“Chinternational” – How China has become the gateway to international trade for Indian Industry!

Emerging economies of the BRIC (Brazil-Russia-India-China), especially the BIC have become a must for the trade orientation of almost all economies in the globe today. Simultaneously trade between the BIC nations has picked up tremendously in their attempt to foster south-south relationships. Within this intra-region trade, however, the I-C trade seems to be catching fire more profusely than the B-I trade. The former stands at about $60 billion today while the latter is at $8 billion or so.

Coming from a time when the Indian Industry was so afraid of Chinese products being dumped here, the pace at which the things have changed often surprises me. Today every businessman seems to have either been to China or plans to go there some time. China comes up in day-to-day conversation as if it was just another market in one of our Indian states.

The other day I went to the bicycle market on Esplande Road in Chandni Chowk (Delhi), and was sitting in a small shop when one surrounding shop owner stopped by. The two proprietors were casually talking of how INR weakness was affecting trade with China. Well, cycle trade is still a small scale industry (SSI) in India and expecting this trade to have become international in such a manner came as a surprise to me. Unconfirmed reports suggest that biggies like Hero Cycles also source some of their products from Chinese markets. The industry has embraced cheap products from the country as a way of being competitive and stopped looking at Chinese as hostile gobblers of our market.

Similarly, in the textile industry, Pallavi Aiyar (author of Smoke and Mirrors) suggests that Shaoxing City is more like a little India where approximately 10,000 Indians could be working or living. Apart from this data my interaction with a resident of Jhansi (U.P.) onboard a train to Delhi suggests that traders from the city frequently visit China for textile business.  

Electronics is another industry where Chinese imports to India are quite common, and Palika Bazar (Delhi) prices fluctuate with the prices of product in China and the INR/USD exchange rate. My friend from Rajouri Garden (Delhi) also mentions how china is important in the furniture trade. In fact I feel it might be hard to find an industry in India that is not trading with China currently (and I would encourage the readers to suggest some such industries.). When I enrolled myself for a mandarin course at IGNOU (which I never managed to finish,) I found so many businessmen from varying industries registered for the classes.

What is interesting is that for many Indian businessmen international trade first started with China. This is a country that is capable of not just producing high-tech goods which countries like America also produce but because of its emerging economy populace capable of producing low-end mass products as well. Products like cycle spares or torches or solar plates or polyester rolls that are needed in the daily life of a common Indian.

While it certainly feels euphoric to see an industry like bicycle go International with this China trade what is somewhat worrisome is that this flow is highly lopsided with India running a trade deficit with China of about $20 billion in the year 2010-11. When I look at the exporting side, I can only remember of a friend that exports print machinery, and an advertisement by Paharpur Industries about the world’s factory (China) buying cooling systems from them. Well, I am certain that our services industry that is known for its competitiveness globally would be one of the biggest exporters to China as well but in the absence of focus on manufacturing it would be wishful to expect this trade to balance any time soon. 

Defining public debt no less difficult than getting rid of debt....

Different institutions/nations use different measures to denote the sovereign debt of a nation. This generally leads to confusion when countries need to be compared. It is therefore important to be aware of all the classifications and the suitability of each for different purposes. So, what is the most relevant public debt measure for nations?

Possible classifications:

-          Total debt vs. Public debt /Government debt /National debt

o   Total debt refers to debt of the government sector as well as the private sector owed to local or foreign bodies.
      "But Krugman's point, which is correct, is that many make the mistake of assuming that government debt is equivalent to external debt and they overestimate the burden that it imposes on a country." (AntonioFatas and Ilian Mihov on the Global Economy)

-          General government debt vs. Federal debt

o   General government debt refers to debt owed by all levels of government – Federal, state and local – collectively.

-          Gross debt vs. Net debt

o   Net debt refers to gross debt minus all financial assets.

Who uses what?

o   IMF World Economic Outlook (WEO) database as well as IMF Fiscal Monitor provides data for General Government Gross Debt level only.

o   Australia Budget reports data only in ‘General Government Net Debt’ terms.

o   UK uses the Public Sector Net Debt measure which is basically the general government net debt figure.

o   The debt measure used by European Union is General Government Gross Debt (GGGD). This differs from the UK fiscal measure, PSND, in two important respects.  The first is the sectoral boundary; being defined as General Government it excludes the net debt position of public corporations, which are included in the public sector.  The second is that is measures gross liabilities and does not net off liquid assets.

o   India: Unlike the USA where the centre and state debt data is difficult to find at a place RBI’s Macroeconomic and Monetary Developments Quarterly clearly lays out state, centre, and combined/consolidated public debts. The Status Report of the MoF, DEA, released in November 2010 lays out a debt reduction roadmap up to 2014-15 which again segregates clearly the central, state, and consolidated/general government debt.

o   The broadly quoted measure for USA debt is Gross Federal Debt which is the sum of debt held by government accounts plus debt held by public. State and local government debt data is not easy to find.  Congressional Budget Office (CBO) in its reports refers more to ‘debt held by public’ component of Federal Debt.

o   “The difference between gross debt and net debt is very large for some countries. For example, for 2011 the OECD projects that Japan’s gross debt will be 204.6% but its net debt will be 121.5%, a significant difference, and close to the projected 106.7% net debt of Italy. Indeed, some analysts believe that net debt is a more appropriate measure of the debt situation of a particular country. However, since not all governments include the same type of financial assets in their calculations, the definition of net debt varies from country to country and makes country-to-country comparisons difficult. Therefore, gross debt as a percentage of GDP is the most commonly used government debt ratio and is the way that the OECD measures debt.” (Global Finance magazine)


 “In principle, net debt is a more appropriate measure of government indebtedness. There are, however, some concerns with the concept of net debt. In addition to some measurement question (which assets to include, at which value), the government needs to refinance all its gross debt and not only the net part, so in terms of flows, it is the gross debt that matters. Also, while it makes sense to exclude government debt held by the government, some of this debt is part of a fund that covers future pension liabilities that are unaccounted for in the budget. And here is where the assessment of government solvency gets more difficult: what you really want to do is not just to look at government debt but also at future revenues and liabilities.” (Antonio Fatas And Ilian Mihov, INSEAD professors)