Panagariya Backs Chinese Investments,Highlights Necessity for Enhanced Reforms

Ira Singh
Khabar Khabaron Ki,01 Sep’24

In a strategic move to bolster its position as the world’s fastest-growing economy, India is focusing on restructuring its investment policies to better manage and leverage the surge in Chinese investments. This development comes as the Indian government seeks to channel foreign investment more effectively to support sustained economic growth and enhance its global economic standing.

India and China, the world’s most populous nations, are often compared due to their vast territories, rich histories, and significant geopolitical roles. However, when it comes to economic power, their trajectories differ greatly. China has become the world’s second-largest economy, whereas India continues its struggle as an emerging economy. The economic gap was much narrower in the 1980s, with India even surpassing China in per capita income. Yet, by 2024, China’s GDP, per capita income, and share in global exports dwarf those of India. Against this backdrop, economist Arvind Panagariya suggests that India should welcome Chinese investments and focus on implementing more reforms to accelerate its economic growth.

Arvind Panagariya, a prominent economist and the chairman of the 16th Finance Commission, has firmly suggested that India should allow Chinese investments, as long as they do not pose security risks. He emphasized that welcoming such investments could strengthen India’s position in its economic and geopolitical relations with China. Panagariya’s perspective comes at a time when India is carefully considering its economic policies, especially regarding foreign investments. He believes that allowing Chinese investments, after thorough security assessments, could provide India with an advantage in managing its complex relationship with China.

In his latest book, India’s Trade Policy, Panagariya argues against the traditional approach of import substitution, where a country tries to produce everything domestically to reduce dependence on imports. Instead, he advocates for more openness in trade, which he sees as essential for India’s continued economic growth.Panagariya also addressed concerns about India potentially falling into a “middle-income trap,” a situation where a country’s growth slows down after reaching a certain income level. He is confident that India can maintain a growth rate of over 7 percent, as long as it avoids past mistakes and continues to implement necessary reforms.

Reflecting on the recent Economic Survey, Panagariya acknowledged the importance of security experts identifying any risky investments from China. However, he believes that India should not shy away from broader Chinese investments, as they could offer strategic benefits.

He also discussed how rising protectionism, where countries impose barriers like tariffs to protect domestic industries, impacts foreign direct investment (FDI) and technology transfers. Interestingly, he pointed out that these protectionist policies could actually lead to more FDI, as companies might choose to set up production facilities in India to avoid high tariffs.

Panagariya attributed the recent slowdown in FDI to high interest rates in the U.S. and other Western countries, rather than to protectionist sentiments alone. He is optimistic that once interest rates begin to decline, FDI into India will pick up pace again.In essence, Panagariya’s views underline the importance of strategic openness to foreign investments, particularly from China, alongside continued economic reforms to sustain India’s growth trajectory.

In the context of recent developments, Chinese investment in India is resuming slowly after a period of stringent scrutiny following a border clash four years ago. Indian industries, particularly electronics manufacturing, is pushing for relaxed restrictions. According to information,a recent inter-ministerial panel has approved several investment proposals, including those from China. Indian officials are also considering fiscal incentives to attract technical know-how from not just China but also from Taiwan, Korea and Japan, stated official release.