows, trade credit and export demand have all sharply declined. Protectionism has to be avoided - protectionism in goods as well as services, as also financial protectionism. There are compelling reasons as to why we must get together and find solutions to the issues facing us. All countries must join hands together to resolve this crisis. A global crisis requires global solutions. As we deal with the immediate problems, we must also be careful not to sacrifice the gains of openness of trade, and direct investment. There is consensus that greater global cooperation rather than a retreat from globalization is the best approach for solving the current financial crisis.

India and China need to work together to ensure that we contribute to the global economic recovery. Our two economies have the potential to become engines of global economic growth and we must use our natural and human resources, technology and capital for the common benefit of the region.

The recent book: “Getting China and India Right”, by Anil Gupta and Haiyan Wang makes the compelling observation that the world’s economic centre of gravity is shifting from the developed to the developing economies, in particular China and India. The rise of China and India, as these specialists point out is a “game-changing phenomenon”. In other words, China and India are changing the rules of the global game. Here is a case of renaissance, or rebirth as we are often used to putting it. Our two countries represent, as the same authors observe, megamarkets, with growth opportunities for every product and service, they are cost-efficient, they are platforms for innovation being producers of the largest pool of scientists and engineers in the world, and they are the launching pads for the new global competitors – that is, very capable companies (as those represented here today) that are eager to play on the global stage.

In this time of global financial and economic difficulties, the need for closer coordination and cooperation between India and China has never been greater. The crisis must be turned into an opportunity by tackling it with the key commodity of confidence. It is the ongoing metamorphosis of India and China that can reshape the world in the coming decades. In fact, in regions geographically quite distant from our own countries, our entrepreneurs and businessmen are contributing to development through joint ventures in a combination of assets that is catalyzing productive change. This is what is called the India-China symbiosis.

The fact is that both our countries today are convinced of the need for continued and concerted economic liberalization that balances globalization with equitable and balanced growth that benefits the weaker and economically disadvantaged sections of our populations. In both our cultures and social structures there is an ingrained desire for stability, harmony and balance. That is why even as our economies have opened up increasingly, we have also respected the need for governmental supervision of such areas as financial markets and have been wary of unsupervised deregulation. We have been able to create our own safety mechanisms for economic downturn, because we have learnt from hard experience over centuries of our collective histories. It is what the Singaporean global affairs specialist, Kishore Mahbubani terms the simple, commonsense approach of learning from experience and the value of prudence which of all virtues, as Adam Smith noted, is that which is most useful to the individual.

And that is why, despite the ongoing crisis, there is a mood of optimism that reigns in India, and we can sense that here in China, too. We hold it as an article of faith that our economies will rally, and improve – and that they will continue to be bright spots amidst the prevailing gloom. The good times, as it has been said, are not a distant memory. The market capitalization of the State Bank of India recently surpassed that of Citigroup, and India added 15.4 million new cellphone users in January, which is a record. What has fueled our growth – our youthful population, domestic demand and business innovation – has not altered.

As President Hu Jintao has noted, every crisis brings along an opportunity. It is well known that this crisis has not affected India and China in the manner it has affected the Western world or other developing countries. Our two countries are projected to grow at relatively substantial rates. We are already working together at the G-20 framework to help restore global growth and confidence, and to address the systemic risks in the global financial system. We must also engage more creatively with each other and seize the opportunities.

We have today at this meeting, organized today by the Confederation of Indian Industries in collaboration with the Embassy of India in Beijing, officials, academics and businessmen who are committed to deeper bilateral engagement and are actually part of that process. They are well placed to deliberate the various challenges and opportunities facing our economies.

India-China relations

With China, our relations have steadily improved. Both countries view their relationship with each other as one of global and strategic importance, that is long-term, and a key contributor to world stability. Our strategic dialogue, our cooperation in anti-terrorism, our cooperation in the field of energy, and in climate change are the reference points for our relations today, they have contributed to an increase in mutual confidence, and enhanced our strategic and cooperative partnership for peace and prosperity. We are building mutual trust and confidence between our militaries. Since 2007, we successfully held two rounds of joint military training exercises. We have been cooperating with China on advance warning on flash floods and emergency management on some of our common rivers.

Our trade and economic relations are rapidly becoming the bedrock for a more intensive engagement. Our trade exceeded US$ 50 billion in 2008. There is growing engagement among our business communities, students, academics and media. The number of visitors exchanged between our two countries exceeded the half million mark in 2008 and there are presently more than 25 direct flight connections a week. We need to encourage this growing interaction.

The question is often asked whether ours is a competitive relationship and a case of “India versus China”. This assumption does not tally with the substance and content of our relationship where cooperation rather than competition is the defining factor. There is enough space for both India and China to grow and prosper while strengthening our cooperative engagement. All countries must compete in global markets and such competition is not inconsistent with cooperation nor is it adversarial.

The increase in our trade represents a ten-fold growth over the past six years. It is pertinent to note that for both India and China, the growth rate in bilateral trade has been more than two times the rate at which their overall trade with the world has grown. In the process, China became India’s biggest trading partner in 2007. By 2025, it is highly probable that China-India economic ties through trade, investments and technology linkages may be one of the most important bilateral relationships in the world. Indeed, by 2025, the international system which is entering a period of fundamental transition, is very likely to see also a closing of gaps in national power between developed and developing countries. There will also be a much flatter distribution of power among the major economies.

We also need to look at trends in our bilateral trade, the direction of its growth and take necessary steps to rectify the trade imbalance. India’s trade deficit with China stood at US$ 11.2 billion in 2008. On the Indian side, there is a need to broaden and diversify our export basket, which is presently dominated by primary commodities such as iron-ore, cotton, etc. At the same time, India is seeking greater market access for its products where India has competitive advantages. These include agricultural commodities, basmati rice, dairy and meat products, pharmaceuticals, engineering goods, etc.

I am therefore very pleased to be present here today to launch the Indian Business Forum, an important initiative that the Confederation of Indian Industry has taken. Given that China has emerged as the biggest trading partner of India and that our economic and commercial relations are rapidly broadening, there was a felt and genuine need for the launch of such a Forum. The IBF would provide a networking forum for its members to interact with Government officials, academicians and think-tanks on the macro-economic scenario and strategic business partnership between India and China; would help in building “brand India” and analysing sectoral business opportunities in China in coming years. The Embassy of India in Beijing and our Consulates in Shanghai and Guangzhou have regular interaction with CII and I am certain that the launch of the India Business Forum today would substantially complement our efforts to strengthen our bilateral ties with China.

Some leading names in Indian and Chinese companies are present in the each other’s countries today. Their presence has supported and contributed to the development of our respective economies. There are around 250 Indian companies represented in China. They cover a wide spectrum of areas including IT, banking, engineering, chemicals, pharmaceuticals, textiles, etc.

There are global players among the Indian companies represented in China – Tata Group of companies, Reliance Group, Essar Steel, Infosys, NIIT, Larsen & Toubro, the State Bank of India, are just a few names. TCS which employs around 1,300 people in China is working on core banking software for the Bank of China – a project worth US$ 100 million while the NIIT has over 200 centres all over China, imparting IT education. Our leading players in I.T. are looking at ambitious future expansion plans here in China. For instance, WIPRO is to set up its largest IT development centre outside India in Chengdu, in Sichuan Province. Mahindra & Mahindra has entered into a joint venture with Chinese Yan Cheng Tractor with an investment of US$ 26 million.

There are also several well known Chinese companies with business operations in India. These include Sinosteel, Huawei, ZTE, Lenovo, TCL, Baosteel, Dongfang Electric Corporation, China Eastern Airlines, Sany Heavy Industry, among others. It is significant to note that of over 400 patents filed by Huawei worldwide in 2008, over 200 patents came from their R&D centre in Bangalore, which is also their biggest R&D centre. Huawei and ZTE earned revenues of US$ 1.3 billion and US$ 750 million out of their Indian operations respectively in 2008.

Sany Heavy Industry India Pvt. Ltd. is planning to invest US$ 60 million to set up a plant to manufacture construction equipment in Pune. The Chinese PC maker, Lenovo, has identified India as the new focus area. In fact, India is the second country outside China where it has launched its new model under Lenovo 3000 PC series. It is already the number two branch in terms of value in India with over 10% of the market share.

All this is illustrative of the extensive network of mutually beneficial economic and commercial ties that we have been able to build in the space of just a few years. The pace of change is nothing short of dramatic. And more important, it is positive, it is forward looking.

We do not deny that the impact of the global economic and financial crisis has been felt in our bilateral trade. Seen on quarterly basis, bilateral trade was US$ 9.76 billion in the last quarter of 2008 after having registered a trade volume of US$ 13.24, 15.79 and 13.04 billion in the first three quarters of 2008. Bilateral trade was US$ 5.8 billion in first two months of 2009. In general, the crisis has had an adverse impact on the business of Indian companies in China but most companies have expressed optimism that this hiccup is temporary in nature and business should pick up before the end of this year, and that they would stay the course. That is certainly a big vote of confidence in the future of our relationship.

We must further strengthen the base of our economic cooperation through business alliances and collaboration in technology transfer and development. It is important for us to have a long-term strategic perspective that looks ahead to future challenges. The businessmen on the two sides can develop profitable business models that factor in our complementarities and competitive strengths and the special needs of large markets like ours. India’s growing consumer market, skilled human resources, and software excellence together with China’s own large market, its manufacturing prowess and cost competitiveness provide the platform for rapid growth in our economic ties. The opportunities are many and innovation is the key to exploiting them. I am certain that the industries of both India and China will utilize current times to ‘rethink’ and ‘reinvent’ themselves. I believe that the India Business Forum can be a catalyst in this process. We need to build awareness of India in the Chinese market, and in Chinese minds, we need to engage in brand building.

While bilateral trade volume has witnessed impressive growth recent years, mutual investments have not kept pace and are rather low. While we seek to promote bilateral investments in traditional sectors our entrepreneurs should explore opportunities in new areas such as biotechnology, advanced materials, renewable energy and low carbon technologies. There are enormous opportunities for both India and China to expand trade in services, particularly in construction and engineering, education, entertainment, financial services, IT and IT enabled services, transport, tourism, and health.

India and China are the two largest developing countries representing more than one third of humanity. The priorities of inclusive growth and harmonious development must constantly be kept in focus. We can start a new wave of economic growth by investing in technologies, products and services directly meeting societal needs in eco-efficiency, healthcare, transportation and the empowerment of people – in such fields as clean water, sanitation, housing, primary health care, transportation and in agricultural technologies. The business communities of our two countries should also develop a deeper understanding of the macro-economic outlook, the regulatory regimes and of factors that have a bearing on the competitiveness of enterprises.

India-China cooperation at the multilateral level

Before I conclude, allow me to say a few words on our ongoing cooperation at the multilateral level including in addressing the present crisis.

There can be no doubt that restoration of the banking system in the industrialised countries to full functionality is a precondition for successful revival of the global economy. In addition, there has been a massive contraction in consumer demand in industrialised countries arising from the effect of the decline in house prices and in stock market values. This is compounded by uncertainty about future employment prospects. The emergence of excess capacity in several sectors is bound to discourage private investment. The developing countries have suffered a double shock. They have witnessed a collapse in world trade and have also suffered a massive decline of private capital flows. Falling demand is exacerbated by growing protectionist pressures and a withdrawal of trade credit.

The G-20 has recently agreed to constitute an additional $1.1 trillion programme of support to finance counter-cyclical spending, bank recapitalisation, infrastructure, trade finance, balance of payments support, debt rollover, and social support. This would help restore credit, growth and jobs in the world economy.

The present crisis clearly shows that we must move to stronger regulation and improved supervision. There is a need for a much higher degree of responsibility and accountability. The Financial Stability Forum that is now being reconstituted as the Financial Stability Board with strengthened mandate; and the expanded Basel Committee on Banking Supervision are already working on detailed proposals for new global standards.

IMF’s capacity to undertake even-handed surveillance needs to be strengthened if it is to perform the task well. This is ultimately connected with the governance and accountability of the institution. India and China should also cooperate with each other in drawing up a new financial architecture and also enhance the role the two sides can play in the decision making process of the existing international financial system.

In the multilateral arena, we are also cooperating usefully in the WTO negotiations, on environmental and climate change issues, in the field of energy and food security and in strengthening our dialogue on such dangers to development as extremism and terrorism. We have had useful experience of cooperating in the ongoing effort to bring about a successful conclusion of the Doha Development Round of the WTO negotiations, placing the development dimension at its heart. This experience enables us to intensify our efforts to create a more open and equitable trading and financial architecture.

In conclusion, I am certain that India and China are poised to play a creative and innovative role in these difficult times. An increasing number of voices are saying today that without India and China at the table, older industrialized nations cannot handle the global crisis.

I would like to thank everyone present here today for their important contribution to the betterment of the India-China relationship. I sincerely believe that the deliberations at today’s event will generate constructive ideas for our future work in intensifying our cross-sectoral engagement with China in business and industry. In turn, this can infuse greater strength and substance into our governmental dialogue mechanisms with China, especially where they are concerned with economic issues. I wish the conference every success.

Thank You.