Arvind Panagariya: Chinese investments can give India leverage, tariff boost FDI route for businesses

Arvind Panagariya, economist and Chairman of India's 16th Finance Commission, feels that Chinese investments in the country would give us a leverage over them, the Economic Times reported on August 30.

In an interview with the paper, when asked for his opinion on the Economic Survey's suggesting increased foreign direct investment from China, Panagariya said that Chinese investments may be allowed — beyond those classified as security risks.

"Beyond that (security risks), we may allow Chinese investments. Remember that we also acquire leverage against China when a sizeable investment by that country is on our soil," he stated.

On tariffs and protectionalism...

He also sought to take a different outlook on the tariffs and protectionist debate, noting that "tariff jumping FDIs" re-route businesses to find local production and then invest there. He gave an example of the auto sector to make his case, as per the report.

"FDI in the auto industry in India is substantially of this nature. So, paradoxically, protectionism can increase instead of reducing FDI," he told the paper.

He also noted the rise in protectionist sentiment and low FDI, adding that high interest rates in the United States and other western countries is the likely reason. "As soon as interest rates begin declining, we will see FDI accelerate," he told ET.

On trade policy and FTAs...

Panagariya said that India has free trade agreements (FTAs) "with only relatively small trading partners" so far and needs one iwth a large market, e.g. the EU or joing the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the report said.

Earlier, he echoed similar sentiments on trade and India's growth, stating that India has the potential to become a $50 trillion economy by 2047.

"India has the potential to become a $50 trillion economy by 2047 if the country makes the most of its young demography, favourable geopolitical conditions and improves per capita income in the coming decades," Panagariya said at Business Today's India@100 Economy Summit 2024 in New Delhi.

"India has grown about 10% annually in current dollar terms over the past years and maintaining the trajectory would make the South Asian country a $32 trillion economy by 2047. But I believe we can aim higher," Panagariya added.

Panagariya also said liberalising the economy further can help the country realise its trade potential. “We are an open economy... But, in terms of the trade policy, there is a lot of scope to liberalise further. Many tariffs are high, which need to be brought down.”