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What’s the story
Arvind Panagariya, a renowned economist and the Chairman of the 16th Finance Commission, has suggested that India should welcome Chinese investments.
He expressed this view during an interview with The Economic Times.
Panagariya believes that such investments could strengthen India’s position against China, provided they do not compromise national security.
His latest book, “India’s Trade Policy,” also presents a strong case against import substitution.
Panagariya’s perspective on India’s economic growth
Panagariya is optimistic about India’s economic future, dismissing fears of a middle-income trap.
He forecasts a sustained growth rate of over 7% for the country, if it can learn from past mistakes and implement necessary reforms.
He further claims that India has the potential to become a $50 trillion economy by 2047, given its current growth trajectory is maintained.
Stance on Chinese FDI and protectionism
Regarding the Economic Survey’s position on foreign direct investment (FDI) from China, Panagariya suggests that while security experts should vet potentially risky investments, broader Chinese investments could be beneficial.
He argues that significant Chinese investments in India could provide strategic leverage.
On the topic of rising protectionism affecting FDI and technology transfers, he notes that tariff-jumping FDI can ironically boost investment levels despite protectionist policies.
Views on FTAs and import substitution
Panagariya believes that major free trade agreements (FTAs) with the European Union or joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) could have a significant impact.
He emphasizes the need for unrestricted access to production inputs and markets to attract multinational companies.
Regarding a potential FTA with the US, he suggests that while a full agreement may be far off, a limited trade deal could prove beneficial due to America’s projected role as a key trading partner.
Panagariya’s critique of import substitution and protectionism
Panagariya critiques import substitution for its mixed outcomes.
He concedes that protectionist policies can nurture certain industries but questions their ability to drive sustained growth in manufacturing.
He also suggests that further liberalization of the economy could help India realize its trade potential.
“We are an open economy… But, in terms of the trade policy, there is a lot of scope to liberalize further. Many tariffs are high, which need to be brought down,” he stated.
Recommendations for WTO and tariff policies
Panagariya advocates for strengthening the World Trade Organization (WTO) and reducing tariffs on a non-discriminatory basis, arguing that this would lessen the need for FTAs.
In the absence of such reforms, he sees FTAs as a viable alternative.
These views come as Chinese investment in India is gradually resuming after stringent scrutiny, post a border clash four years ago.
Indian industries, especially electronics manufacturing, are advocating for eased restrictions.