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The economics of our politics

November 27, 2012

Broadening the spectrum of India-China cooperation, the two nations signed seven deals  worth US$5.2 billion across the renewable energy, information technology, steel manufacturing and electric transmission lines during the second India-China strategic Dialogue, spearheaded by the Planning Commission and its Chinese counterpart National Development Reform Commission (NDRC). The delegations also signed four memorandums of understanding related to energy efficiency, railroads, information technology and their intent to conducting joint studies on “issues of mutual interest” in New Delhi.

“We must aim at a magnitude and intensity of (economic) engagement appropriate for the world’s two most populous nations,” said Planning Commission deputy chairman Montek Singh Ahluwalia giving details of the deliberations as part of India-China strategic dialogue.

Zhang Ping, Chairman of the NDRC said that the just-concluded 18th National Congress of the Communist Party of China has clearly pointed out that China will implement a more active open policy towards India. China will consolidate its strategic partnership with India with a strategic and long-term perspective to seek and push forward common interests, develop and expand space of cooperation, learn from each other’s experiences and open each other’s market.

Zhang further suggested that the two countries deepen communication and coordination of each other’s macro-economic policy, push forward cooperation in infrastructure including railway, power, telecommunications, improve investment atmosphere, carry out green economic cooperation like renewable energy, energy efficiency and environment protection.

The agreements include a plan to develop a 2,500 MW renewable energy project envisaging an investment of US$3 billion by Reliance Power and China’s Ming Yang Wind Power Group. NIIT, which has established a firm base in China and Province of Hainan will together set up an IT technology park in Hainan with an investment of US$800 million. China Development Bank will syndicate a US$2 billion (over Rs 11,000 crore) loan for Lanco Infratech’s two power projects, which will help the cash-strapped group.

The deals signed highlight a strong undertone that has silently been hitting the Indian market – China is rapidly building much-needed infrastructure in India. Domestic Indian companies are unable to keep up and offer products and equipment at a comparable cost with China. As a result, private Indian companies are flocking to Chinese companies for infrastructure products and equipment. Going by the same concept that water always flows from a higher to a lower level, Indian companies are borrowing from Chinese to meet the deficit in their funds. Therefore, Indian companies are borrowing funds from Chinese banks to fund Chinese imports of equipment needed in India. While the government isn’t worried about this growing trend, analysts are skeptical. Besides being a Beijing tried and tested move to influence international relations between the two nations – tried and tested by China across South East Asia and Africa, India’s lethargy will also seek to raise if not double the current trade deficit that seems to worry so many in Delhi and influence bilateral relations. While the funds are being borrowed according to global standards, financial guru’s feel that its high time domestic Indian companies get their houses in order both in terms of a healthy balance sheet and productivity.

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