Speech by Mrs. Veena Sikri , High Commissioner of India at a Dialogue on “Rise of China & India : Economic Implications for their Low Income Neighbours” organised by Centre for Policy Dialogue, Dhaka , on 10 October 2006
Distinguished Chairperson, Mr. Syed Manzur Elahi , distinguished Special Guests and Hon'ble Members of Parliaments, Mr. Mushfiqur Rahman & Mr. Tofail Ahmed, Dr. Mirza Azizul Islam, former Director, UN-ESCAP, Excellencies, discussants and guests,
It is a pleasure to have been invited as Special Guest on the occasion of presentation of the findings of a study on ‘ Rise of China and India: Economic Implications for their Low Income Neighbours '. I would like to congratulate Dr. Debapriya Bhattacharya for his excellent presentation.
2. In recent years, global attention has been riveted on the rapid emergence of India and China as major centres of world economic growth. Many forecasts, including the Goldman Sachs' BRIC (Brazil, Russia, India and China) report and the US National Intelligence Council's 2020 project, have predicted that China and India will continue to register high rates of economic growth over the next three decades to emerge as the second and third largest economies in the world by 2035. India has been rated as the fourth largest economic power in the world, as measured in terms of purchasing power parity (PPP), while China is already the second biggest economy in the world in terms of PPP, just below the US. If one uses the PPP method, China and India today contribute to 20% of global GDP, with China having a share of 13.6% and India 6%. India and China have been the two fastest-growing economies in the world.
Emergence of Indian economy as regional centre of growth:
3. Over the last 3 to 5 years, the Indian economy has attained a higher trajectory of growth, ranging between 7 and 9%, in contrast to an average growth rate of just 3.5% in the 1960s and 1970s and a little less than 6% in the 1980s and 1990s. We are expecting GDP growth of over 8% over the next few years. At the same time, it remains India 's steadfast objective to ensure that the ongoing process of economic reforms results in growth with equity and social justice for all regions and peoples of India .
4. The macro-economic indicators for the Indian economy are perhaps at their best-ever now, with high rate of GDP growth and low inflation of 4-4.5%. Foreign exchange reserves have reached a record high of US$ 167 billion in September 2006, a vast increase from the level of US$ 39 billion in early 2001 and the critically low level of US$ 1 billion in 1991. The external debt to GDP ratio has improved significantly from 38.7% in 1992 to 17.4% in March 2005. After having been a recipient of aid for many years, India has joined the club of aid-givers. Since July 2003, India has been a net creditor to the IMF. It is of great significance that our trade and investment linkages with different regions in the world are multiplying rapidly. In the last four years, our global trade in goods and services has almost trebled from US$ 100 billion in 2001 to US$ 300 billion in 2006. The trade-GDP ratio has also increased sharply from 15% in 1980 to 21.1% of GDP in 2001 and reached 41.6% of GDP in 2005, a key indicator that the Indian economy is becoming increasingly integrated with the global economy. The trade deficit of US$ 28 billion in 2005 was offset by robust inflows from remittances, foreign investment and invisibles, which ensured a capital account surplus of US$ 31.6 billion for 2004-05. An important catalyst in India 's economic expansion and global integration has been the return to India of highly qualified professionals, who had migrated to developed countries and who are now setting up IT firms, BPOs and joint ventures in India . Remittances from NRIs have increased significantly in recent years and amounted to over US$ 20 bn every year in 2003 and 2004.
5. The potential shown by the trends over the last five years are likely to accelerate sharply from now on. Businessmen and global MNCs have now discovered the advantages and manifold opportunities available to investors in India . We are now receiving an unprecedented degree of high-level visits from Fortune 500 CEOs .
6. Rapid growth rates are no longer restricted to the dynamic IT sector. India is increasingly regarded as an attractive manufacturing base, particularly for high-end research and analysis in diverse sectors of the knowledge industry. Sectors such as pharmaceuticals, chemicals, textiles and garments, engineering goods, auto-ancillaries, motor vehicles in India are now recognised as being internationally competitive and their products are increasingly finding their way into markets of developed countries. India has embarked on a massive programme for upgrading its roads, airports and ports. We plan to spend about US$ 70 billion on modernisation of our infrastructure during the 11 th Five Year Plan (2007-2012). Projects like the Golden Quadrilateral to link the four main metros have been making steady progress and last year alone, a record 6,000 kms of roads were built. India 's telecommunications revolution has fascinated the world, since from a negligible level of 3 million mobiles phones in 2000, the mobile phone market in India has just crossed the 100-million mark! The Indian Government has set a target for India 's mobile phone market to reach 500 million by 2010.
7. India has become one of the most favoured destinations for both FDI (foreign direct investment) and FII (foreign institutional investors) inflows. India is currently estimated to be the second most popular destination for FDI. FDI inflows have risen rapidly to reach US$ 8.3 billion in 2005-06 and are expected to cross US$ 12 bn this year, as many Fortune 500 companies and global MNCs focus on India , both as a manufacturing hub and as a knowledge centre. Once FDI inflows to India increase, the same MNCs will also plan investments in other South Asian countries, as has happened in the hotel, telecom and consumer goods sector. This is an important direct spin off for India 's neighbours. FII investors have poured billion of dollars into Indian bourses in the last few years, as Indian stock markets have provided the highest returns among emerging markets. The potential growth of emerging markets has fascinated global investors, who have diversified investments into India and other developing markets, resulting in record highs being reached by most South Asian stock markets. This can benefit low income neighbours, as we can have cross-listing of shares between our capital markets.
8. Indian companies are also increasingly looking outwards towards new markets and are on an acquisition spree. Increasingly confident and aggressive Indian companies finalised a series of mergers and acquisition of overseas companies, primarily in US and Europe , which were worth US$ 5.5 billion last year. In the last few years, Indian companies have also made substantial investments in Sri Lanka , Nepal and Bangladesh , which has transferred technical skills and generated new employment. Investment from India is the third direct benefit for India 's neighbours.
9. The buoyancy of a burgeoning Indian economy has naturally brought through considerable positive benefits to our neighbours. India has a growing market of over one billion people, of which about 350 million are middle class consumers. With 54% of the population being below the age of 25 years, we are witnessing rapid growth in this middle class consumers group as increasing number of youngsters join the workforce. India 's economic boom, combined with the exponential growth of its IT & knowledge-industry sectors, offers numerous opportunities for our neighbouring countries and the world; as a growing market, manufacturing base and services centre. Sayeful Islam spoke about Bangladesh 's adverse trade balance with India , but what he did not mention was that Bangladesh 's exports to India have gone up by five times in the last few years, from US$ 50 million in 2001-02 to over US$ 250 million for 2005-06. The rate of growth of Bangladesh 's exports to India has been much higher than Bangladesh 's overall export growth rate of about 15%. Sri Lanka 's exports to India have increased at a rate of 183% per annum between 1997-2004, primarily due to the bilateral FTA between India and Sri Lanka . Other neighbours like Nepal , Pakistan , Myanmar , and further afield , Cambodia and Vietnam have experienced similar rapid expansion of their exports to India over the last few years. Farooq Sobhan spoke about duty free access for Bangladeshi products to India . For achieving this, India has proposed a bilateral FTA with Bangladesh , for which we are awaiting a response.
Revolution in India-China economic relations:
10. The one country with whom India 's trade and economic relations have been completely transformed in the shortest span of time is China . India-China bilateral trade amounted to a negligible US$ 340 million in 1992 and only US$ 2 billion in 1999, making India an insignificant trading partner for China . There were negligible investment flows between our two countries and business communities in both countries avoided each other, due to misconceptions and stereotyped images. Within 3 years, by 2002, trade levels had grown 250% to about US$ 5 billion. Since then, bilateral trade has expanded at a scorching pace to reach US$ 7.6 billion in 2003, US$ 13.6 billion in 2004 and US$ 18.7 billion in 2005. India-China bilateral trade is expected to cross US$ 20 billion in 2006. Fortunately, the trade pattern has not been lopsided and both exports and imports have expanded rapidly. China has now become India 's second largest trading partner, just after the US .
11. Unprecedented trade expansion has been complemented by quick expansion of two-way investment flows between India and China . By 2005, Indian companies had invested in over 196 projects in China . Major Indian IT companies like Infosys , TCS and Wipro have hired hundreds of Chinese software engineers and have ambitious future plans. Similarly, Chinese IT and telecom companies like Huawei and ZTE have hired hundreds of Indians and supplied telecom equipment worth billions of dollars to India . Chinese companies have invested over US$ 1 bn in projects in India , such as building segments of the National Highway , Thermal Power Project in Andhra Pradesh, BALCO Project, etc. The strengthening trade linkages between India and China are bound to grow further in the next few years and include a new range of commodities and services. Booming bilateral trade and investment has led both India and China to set up a Joint Study Group, which has recommended an India-China Regional Trading Arrangement/Agreement. The RTA will offer additional incentives for foreign investors to access the Indian and Chinese market, by setting up industries in Bangladesh and other countries in the neighbourhood. This is one more area of direct benefit for India 's low-income neighbours.
12. The remarkable turnaround in the economic dimension of India-China relations has contributed immensely to removing mutual distrust and suspicion. The frequency of high level exchanges and the gamut of cooperation has increased significantly. During former Prime Minister Vajpayee's visit to China in June 2003, a Joint Declaration was signed on ‘Principles for Relations and Comprehensive Cooperation', which established a detailed road-map for future cooperation. It included proposals like the establishment of a new mechanism of Special Representatives to explore a political solution for the resolution of the boundary and opening of Nathu La Pass for border trade. The Joint Declaration explicitly stated that ‘The common interests of both sides outweigh their differences. The two countries are not a threat to each other. Neither side shall use or threaten to use force against the other'.
13. Several meetings of the Special Representatives have resulted in yet another significant agreement on ‘Political Parameters and Guiding Principles' for the boundary in April 2005 that was concluded during the visit of Chinese Premier Wen Jiabao to India . The relationship has been elevated to a higher level, with Prime Minister Dr. Manmohan Singh and Premier Wen Jiabao agreeing to establish a ‘strategic and cooperative partnership for peace and prosperity'. Such a partnership is based on the principles of Panchsheel (or the Five Principles of Peaceful Coexistence), mutual respect and sensitivity for each other's concerns and aspirations, and equality; provides a sound framework for comprehensive development of bilateral relations based on mutual and equal security, development and prosperity of the two peoples; and contributes to jointly addressing global challenges and threats.
14. Sagacious leadership in India and China have ensured that long-standing political disputes are not allowed to obstruct economic and investment linkages or prevent mutually beneficial cooperation in disparate sectors like energy, finance & banking, agriculture, water resources, space, science & technology, civil aviation, mining and culture. This has given a strong basis to future development of relations . India and China have set up new mechanisms like a Joint Study Group (on trade & economic cooperation), a Financial Dialogue Mechanism and have coordinated their positions during WTO negotiations. In the energy sector, where both India and China are dependent on imports, there have been efforts to cooperate by making joint bids for energy assets in other countries. Both countries have jointly acquired oil assets in Syria and are partners in Sudan 's Greater Nile Project. The evolution of India-China relations offers a model of cooperation for other countries in the region, including some of India 's neighbours. They indicate that a mature and progressing dialogue, based on mutual sincerity to improve relations, can yield beneficial results, which inter alia , lead to the resolution of complicated and complex political issues. We are now looking forward to the visit of Chinese President Hu Jintao to India in November 2006.
Globalisation and emergence of regional trade blocs:
15. Globalisation has made the world a small place, by reducing the barriers of distance and time. Today, companies manufacture components in one part of the world and assemble them in other locations, through a global supply chain. The lack of progress in the Doha Round and WTO talks has given an impetus to emergence of regional and bilateral trade arrangements, such as FTAs , RTAs , CECAs to enhance economic linkages. Inevitably, such arrangements are most effective among geographically contiguous countries or immediate neighbours. Regional and sub-regional cooperation has become the driving force behind such economic activity. Across Asia , countries are putting together a web of trading arrangements, such as the India-ASEAN FTA, China-ASEAN FTA, India-Singapore CECA, as well as SAFTA and BIMSTEC in our own region.
16. As both India and China finalize their FTAs with ASEAN and become part of regional trade blocs, there will be new opportunities for countries in the region to obtain access to these markets by providing manufactured products or services. For instance, lower tariffs will mean that Bangladesh is likely to discover newer markets for its readymade garments, pharmaceuticals, ceramics, cement in both India and China . Similarly, Bangladesh and other neighbours of India and China could leverage their low labour costs, locational advantage and manufacturing base to attract investment from ASEAN countries and other nations, to obtain market access to the gigantic Chinese and Indian economies. A positive response from Bangladesh and finalisation of an FTA with India could enable Bangladesh to better leverage the opportunities opening up from the regional and bilateral FTAs/RTAs that India has concluded with others.
17. At the first-ever East Asia Summit in Kuala Lumpur in December 2005, the leaders recognised the growing inter-linkages and inter-dependence among member-countries and agreed to deepen cooperation and integration. Successive East Asia Summits are likely to establish a roadmap for future economic cooperation, in which Bangladesh can play a critical role.
Connectivity as the key to regional cooperation and integration:
18. The region encompassing eastern India , north-eastern India and Bangladesh is one of the richest in terms of natural resources and potential. Nevertheless, it remains one of the poorest, primarily due to inadequate connectivity. Bangladesh 's strategic location can enable it to be a bridge between India and South-East Asia, as well as India and China . Yet, the key to Bangladesh and other LIACs (Low Income Asian Countries) benefiting from China and India 's economic growth lies in connectivity, whether it is through road, rail, sea or air. Bangladesh can play a useful role as a bridge for India-China economic cooperation in facilitating movement of goods and services and enhancing cooperation in areas like civil aviation and tourism between India and China . In particular, Bangladesh can help link Kunming and Myanmar with India 's North-East.
19. As Bangladesh's civil society and eminent founder of Grameen Bank, Muhammad Yunus have often said, Bangladesh must capitalise on its geographic location to provide access to land-locked countries like Nepal and Bhutan, as well as regions which do not have access to ports, like India's North-East or China's Southern state of Kunming . Development of infrastructure and good access routes, combined with speedy handling of goods, will encourage other countries in the region to use Chittagong and Mongla ports. Dr. Yunus had suggested in his speech titled “Growing up with two giants” in February 2006 that Bangladesh acts proactively to become the “cross-roads of the region “ and resolve political and technical issues with India . He had made specific suggestions to make Bangladesh a very attractive country in terms of state-of-art ICT (Information, Communications & Technology), build a mega-port along the Chittagong coastline to serve Nepal, Bhutan, India, Myanmar and South-West China and build highways to connect the mega-port with all six countries.
20. An essential pre-requisite for India , Bangladesh and other neighbours to be part of this momentous shift of economic prosperity towards Asia is to restore the ancient road, rail and river links, established in the colonial period and thereafter, link our region to other parts of Asia, including China . Our Hon'ble Prime Minister Dr. Manmohan Singh had proposed during the 13 th SAARC Summit in Dhaka in November 2005 that “ In pursuit of this vision, let us agree, at this Summit, that all South Asian countries would provide to each other, reciprocally, transit facilities to third countries, not only connecting one another, but also connecting to the larger Asian neighbourhood, in the Gulf, Central Asia and South-East Asia. India, which borders each of the members of South Asia, is willing to do so”. He had also warned that “if South Asia fails to grasp this historical opportunity, we may be condemned to remain peripheral both in Asia and in the world”. India has already offered US$ 100 million for creating a SAARC Poverty Alleviation Fund, which can be utilised for building infrastructure projects in our neighbouring countries and is willing to provide significant additional funds.
21. Our Hon'ble Prime Minister Dr. Manmohan Singh has spoken frequently of an ‘arc of prosperity' consisting of an Asian Economic Community, which brings together South Asia, South East Asia and East Asia. Proposals like the Asian Highway and Asian Railway, which are funded by international organisations, can help make such integration possible, but Bangladesh needs to be part of such processes. If Bangladesh chooses to act as a bridge linking these dynamic economic regions in Asia , it can derive immense benefit and become the centre-point for the movement of goods, services and people within the area.
22. India welcomes Bangladesh and other neighbouring countries to be part of this grand vision of a resurgent and prosperous Asian Economic Community. We would like to work together with our Bangladesh counterparts and start by taking small steps to remove existing barriers. As the largest economy in the sub-continent, India acknowledges readily that it has a greater responsibility for developing beneficial economic and trade linkages with its neighbours. India has accepted the principles of non-reciprocity and positive asymmetry in its endeavour to strengthen connectivity and trade. India and Bangladesh can try to operationalise proposals like Sealdah-Joydevpur train service, Akhaura-Agartala rail link and access to Chittagong port for goods from India 's north east. On its part, India is willing to provide financing for restoring old rail links, modernise and liberalise procedures at Land Customs Stations (LCS) and to discuss a Motor Vehicles Agreement for Bangladesh motor vehicles to carry goods to Indian ports or Inland Container Depots.
23. The ADB representative spoke about lack of integration of South Asian economies and infrastructure. India has been working with neighbouring countries to integrate rail and road linkages in its extended neighbourhood. The India-Myanmar-Thailand trilateral highway, the Kaladan project with Myanmar and the Delhi-Hanoi railway are being implemented. India has started building a transport corridor through Iran to Afghanistan . Neighbours like Nepal have benefited by being a transit point for trade and tourism between India and China , while Myanmar has opened its natural gas resources for exploration to both India and China . Nepal and Bhutan have jointly cooperated with India to build large hydel power projects, which are providing significant revenues to these countries for electricity purchase by India . The TATA proposal for building steel, fertilizers and power plants in Bangladesh is an ideal example for creating a synergy of Bangladesh's rich natural resources of coal and natural gas with technical expertise and managerial skills of TATA's . I agree with Hon'ble MP Abdur Razzak that response to TATA proposal has been politicized. There should be no stereo-type reaction from one party or the other. I sincerely hope that the next Bangladesh Government, formed after the elections, will have the maturity and sincerity to start serious negotiations to finalize the TATA proposal.
24. Finally, I would once again like to reiterate the comments of our Hon'ble Prime Minister Dr. Manmohan Singh during the 13 th SAARC Summit that “We cannot be the cross-roads of Asia but remain disconnected within our own region.”
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