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India seeks removal of Chinese tariffs for services sector

By Shishir Bhate
October 24, 2010 19:30 IST
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The competitive devaluation of the Yuan and the non-tariff barriers imposed by China on the services and pharmaceutical sectors have badly hit the Indian economy.

However, New Delhi might not directly push for the appreciation of the Chinese currency given the extremely high level of Indian imports as it would lead to an increase in the prices of domestic goods and services, sources said.

However, with the global recession showing signs of fading away slowly, India plans to take up the issue of global imbalances caused by competitive devaluation of currencies that imperil growth in emerging nations.

Sources said that New Delhi believes the currency war could be dealt with as a part of the overall discussions on structural adjustments in the global economy.

India plans to work in the larger common interest of the global economy and believes that gradually issues related to trade policies, currency regimes, etc would be sorted out. Overarching negotiations aimed at a better global system will fix multiple problems, sources said.

India, for the moment, is comfortable not pushing the currency issue even though an undervalued Chinese Yuan badly affects Indian manufacturing companies. With inflation in India at a record high and prices of essential commodities evoking a cry of anguish from the citizens, India can ill afford to take up the matter of pressuring China into refraining from competitive devaluation of its currency. Due to the Chinese strategy on its currency exchange rate, India's imports remain cheaper.

Another issue that rankles Indian companies is the Chinese imposition of non-tariff barriers on the services sector and tariffs on manufacturing.

Even though China is growing at a blistering pace and is indeed making efforts to cool down its rate of growth, its domestic market is nearing a plateau for some of its major industries.

With the American and European markets virtually non-existent for these Chinese industries, only India remains a mammoth market that they can serve, especially in the area of power-generation.

These companies that create mega job opportunities for Chinese workers and foreign currency for the nation, are beginning to impress upon the Chinese powers that be, the need to ease up such restrictions on Indian companies so that they do not suffer. Reports indicate that India would be buying billions of dollars worth of equipment over the next 4-5 years and the Chinese majors do not want to miss the Indian bus.

Sources said that China has 'said that it will do something' about it. India hopes to resolve these issues of trade barriers and currency devaluation through cooperation and dialogue on a global stage.

With the currency war between the United States and China intensifying, the G-20 nations on Saturday had pledged to refrain from competitive devaluation of their currencies and move towards a more market-determined exchange rate system. The G-20 countries also agreed, in South Korea, that unilateral devaluation should be discouraged.

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