Calcutta Notebook


Demand is being raised that Indians should boycott Chinese products. Indeed, it is a matter of deep concern that India's imports from China are nearly ten times its exports to that country. More alarming is the fact that exports of goods have been shrinking continuously in the 18 months to May 2016. Also, India's exports to Latin America, Commonwealth of Independent States (formerly Russia), and Africa have contracted by about one third in 2015. The problem, therefore, is not that exports to China are less. The problem is that exports are shrinking across the world. The cost of production is high in India and Indian exporters are being priced out of the world markets. On the other hand, India continues to import goods in large quantities. Result is that India is running a huge trade deficit.

These days India is earning less from the exports but spending more on the imports of Chinese electronics, Washington apples and Swiss chocolates. The infrastructure in the country is dilapidated. Businesspersons have to pay bribes to the inspectors from the labour, industries, electricity, GST, and weights and measures departments. The push to digital India and GST has made lives of millions of small businessmen difficult. These have to spend more money and time in complying with the new regulations. If anything, Indian farmers and businessmen are not able to stand up to global competition. Farmers and businessmen in other countries produce cheaper goods because infrastructure is good, and regulations are less cumbersome. Therefore, price in the world market is less and India is unable to earn monies from exports. However, India is getting money from Foreign Direct Investors who are buying land and setting up factories here. Then there are remittances coming from Indians working in the Gulf countries. The government is using the receipts from these sources to import cheap electronics goods from China and living a comfortable life just as the fanner was using receipts from sale of land and from remittances from his sons and daughters working in the cities to live a comfortable life.

The Chinese model is altogether different. Their farmer earns more from the sale of wheat and spends less in the purchase of a flat screen TV. The canal in his village is maintained well and he has cheap water available at all times. The road to the village is good. He does not have to pay bribes to the electricity lineman. His cost of production is less than his Indian counterpart. He sells large quantities of his produce in the market. He uses the money received from this sale to buy land in the city. His income is more and expenditure is less.

Another major difference in the Indian and Chinese models is of the nature of bureaucracy. Both are corrupt but in different ways. One Indian importer of Chinese electrical goods told this writer that the Chinese Government has provided a particular incentive to exports. The Government refunds 5 to 7 percent of the taxes paid if a single invoice is raised for exports of a full container of goods. There are no hassles. The exporter has to file the invoice with the authorities and the refund is received almost instantaneously. There is corruption in that country but the corruption is anchored in encouraging businesses and exports. Say, a businessman wants land to set up a factory. Chinese officials will take bribes and make available the land worth Rs 10 lakh in Rs 5 lakh. The cost of production of the Chinese businessman is consequently less. Indian bureaucracy, on the other hand, will create roadblocks. They will take bribes to remove these roadblocks. Thus the cost of the land for the Indian businessman becomes Rs 15 lakh. The Chinese bureaucracy takes bribes for putting mobil oil in the economy while the Indian bureaucracy takes bribes by applying brakes to the economy.

China's income from exports is more and expenditure for imports is less. They use the earnings for buying up properties in the United States. Chinese companies have purchased large plots of land in Africa. The Chinese Government has purchased large amounts of bonds issued by the United States Government and successfully put a noose around their neck.

India's trade deficit with China is mainly because of high cost of production which, in turn, is due to the roadblocks made by the bureaucracy to extract bribes. India must tackle this rot within rather than blame the Chinese for woes.

Vol. 50, No.5, Aug 6 - 12, 2017