Government Moves to Set Up Industrial Parks With China

India has moved a step closer to establishing industrial parks with China, the law minister said on Wednesday, as New Delhi looks to rebalance a $40 billion trade deficit with its northern neighbour.

Ravi Shankar Prasad told reporters that India's cabinet had approved in principle a memorandum of understanding (MoU) between the two countries for setting up the parks.

The details of the agreement would be available only after the memorandum was signed, Mr Prasad said, but the expectation is that China will invest in low-tax special economic zones and manufacturing hubs in India, which would reduce the need for India to import Chinese goods.

While New Delhi has long pushed for greater market access to cut the deficit, pushing through a firm agreement to bring Chinese investment into India would signal the intent of new Prime Minister Narendra Modi's push to expand manufacturing and revive the country's flagging economy.

Earlier this month, China's Foreign Minister Wang Yi met his counterpart Sushma Swaraj in New Delhi and raised the possibility of China investing in industrial parks in India.

Previous efforts to set up the parks have stalled, partly because of Indian security concerns about Chinese companies setting up factories inside the country.

While China and other developing countries have capitalised on relatively cheap labour to expand rapidly their manufacturing base over the past two decades, manufacturing in India accounts for just 15 per cent of economic output.

China's own embrace of an export-led model has helped its economy outgrow India's fourfold since 1980.

Copyright @ Thomson Reuters 2014