PASSAGE-2
Thanks to globalisation, Indians have enjoyed the internet, mobile telephony and increased consumer choice. Now, the global economic crisis brings us the dark side - a receding tide that maroons all ships. Ask Sunny Sethi, a 32-year-old shopkeeper in New Delhi's Gaffar Market, a one-stop mart for 'imported' goods sold below 'official' prices. Sethi is a typical Gaffar Market shopkeeper –ever smiling, uncommonly persuasive, and boasting a repertoire of goods ranging from branded sunglasses to cellphones to laptops to even night vision goggles and bullet-proof vests (which he is careful about selling now for obvious reasons). But as a. bargaining duel for a pair of 'Ray-Ban' sunglasses turns too hot for the normally unflappable shopkeeper, the smile disappears. "Sir, you do not understand," he protests. "I cannot give it cheaper. Everything is imported from China, and my costs have gone up. And after the recession that is the right word isn't it? - no one is buying like they used to.
"Thanks to the seizure in the Chinese economy, 'recession' is a word that every shopkeeper at Gaffar Market, nay, every shopkeeper in India who sells Chinese products has become familiar with. Equally, the tremors of the slowdown in the Middle Kingdom have been felt by companies- large and small- that do business in and with China. Between 2003 and 2008, bilateral trade grew 10 times to reach $52 billion. In early 2008, China even overtook the US to become India's biggest trade partner (a position it has since relinquished to the erstwhile leader in October-December 2008). Now, that growth has taken a serious beating.
In January 2008, India imported $2.75 billion worth goods from China. By October, monthly imports fell 19 per cent to $2.23 billion. But it is exports that have been hit the hardest. While India sent across $1 billion worth of goods in January 2008, it managed only $345 million in October - a 65 per cent drop in just eight months. Simultaneously, India's trade deficit with China has been climbing- from $1.67 billion in January, it climbed to $2.35 billion in May, settling to a relatively less alarming $1.89 billion by October - thanks in large part to steadily falling imports from China.
A combination of an expensive dollar, increased protectionism in both countries and frozen lines of credit have dropped the otherwise pesky tails of virtually every major commodity traded between India and China, "The past three months have been particularly serious," says a senior China advisor at the Confederation of Indian Industry (CII) who requested anonymity as he is not authorised to speak to the media. "The real impact will only be clear after some more time; after more job losses are seen and exporters declare their results.
"The only silver-lining is that trade with China is roughly 5 per cent of India's gross domestic product (GDP) - and a slowdown here would not affect the larger, economy too much. "Also, we do not really figure on China's radar as far as trade is concerned," says Piyush Bahl, founder of the India-China Alliance Centre, an organisation that consults with companies and students on entering China. "We are less than 2 per cent of their total trade.
"But that is cold comfort to the hundreds of companies and thousands of workers in several sectors that have been adversely affected by the slowdown in the Chinese economy.
THE SLOWING DRAGON
A look at the numbers from China's National Bureau of Statistics reveals just how bad things have gotten of late. China's GDP growth was 10.1 per cent last July, down from 12.6 per cent a year before. This January, it fell to 6.8 per cent, the lowest since 1991. Thanks to the recession,The US ,japan and European union –china’s largest trade partners - have all cut demand for Chinese goods. Chinese exports fell for the third straight month, and the most since 1996, with a 17.5 per cent decline in January 2009 over the corresponding period last year. Imports into China also fell by 43 per cent, according to China's customs bureau.
In fact, the drop in global trade, driven mainly by Chinese exports to its big three partners, is so steep that the Baltic Dry Index, which tracks the price of shipping dry cargo, plummeted from a high of 11,793 in May 2008 to 663. in December due to reduced demand for shipping services. It recovered slightly thereafter to 1,316 on 4 February 2009.
Remarkably, for a nation of 1.3 billion, China's domestic consumption remains weak. So attempts to sell unsold export inventory in the domestic market have not been too successful. "This is not accidental," says Yasheng Huang, associate professor of international management at MIT's Sloan School of Management. "China's GDP has expanded enormously, but the income of the Chinese population has expanded at half that rate." Besides, most Chinese exports were designed for western tastes, so it has not been easy to sell these to domestic consumers.
"A Chinese peasant will not find it ferribly enticing to buy a Barbie doll," says Huang. "So to sell, they have to discount their inventories. The figures I hear are something like selling their inventories 20-30 cents on a dollar." The consequent downward pressures on margins, on wages, on future investments and on bank payments, and the overcapacity at factories mean that some 20 million Chinese factory workers are now without jobs.
BLOW ON INDIA'S CHIN
Now, since its factories are shutting, China's demand for raw materials which comprise most of India's exports to that country has seen a dramatic drop, hitting Indian exporters hard. Take iron ore, which makes up the biggest component -50 per cent - of all Indian exports to China. In March 2008, India exported $798 million worth of iron ore to China. Eight months later, in October, exports had fallen to $201 million. "Nearly 70 per cent of our exports go to China, so there is heavy dependence on them," says the president of a Kolkata based iron ore mining company who did not want to be identified as he is lobbying the Indian government to protect his industry. "We had to stop production in October and November. A lot of exporters and traders who came into the business have had to stop the iron ore business.
Adds R.K. Sharma, secretary-general of the Federation of Indian Mineral Industries, "The financial crisis hit steel production, so the Chinese stopped buying iron ore from us." Demand also fell following the conclusion of the Beijing Olympics. To make things worse, India increased the export duty on iron ore to 15 per cent in September, after hiking railway freight costs by 62 per cent last February. "Our stocks just stopped moving," says Sharma.
The hardest hit commodity has been raw cotton. Exports fell 99.95 per cent from $174 million last March to an incredibly low $100,000 in October, according to the Centre for Monitoring Indian Economy (CMIE). Mohan Uchil, who oversees trade for the Cotton Association of India (CAI), says that in August, China asked that all cotton imports be registered with its General Administration of Quality Supervision, Inspection and Quarantine. This caused several procedural delays, which exporters term "unnecessary". But the bigger reason for the drop in exports is that the Indian government increased the minimum support price (MSP) on cotton last September to help farmers. This in turn made Indian cotton more expensive. than that from countries such as the US or Uzbekistan.
Today, thanks to the higher MSP, most farmers sell their produce directly to the government. This has put most of the cotton stock in the hands of the Cotton Corporation of India (CCI), a government-run cotton marketing organisation. A Mumbai-based cotton industry consultant who did not wish to be identified says the CCI had an inventory of about 7.2 million bales of cotton last year, but thanks to low demand from China, it could move only 1.2 million bales through exporters. Exporters would only buy cotton from the CCI if they received orders from China, keeping their own inventories fairly clean. As a result, stocks piled up at the CCI, which held roughly 35 per cent of the 20 million bales of cotton in india.
Slumping demand in India added to the overall gloom in the sector. According to the CCI's website, domestic sales of cotton in 2007-08 were down by 37 per cent to 815,946 bales from 1,294,673 bales in 2006-07. Given the scale of the slowdown in 2008-09, figures for the year are unlikely to bring any cheer when revealed. P.K. Agarwal, general manager for international trade at the CCI, could not be reached for comment despite repeated calls to his office.
NO CHILD'S PLAY
With demand from the recession-hit developed economies gone, the Indian government worries that China may now look at India to dump its sky-high inventories. So, it is somewhat surprising that India's imports from China have also declined, although at a lesser rate (19 per cent from January to October) than exports (65 per cent). Still, the spectre of dumping remains. "In a scenario of excess capacity, there is a danger of becoming a dump yard." says Nagesh Kumar, director-general of RIS, a Delhi-based think tank. "That is why (World Trade Organisation, or WTO) rules provide safeguards against dumping in precisely such moments." Of all things, it is Chinese toys that have created havoc. Having been banned in western countries over safety concerns, India alleges that Chinese toymakers are now dumping their products in India, leading to a ban on all Chinese toy imports on 23 January. India's Commerce Secretary G.K. Pillai says this was done to cease dumping and to protect Indian consumers from poor quality products. China responded by asking the WTO to declare the ban illegal.
But now, Indian toy sellers are unhappy with the ban. "Battery-operated Chinese toys are our bread and butter," says Bharat, a toy shop owner in Delhi's Karol Bagh who would not give his full name. Since the import ban came into effect, distributors of Chinese toys have started charging toy sellers up to 30 per cent more for these toys because the few remaining stocks are in high demand. Toy sellers say that no Indian toymaker has the technology to copy popular Chinese toys such as remote-controlled cars or battery-powered action figures because most of them had shut down their factories and started importing Chinese toys instead. "Once these stocks run out in two or three months, I have no idea what I will do," says Bharat.
Dumping of other products could kill smaller Indian manufacturers who already find it difficult to compete against the economies of scale that Chinese manufacturers enjoy. "Today, certain categories of auto components, textiles and glass look just as vulnerable as toys," says the CII advisor, suggesting that the Indian government may be looking at import restrictions on these items as well. "We do not want dumping here," says Pillai. "If there is a surge in imports at lower-than normal prices, that would invite safeguard action." With official complaints against dumping taking 3-6 months to resolve in the WTO, Pillai feels this is the only option India has to immediately protect domestic industries, particularly fragile cottage industries.
Peng Gang, economic counsellor at the Chinese embassy in Delhi, says he is aware of the dumping and trade imbalance complaints, and is already "in talks with Indian officials on how to change the structure of goods being traded". However, Pillai wants actions rather than words. "If you do not give access to products where India is competitive, then we cannot believe it. It is not enough to say we will change the structure," he says.
THE SHOW MUST GO ON
While the governments debate on tariffs and barriers, different people are looking at different ways of keeping things going. CAI's Uchil says that the association had requested the government to review the MSP of raw cotton, but it was not done. The mine operator BW spoke to has asked the government to cut rail freight costs, and reduce export duty on iron ore and congestion at ports - all of which add to the cost of exporting his product. Mukesh Goyal, a feng shui store owner in central Delhi's posh Khan Market, has decided to buy as many of his products from India as possible instead of China. He says that an unfavourable dollar-rupee exchange rate has made his imports 25 per cent more expensive than a year ago.
Still others are looking at alternative markets. Pune based Elkay Chemicals, an importer of organic chemicals, is now buying more of its requirements from Germany, because while prices are the same as chemicals from China, German quality is better. "We believe this is a short-term issue until the recession is over, says a procurement executive of the company. "After that, things should be normal again." That is what a lot of people in India, including the government, will be hoping.
DIRECTIONS: The questions that follow relate to the preceding passage. Evaluate, in terms of the passage, each of the items given. Then select your answer from one of the following classifications.
A) A MAJOR OBJECTIVE in making the decision: one of the goals sought by the decision maker.
B) A MAJOR FACTOR in making the decision: ar aspect of the problem, specifically mentioned in the passage, that fundamentally affects and fo determines the decision.
C) A MINOR FACTOR in making the decision: a less important element bearing on or affecting a Major Factor, rather than a Major Objective directly.
D) A MAJOR ASSUMPTION in making the decision: a projection or supposition arrived at by the decision maker before considering the factors and alternatives.
E) AN UNIMPORTANT ISSUE in making the decision: an item lacking significant impact on, or relationship to, the decision.
17. China asking all cotton imports be registered with its General administration of Quality Supervision, Inspection and Quarantine and Indian cotton producers.
