India-China Chronicle |25||24| India-China Chronicle November 2011

INFOCUS | INDIA-CHINA | INTERVIEW

An interview with Salil Bhandari, President of the PHD Chamber of Commerce and Industry

of GDP). However, divergence from the GDP growth trend was almost the same in both the economies. In fact, China’s growth story is tilted towards a growth in exports and investments, whereas India’s growth pattern is main-ly driven by domestic demand. During the last decade (2000), final consump-tion in India’s real GDP contributed 60% as compared with 43% in China.

Two catalysts that have facilitated China’s growth are exports and incom-ing foreign direct investments. Chinese industry is the engine of growth and has created huge capacity and encour-aged latest technology. Even the cost of capital is very low in China as com-pared to India. India’s savings and in-vestment rates are behind China. There is an urgent need to augment the rate

of savings from their present level in India to generate funds for investment. An important factor is also the speed at which infrastructure has been created in China. However, India provides a conducive and secured environment to its business and investors in com-parison to China. According to the latest World Bank report on “Doing Business in India”, availability of cheap credit, less time taking construction permits and improved tax payment structure are better in India as compared with China.

What are the emerging trends that you observe would fa-cilitate or impede trade and cultural relations between India and China?

Leaders from both the economies have been in touch through regular vis-its to each other’s countries. During the official visit of Chinese Premier Wen Jiabao to India in December 2010, six agreements on cultural exchange, green technologies, media, hydrologi-cal data, and banking were signed. The year 2011 was declared as the ‘Year of India-China exchange.

Also, a bilateral trade target of USD 100 billion was set to be reached by 2015. On the FDI front, India received FDI of USD 65 million approximately from China between during 2000 to 2011. And there is still scope for in-vestment. Even in the current scenario of rising global debts and unstable markets, it is the two Asian economies which are looked up to as the saviours of the global economy.

Acknowledge

How do you perceive China? Is it a threat or an opportunity?

China is a threat to Indian small industry. Indian industry is facing growing competition from China, both internationally and also within. Indian SMEs are threatened by Chi-na’s low-cost products which can be imported. India must gear up to meet the challenges that China poses, both in domestic and international markets, and at the same time identify areas where we can take advantage of the large Chinese market so that the net effect on the Indian economy is largely

ICC: Please tell our readers more about PHD Chamber of Commerce and Industry, its aims and objectives.

Bhandari: PHD Chamber of Com-merce & Industry, established in 1905, is a proactive and dynamic multi-state apex organization working at the grass-root level and with strong national and international linkages. The Chamber acts as a catalyst in the promotion of industry, trade and entrepreneurship. PHD Chamber’s geographical span covers 10 states of Chhattisgarh, Delhi, Haryana, Himachal Pradesh, Jammu & Kashmir, Madhya Pradesh, Punjab, Ra-

jasthan, Uttar Pradesh, Uttarakhand and the Union Territory of Chandi-garh. The Chamber has identified six thrust areas namely, industrial develop-ment, infrastructure, housing, health, education and skilled development, agriculture and agri-business. Our motto is ‘In Community’s Life & Part of It’ and we contribute significantly towards the socio-economic develop-ment and capacity building in several fields. Our Chamber has a direct mem-bership of over 1,600 corporate entities and serves more than 45,000 indirect members through its association mem-bers and secretarial affiliates.

The membership covers trade and industry. We organize over 200 semi-nars, conferences and workshops ev-ery year in the region served by us. Through this process, we are able to provide policy inputs to government and a platform to discuss new ideas. We also provide networking opportu-nities with government officials, diplo-mats, leading names from all spheres of life and business peers.

According to you what are the commonalities and divergences between the business environ-ment in India and China?

India, China together can transform the

global economy

Today, both the Asian economies are the fastest growing economies in the world. Being the most populous countries in the world, our consumer base serves as a huge potential market for the producers and manufacturers across the globe. Major Indian compa-nies including Ranbaxy, Bharat Forge, Infosys, ICICI Bank and Reliance have laid their footprints in China. The Chi-nese counterparts including Huawei Technologies, ZTE and Sinosteel have set up their base in India.

Both the countries have managed to withstand the aftermath of subprime crisis. China had provided a larger amount (around14% of GDP) to stim-ulate its economy whereas India man-aged to stimulate its economy with a significantly lesser amount (around 3%

|26| India-China Chronicle November 2011

positive. India needs to imbibe lessons from China’s economic miracle, which is based on high productivity, low-cost production, huge capacities, world class infrastructure, attractive tax incentives, export-led growth and a clear FDI pol-icy. China is by far the largest recipient of FDI amongst the developing coun-tries, even though a large quantum of FDI inflows comes from overseas Chi-nese investors.

The lessons that India can learn from China include the fact that the Chinese reforms are backed by strong political commitment and a proac-tive bureaucracy for implementation. China’s GDP is primarily contributed by its robust industry, which is the growth engine and has created huge ca-pacity and encouraged latest technol-ogy, unlike India. Further, China has duly tapped the potential of overseas Chinese by creating an atmosphere of safety and security of investment. India has not been able to successfully lure its NRI community.

The availability of government fi-nanced world class infrastructure, par-ticularly in the SEZs, is one of the main reasons for China attracting massive FDI. Trans-shipment of goods to the ports is easy and quick, saving on time and cost. The dismal state of India’s in-frastructure is quite well known. Being highly price competitive, there is no doubt that the Chinese products would find greater access into the internation-al markets. There are several spectrums across which India and China can do handholding, to facilitate each other’s growth story.

In the light of multilateral trad-ing system, which are the ar-eas you feel the Indian industry associations will be interested to collaborate with their Chi-nese counterparts in China?

Both India and China have huge and top emerging markets, which have become attractive foreign investment destinations. Bilateral trade for the year 2009-2010 was approximately USD 42.4 billion, between India and China. Even today, India has a negative balance of trade with China, and we need to find out opportunities to make this balance more even. One of the important sectors

up to the pace of China’s economic and industrial growth. Both the na-tions need to engage in constant dia-logue towards fruitful collaborations. India and China should work towards maintaining a congenial environment, so that our communications remain focused and positive, for the common benefit of our people.

What according to you should be the strategy for enhancing trade and cultural relations with India and China?

China’s economic miracle is a sub-ject of study. Most of the study reports talk about its higher productivity, low cost of production, huge capacities and cross-subsidies. China’s high rate of economic growth since 1978 and grant of mutual MFN treatment in 1984 offers a degree of complementa-rity between the two economies. The growing economic and commercial relations between India and China has set the backdrop for a successful rela-tionship ahead. The two neighbours can only look ahead from here, and base their partnership on community benefit for both the regions. India and China together need to set an example of solidarity, and encourage trade and cultural ties through frequent dialogues and joint programmes. And if the two come together, the global economy can witness a tectonic shift.

How do you think ICEC’s association with your Chamber can help the industry overcome hurdles in China’s market?

India China Economic and Cultural Council (ICEC), the name itself reflects that the Council is aimed at involving both the countries to develop India-China relations. ICEC can act as a facilitator and adviser for business communities, investors and partners from India, who are looking at China as their next milestone. The Council can share with us any information related to events, programmes, policy matters and new developments that could be useful to our members, and we shall reciprocate the same. This would help us contribute towards building a sound trade and investment relationships between the two Asian giants.

Another core area which has the

potential to provide huge business

and employment opportunities for

China and India is the SME sector

for cooperation between India and China is infrastructure development, particularly in the housing sector. There is a surplus of houses in China and therefore the Chinese companies in infrastructure development are willing to come to India. China is well aware of India’s achievement in the IT sector and may like to collaborate with India. A number of hi-tech parks have come up with focus on IT. Another core area which has the potential to provide huge business and employment opportunities for China and India is the SME sector.

According to the government’s re-port of the Task Force on MSMEs, it is estimated that there are over 26 mil-lion MSMEs operating in India. This sector comprises 8% of GDP, accounts for 40% of our total exports and over 45% of total manufacturing in the

country. It employs 60 million people and is instrumental in facilitating in-dustrialization in rural and backward areas. India has long been known for its strong entrepreneurial community. Moreover, India and China can im-mensely benefit from trade because of their geographical proximities, and the SME sector can flourish from this.

According to you, which is the biggest hurdle that your members face in accessing the Chinese market?

China’s liberalization process is over three decades old, while liberaliza-tion in India is two decades old. India needs to make up for the supportive in-frastructural gaps, to be able to match

INFOCUS | INDIA-CHINA | INTERVIEW

|26| India-China Chronicle November 2011

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November 2011 India-China Chronicle |13||12| India-China Chronicle November 2011

INFOCUS | INDIA-CHINA | INTERVIEW

Uday Kumar Varma is a 1976 batch IAS officer of the Madhya Pradesh cadre. He took charge as Secretary, Ministry of MSME just about a year ago. A seasoned officer who has worked across a range

of state and central departments, Verma has also authored two books. In a wide-ranging conversation with Irfan Alam,

Mr Verma talks about the potential of SMEs in the Indian context and also the challenges and competition from China.

for entrepreneurs to participate in global fairs and exhibitions, apart from participating in domestic fairs.

Do you think China could be a market for products from Indian SMEs?

We do believe China is a potent market but we need to really look at it more carefully and with greater comprehension.

Then, why MDA support is not provided for China?

We don’t think there is any prohi-bition in providing MDA for partici-pating in fairs/exhibitions in China. There is no embargo as far as China is concerned. People have participated in Chinese fairs and we have assisted them. China is as attractive a destina-tion for such purposes as any other. In fact China should be a more preferred destination if we really want to increase access to the Chinese market. Howev-er, Chinese markets are not as friendly. There are restrictions. Moreover, there is a larger question of trade imbalance between India and China. When the Chinese Prime Minister had come here last, this question was raised.

So, according to you, there is no distinction with regard to China?

No. However, our exports to China have challenges on both the sides and while there are problems of accessing the market, there are problems on our side as well, in terms of quality, in terms of technology, in terms of prices. We don’t think one can beat the Chinese in terms of pricing but where one can definitely do better than the Chinese is, in terms of quality, durability and in terms of niche products. Lots of handloom and handicraft products are very popular in China and if we can really persuade the Chinese authorities to open the window a little bit more and allow Indian goods to come in, there will be progress. The market is there and demand is there, but there are barriers in terms of policy and in terms of greater communication between the two sides.

We have observed during our several visits to China that there is a huge market for Indian handicrafts but we are not able to market ourselves properly.

When the Indian handicrafts go for exhibitions in China, all the products

SMEs will be the engines of growth in the

coming decades

What is the future of small industry in India and how does it compare with that in China?

Today the size of the Indian economy taken on purchase price parity, is around US $4 Trillion. We are growing at 8% (approx.) that means roughly $320 billion worth of goods and services are added to the economy every year. $320 billion is bigger than the size of the total economy of a country like Denmark. If we manage to grow at 10%, by 2020 the size of our economy will be $8 trillion. That

would mean that we will be adding roughly $800 billion worth of goods and services every year to the economy. This accretion will be bigger than the total size of the economy of Australia. Now in this accretion, SMEs are bound to play a very important role. The future of SMEs, therefore, is bright. In all likelihood the present decade and the coming decade is going to belong to SMEs. Our vision in the context of MSMEs is that contribution of SME’s in national export must go to 60-70%; manufacturing should be of about

70%. They should be able to contribute at least 25% to the GDP which, by the way is not unrealistic. This is what we are aiming to do. In China, 99% of the enterprises are SMEs. We compare to some extent in size but the Government intervention for SMEs in China is far more deep and wide.

Which are the major areas in which the Ministry offers assistance to MSMEs?

Ministry offers facilitation and in many cases direct assistance in a num-

ber of areas. These areas include; Cred-it and finance, infrastructure develop-ment, technology upgrades, marketing assistance and skill development.

Can you elaborate more on the marketing assistance provided to the SMEs?

Marketing assistance is a major component of recently launched Na-tional Manufacturing Competitiveness Programme (NMCP). Competitive-ness is a broad term, but we have been able to identify ten components of the competitiveness syndrome ranging from manufacturing tool to providing brand equity, quality certification, IT Interventions, design interventions, making them aware of IPR concerns that they ought to know about. The National Manufacturing Competi-tiveness Programme is a very well con-ceived programme. In addition to that, we also provide substantial assistance

I see the future of SMEs extremely bright, in fact, my conviction is that

the decade and the coming decade

is going to belong to SMEs

November 2011 India-China Chronicle |15||14| India-China Chronicle November 2011

are sold out immediately, but they are not in a position to export on a regu-lar basis. It is not because of a lack of will or desire on the part of Indian handicraft manufacturers but there are restrictions in China on the import of Indian handicrafts. ICEC needs to really look at it; these are areas which have the potential but then what is it that is lacking and inhibits us from tap-ping this market?

A large section of SMEs do not have information about the various support schemes of the Government. How do you reach out to these SMEs?

The Ministry largely depends on associations to do this. We assist associ-ations to organize seminars/workshop etc. But it is right to an extent that the penetration of information in far flung

areas needs to be improved. What we intend to do is to launch a comprehen-sive media campaign including using electronic media, for example, radio, it has a reach to the remotest parts of the country. Television also has very good penetration. These two mediums we have not much used so far. We are working on a media plan which will extensively use these two mediums to disseminate our programmes and schemes in addition to what we are doing conventionally.

Does the Ministry have any scheme for SME’s to make them e-ready?

Yes, it is a part of the national manufacturing competitiveness prog-ramme. This particular dimension is one of the most immediate concerns because particularly in marketing and

in other areas, IT enabled solutions can be beneficial for them. Ideally, we should cover all clusters with some kind of a computer cloud, where they are able to have access to the infrastructure without creating it. The business opportunity for IT companies in this regard is so huge. Many companies have already launched specific products that may offer a workable model. If we are able to cover 15-25% of clusters under the cloud then this will be a game changer. That will make them e-ready. E-readiness begins by making them aware, convincing them that the idea has merit, and then ensuring that they adopt it. But they adopt it and then adapt it according to their own requirement. One of the major problems of Indian MSMEs is that the details of their products are not known to the people outside. In large number

of countries while there is a general perception that Indian MSMEs are pretty strong, they are unaware of the details. How the MSMEs operate in India? What is their interface with the government? How do they organise credit? We are creating a National Portal which is going to be a very comprehensive portal. NSIC is doing it under the Ministry’s guidance and it should be ready by November-December 2011. It will have data of more than 3,00,000 enterprises in different sectors. This will be something which could easily be compared in terms of quality of content and the magnitude of the content, to alibaba.com and it should also serve the people outside India. Of course it will not be a free portal but basic information will be free and for specific information they will have to pay.

How do you foresee Indian SMEs vis-à-vis Chinese SMEs?

As far as Indian SMEs are con-cerned, they are going to play a far greater role in the country’s economy in the coming years. It is based on the fact that all those emerging areas where expansion is going to take place would be driven by SMEs.

Look at civil aviation, Boeing have been given an order for 4 billion dollars of which 1.2 billion dollars will have to be accessed through Indian Companies under the offset clause. This is a great opportunity for Indian MSMEs; if we are able to improve access to credit and facilitate their upgrade to higher levels of technology and make them hook on to IT, then we will be able to provide necessary impetus to them to manufacture thousands of precision parts that go into making of Aeroplanes.

To make our clusters more productive, the two major initiatives that we have taken are: to reorganize and re-engineer all our interventions under five verticals, namely, Credit and finance, Infrastructure, Technology, Marketing and Skills.

All these interventions have to be provided as a package. These should not be stand alone interventions; they should be in conjunction with each other and every other. Such an effort and

their states were very active in provid-ing. There is a point beyond which the price advantage that they have at this point of time may not continue. Also, Thus, there is bound to be a qual-ity issue. So we think in terms of areas where we are strong like handlooms, handicrafts, light engineering, pharma, bio-technology, nano-technology and more importantly the IT sector. At least for some time we still have the edge (in IT) and we should make the most of it. In the longer run it is our hope and wish that we become a second global manufacturing hub for at least a large number of specific products.

How does one compete with the Chinese manufacturing industry?

It will be difficult. However, as I have pointed out earlier there are certain areas of manufacturing in which India can be equally strong or even stronger. Pharmaceuticals, for example, could be one such sector. In addition, we will have to be better than Chinese in terms of quality and durability of our products. Chinese products, while known for their being inexpensive, do not enjoy great reputation in terms of quality. Our SMEs will have to work hard to maintain and improve the quality of their products. We also need to explore markets in Africa and Latin America in a far more urgent and focussed manner.

Are there any plans for a window for technology transfers from China?

We are working on it, not necessarily in the context of China. What we are working on is to facilitate SMEs to acquire new technologies. The first challenge is knowledge; many of them do not know where the technology is available. Second is to be able to make an assessment of how good or bad the technology is. Third is price, on what prices they are able to get it. One can buy Chinese technology cheap but it becomes obsolete in the next two years. One can also have European technology which may last, say for 10 years. So there could be a mix. Even today, Chinese technologies are one of our major imports.

orientation of programmes are going to be far more focused and result driven. And it will be more demonstrable. The second part of the strategy is to pick up 20-25 clusters and ensure that all these verticals are focused on these. The main idea is to deem the cluster as a unit and see that it grows in a comprehensive and integrated manner, so to become cluster of excellence.

In 12th Five Year Plan if we are able to develop at least 200 such clusters at the end of five years; 40 clusters each year, we would have done a great deal of work. Suppose we have 5-6 clus-ters of pharma, 5-6 clusters of leather, 5-clusters of chemicals, petro-chem-icals, garments, food pro- cessing and if they are world class clusters, producing world class products then MSMEs will begin to be seen from a different prism.

What kind of challenges do SMEs usually face while doing business with China? And according to you what are the potential sectors in China which can be tapped by India SMEs?

The common knowledge is that they are very strong in manufacturing but they are also finding it difficult to maintain the prices that they have set. Because those advantages which trig-gered their rise from the beginning, are weakening namely, the cheap labour and unlimited land resources which

we are creating a national portal

which is going to be a very

comprehensive portal which is being done

by NSIC under the ministry’s

guidance

Uday Verma with Minister Virbhadra Singh

INFOCUS | INDIA-CHINA | INTERVIEW