THE FUTURE OF TRADE RELATIONS BETWEEN INDIA, CHINA AND RUSSIA

ABSTRACT
OF THE THESIS SUBMITTED TO

THE UNIVERSITY OF PUNE

FOR THE DEGREE OF DOCTOR OF PHILOSOPHY IN MARKETING UNDER THE FACULTY OF COMMERCE

BY

Lt Col (Retd) VACHASPATI MISHRA, M.B.A.

UNDER GUIDANCE OF

PROF. DILIP M. SARWATE, Ph.D., C.M.C.

RESEARCH CENTRE
BRIHAN MAHARASHTRA COLLEGE OF COMMERCE

PUNE, 411004, INDIA 29th March 2009

ABSTRACT
THE FUTURE OF TRADE RELATIONS BETWEEN INDIA, CHINA AND RUSSIA

1 1.1

Introduction Search for the Topic. The search for topic was guided by the following factors:1.1.1 Concern for Growth of Indian Economy. The first and foremost intention is to see the rise in net economic welfare of the people of India and countries friendly to her. 1.1.2 Exposure to Russian Language, Equipment and People. A privilege to have Russian Professors in India when their friendship was at its peak, a notional advancement in awareness of Russian language, exposure to certain collaborations with Russians on various occasions and emergence of non-Soviet Russia facing difficult days under the western influence made this researcher believe that a further collaboration of Russia and India could be of advantage to both these countries in the long run. 1.1.3 Emergence of China as a Leading Economy in the World. Chinas geographical proximity both with Russia and India, and her emergence as a formidable world economy appeared significant enough to be included as part of the study towards exploring possibility of its formal collaboration with Russia and India.

1.2

Topic Selected. Above considerations and positive signals from the worthy guide

induced this researcher to select the topic as The Future of Trade Relations between India, China and Russia. 1.3 Research Questions and Statement of Problems. India, despite the rich cultural

heritage, expansive and varied geographical terrain, plentiful mineral resources, vast talented human power and an extremely free democratic socio-political system has not been able to bring to her gigantic and growing population a respectable level of economic welfare. The following questions arise:-

3 1.3.1 Considering the currently inequitable level of socio-economic status enjoyed by the people in India, China and Russia, vis--vis rest of the world, is it possible to bring them benefits through regional cooperation within these countries? 1.3.2 Are the products and services generated in these countries extensively and efficiently marketed to others within this region making use of their comparative advantage? 1.3.3 Is there a growing trend in joint ventures and direct investments by business houses or small entrepreneurs within these countries, which could be further promoted? 1.3.4 What are the challenges faced by traders, business houses and entrepreneurs

of these countries in doing business within the region? What measure could be taken to overcome them? 1.3.5 What would be the trend of trade, joint ventures and investments between

these countries? 1.3.6 Is it feasible that economies of India, China and Russia generate synergy?

What measure could facilitate movement in that direction? 1.3.7 What would be the level of interference of other countries and what

measures would be necessary to prevent their interference in attempts towards bringing better economic cooperation between Russia, China and India? 2 Objectives of Research. In order to bring a focus to the research in this vast

domain, the following Research objectives were set:2.1 To collect and analyze Indias import and export data with Russia and China for

last ten years, study the trend, explore reasons for major variations and attempt to foresee the future trend. 2.2 To study the joint ventures set up between the governments and business

organizations in these three countries, study the developments and assess the likely future course.

4 2.3 To develop economic, political, social and technological profiles of each country

and to assess their comparative advantage through a suitable model. 2.4 3 3.1 To assess the future of trading relationship within these countries. Statement of Hypotheses: China and Russia are likely to move away from the present socialistic pattern

of controlled economies and take to capitalism in a significant way within next 10 years (from 2005 to 2015). 3.2 There is a likelihood of emergence of a Free Trade between Russia, China and

India with necessary efforts made by various agencies. 3.3 The business opportunities will lead to improvement of volume of trade and

cause emergence of joint ventures between the three countries and also the setting up of Multi National Corporations operating within these countries. 3.4 The cooperation amongst the three countries will result in generation of

synergy resulting in improved quality of life in each of these countries. 4. Nature of Research and Methodology. This research project is essentially of

exploratory nature involving the study of factors relevant to improving marketing environment. The intention is to identify the forces and aspects which could bring harmony and synergy as also the ones which could cause distancing or fragmentation. A holistic perception was considered to be essential before identifying logical suggestions and making recommendations for futuristic courses of action. Introduction to the Research Project including planed methodology and presentations are covered in Chapter 1 of the Thesis. 5. Review of Literature. An extensive study of all facets of business environment of

Russia, China and India was undertaken covering all available books, magazines, advertisement literature and reports available on electronic media through official websites of International organizations and countries under study. Its outcome is presented in chapters 2 to 5 as follows:-

5 5.1 5.2 5.3 5.4 6. Chapter 2: A Profile of the Russian Federation. Chapter 3: A Profile of the Peoples Republic of China. Chapter 4: A Profile of the Republic of India. Chapter 5: Inter-acting Global and Regional Factors. Collection of Secondary Data. Ten years data on Indian exports and imports

with Russia and China was collected from four successive annual publications of the Centre for Monitoring of Indian Economy, Mumbai as they publish only seven financial years data in each of the annual publications. The data on joint ventures and small businesses was collected from relevant books, magazines, newspaper reports and Internet publications included in official websites, the details of which are given in the Bibliography attached with this thesis. Opinions of statesmen, thinkers, strategists and business leaders were collected from books, magazines, newspapers and the Internet. Numerous new sources of information for collecting primary data were obtained from such publications. The trade data in complied form are placed at Appendix A. 7. Collection of Primary Data. Separate questionnaire for traders/ businessmen and

officials/ strategists/diplomats were prepared and sent to business, officials and experts connected with the objective of this study. Detailed and repeated telephonic/ telephonic interviews and emails were exchanged for communications and recording their answers. The format of questionnaire used for collection of placed at Appendix B. 7.1 Sample Frame and Size. Business Owners, Proprietors, Managing Directors, Vice

Presidents of dealing departments, Senior Directors, Managers of Marketing and Logistics having exposure with China and Russia including those competing with these countries in other world markets were selected as samples for obtaining their views, In additions, the officials in various organizations, thinkers and consulates and experts dealing with these countries were also selected. A sample size of 100 persons exposed to the problems was fixed for obtaining their opinions and the same was accomplished. A databank of all Exporters and Importers was procured from MCCIA Pune was collected and the same was enlarged by securing additional data from the contacts made as well as from the advertisements made by the exporters/importers from various websites visited during the

6 procurement of secondary data. One hundred members were identified according their willingness to volunteer their opinions. 7.2 Sampling Technique. It was decided that only purposive samples should be

tapped. Painstaking efforts were made to take appointment of the businessmen or officials holding significant positions in business, consulting and government organizations like Forums and functions of IMCI, MCCI or Management Institutions or earlier indirect references were utilized to secure appointment and interviews. 7.3 Style of Interviews and Use of Delphi Technique. Both direct questions as well

as open ended sessions were conducted during the interviews with a view to initiating the samples to the topic and in order to obtain their views. The views of several experts published in media or obtained through previous interviews of other experts were quoted back to them and they were asked to share their revised opinions, if any. Only the final opinions were considered for collation, analysis and interpretation. 7.4 Coverage Area. It was initially intended to consider samples located in Pune/

Mumbai area. However due to paucity of suitable samples it was expanded to cover entire country. 8. Assessment of Country Profiles. Various economic parameters and latest factors

for assessing Global Competency Ranking worked out and published by Global Economic Forum (a progression of Michael Porters Model to assess Competency of Nations) was utilized to identify collaborative opportunities between countries under this research. An analysis of pattern of change of trade volumes was carried out towards interpretation of compiled and analyzed data. A condensed Chronology of events is given in Appendix C. 9. 9.1 Findings, Analysis and Interpretation. Patterns of Trade between India, China and Russia. Trade Data Obtained from

Russian, Chinese and Indian government websites were analyzed through Pie Charts prepared by the Researcher and are placed in respective country studies as an indication to the commodities exported and imported by those countries as well as identifying the intensity of trade with their respective trade partners. It was identified that Indian exports both to China and Russia were very insignificant in comparison to its trade with other

7 countries, especially from Russia. The composition of Indias Imports and exports to various regions shown in Figures 1 and 2 illustrate the point. 9.2 Reasons for this extremely low volume of trade were the major concern for further

exploration which was carried out during the interviews conducted with experts in the field and the outcome is brought out in further Analysis. Figure 1: Composition of Indias Imports from Various Regions of the World for 2007-08 in US Million Dollars Other CIS Central Asian Region's RUSSIA , Countries, Other North South Countries, 2,469.70 1,198.40 Asia, East Asian 112.08 Others, Countries, 2,112.43 1,802.94 17,639.78 China, 27,115.64

Europe, 51625.71

Africa, 14,949.03

West Asia & North Africa (WANA), 71,917.01

North America, 23,002.73 Latin America, 6,561.06 ASEAN, 22,674.58 East Asia & Oceania, 8,381.15

Excel Sheet Chart based on data obtained from DGFT website and compiled for the purpose by Researcher

8
Figure 2: Composition of Indias Exports to Various Regions of the World

for 2007-08 in US Million Dollars

RUSSIA , 940.2 Other CIS Countries, 565.97

South Asia , 9,621.95

Rest NE Asia, 15,615.92 CHINA P RP , 10,834.08

CARs Countries, 232.3

Europe, 37,256.86 Africa, 11,546.30

Others, 555.68

West Asia & North Africa, 30,372.01 ASEAN, 16,384.25

North America, 21,988.04 East Asia Latin America, 5,660.54 & Oceania, 1,409.80

Excel Sheet Chart based on data obtained from DGFT website and compiled for the purpose by Researcher

9.3

Patterns of Indias Trade with Russia and China, Balance of Payment

Situation and Trend Analysis. All the top commodities traded by India with China and Russia comprising bulk of trade were separately analyzed by preparing Line Charts against Time Series of 10 years, taking about ten commodities in one chart for clarity. Total yearly volumes of exports and Imports have also been worked for Indias trade with China and Russia and ploted as Bar Charts which are at Figures 3 and 4 respectively. The Total volumes of Annual trade (exports and Imports combined) were compiled and a chart with indication of trends was made which is at Figure 5.

Figure 3: Volumes of Trade between Russia and India (1998-2008) in Million US Dollars 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 1999-2000 1998-99 0.00

India to Russia 500.00 1000.00 1500.00 2000.00 2500.00 Million US Dollars

(Excel sheet Chart by Researcher, based on Computed Total Trade from C.M.I.E. Data.)

Figure 4: Volume of Trade between China and India (1998-2008) in Million US Dollars 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 1999-2000 1998-99 0 10000 20000 30000

India to China China to India

(Excel sheet Chart by Researcher, based on Computed Total Trade from C.M.I.E. Data)

10 Figure 5: Trend Analysis of Indias Total Trade with China and Russia (1998-2008) in Million US Dollars

40000 35000 Total Trade with China Total Trade with Russia Expon. (Total Trade with China) Linear (Total Trade with Russia)

30000
Million US Dollars 25000 20000 15000 10000 5000 0

Financial Years (Excel sheet Chart by Researcher, based on Computed Total Trade from C.M.I.E. Data)

9.4

Interpretation. The trend of volumes of Indias trade over 10 years for China

shows a curvilinear (Exponential) pattern whereas the volumes of trade with Russia shows a linear pattern at a very low gradient compared to the trade with China. It is evident that volumes of trade with China have been growing whereas the trade with Russia could have been much better. 9.5 Global Competency Index by World Economic Forum (WEF). WEF led by

Michael Porter (Professor at Harvard and an eminent strategist, famous for his models for assessing Competency of Nations) and Schwab Klaus (Coordinator at WEF), has been

11 ranking various countries according to the Global Competitiveness Index (GCI) worked out on 12 factors like institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size and business sophistication and innovation. Their rankings for India, China and Russia in these characteristics have been extracted from their report for 2008-2009. These rankings have been placed on a line chart to identify the areas in which a nation is most advance compared to the others. The Chart is at Fig 6. Figure 6: Global Competency Indices for India, Russia and China (Based on World Economic Forum Report 2008-09) 7 6 Index 5 4 3 2 1 0 Russia China India

Global Competency Index by WEF 2008-09

Characteristics (Excel Chart by Researcher based on Indices extracted from the Report)

12 9.6 Findings, Analysis and Interpretation from Businessmen, Executives and and

Officials. The opinions collected from primary sources were compiled, tabulated

analyzed for each question included in the questionnaire and the same are included in Chapter 6. An extract of some of those opinions is as follows:9.6.1 Observed Trends in Volumes of Indias Trade with China and Russia Country China Russia Increasing 67 61 Stagnant 4 10 Decreasing 0 0 Percentage observing Increase 94.37 85.92

9.6.2 Problems being faced by India in Trading with China and Russia Problems a. Entry Barriers b. Language Barrier c. Price Competitiveness e. Delay in Receiving Payments f. Higher Custom Duties g. Logistics Problems With China Numbers Percentage 52 73.24 63 88.73 47 66.20 28 24 26 39.44 33.80 36.62 With Russia Numbers Percentage 42 59.15 67 94.37 41 57.75 36 23 38 50.70 32.39 53.52

9.6.3 Expectations on The Future Potential for Exports Prospects Excellent Good Average Declining Cannot say With China Numbers Percentage 22.54 16 30.99 22 29.58 21 0.00 0 16.90 12 With Russia Numbers Percentage 23.94 17 38.03 27 29.58 21 0.00 0 8.45 6

13 9.6.4 What needs to be done to increase the Exports/Imports with these Nations Action to be taken With China a. India must resolve the border problem with China b. Indian products must be price competitive to face the competition with Chinese goods and to be able to penetrate Chines market. c. India must export value added goods instead of raw material d. Indians must learn Chinese language and negotiating skill to deal with the Chinese. With Russia a. India should find a shorter route to be able to ship goods to Russia in shorter time to compete with other countries in Russian market.. b. Instead of going to Russia, the markets in CIS Uzbekistan, Tajikistan, Kyrgyzstan, Kazhakstan etc are found to be more lucrative. c. India must improve the quality of its goods to compete with European goods in the Russian markets. d. There should be better banking facilities to solve payment problems e. India must wake up and improve its ports Numbers 51 66 Percentage of 71 71.83 92.96

47 37

66.20 52.11

53

74.65

24

33.80

37 49 39

52.11 69.01 54.93

9.6.5 Prospects for Joint Ventures between Organizations in India With Country China Russia Good Numbers % 37.93 11 27.59 8 Cannot say Numbers % 58.62 17 65.52 19 Poor Numbers 1 2 % 3.45 6.90

14 10 Interpretation and Conclusion. Considering and analyzing all the Primary and

secondary Data it is concluded that the hypotheses made before conduct of the research are justified.

11

Usefulness of the Research:

11.1 To the Industry. Various sectors of economy will benefit from the outcome of this research by using the data available herein and to decide on further expansion of their businesses in these areas. This thesis can work as a stimulus and offer a thinking platform for more innovative ideas for expansion of their businesses or initiate green-field projects within these countries. 11.2 To Governments. The governments of these countries will be able to formulate and modify their policies in the interest of their economies and people. 11.3 To Educational Institutions. The educational institutions will benefit from this study as it can serve as a platform for planning and conduct of future studies in trade and entrepreneurship in these countries. Both the faculty and students groups can use the information and conclusions made through this study to enrich their information base. 12 12.1 Limitations Budget. Budget was the biggest constraint in undertaking this study. It should have

been ideal to visit and observe the trading and business operations of the entrepreneurs in these areas, especially the logistics constraints. However, that was beyond the means of this researcher. 12.2 Low priority given by Traders and Businessmen for Research. It was extremely difficult to obtain primary data due to low priority given by business men for research. However, persistence was quite rewarding.