India looks for more investment from Shanghai

India's Ambassador to China, Ashok Kantha, visited Shanghai this week to discuss bilateral trade and economic cooperation with the city's Mayor Yang Xiong.

Hot on the heels of the China-India Strategic Dialogue held last week in Beijing, Ambassador Kantha's visit to Shanghai is viewed by many analysts as an attempt by both countries to further develop their bilateral trade, which currently sits as US$65.47 billion.

Of that total, China commands a massive US$35 billion trade deficit, prompting India to seek out increased Chinese investment. Attracting FDI from Shanghai-based companies, many of which are already undertaking several projects in India, would do much to help bridge this gap.

Last month, China offered to fund 30 percent of India's estimated total infrastructure needs of US$1 trillion.

If India accepts China's infrastructure offer, it is reasonable to expect that Indian companies will in turn be better able to access the Chinese market. This would result in China-India bilateral trade growing rapidly over the next several decades, with China's sizable middle class – expected to reach 600 million in the next seven years – increasingly demanding inexpensive products. Similarly, China's aging population will likely demand more pharmaceuticals – a sector in India that has experienced considerable growth over the past decade.

Trade issue aside, Kantha also discussed a series of activities that the Indian embassies and consulates in China are currently planning to organize under the "Glimpses of India" Festival in China this year, which has been declared by both sides as the "Year of Friendly Exchanges."

With China-India bilateral trade set to hit US$100 billion by 2020, maneuvering by China to finance India's infrastructure needs will likely continue to boost this projection.

If this occurs, the China-India trade space will become an increasingly important aspect of China's attempt to seek out new, cheaper markets for its product-sourcing needs. For India, this could further kick-start its economy ahead of elections widely predicted to trigger a rapid increase in FDI.

Whatever the outcome, foreign investors will be watching carefully as China and India continue to cultivate a bilateral relationship based upon mutual economic interests and shared cultural connections.

This article was first published on India Briefing.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia's most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.