Avoid severing trade ties with China, says Arvind Panagariya


Arvind Panagariya suggested that India seek free trade agreements (FTAs) with the UK and EU to boost trade.

People are calling for India to cut trade ties with China because of its border violations. Former Niti Aayog Vice Chairman Arvind Panagariya says doing so now would hurt India’s economic growth.

Instead, Panagariya said that India should try to sign free trade agreements (FTA) with countries like the UK and the European Union to increase its trade.

“If we get into a trade war with China now, we’ll lose a lot of our potential growth,” the famous economist told PTI. He added, “Economically, it wouldn’t be smart to respond to border violations.”

On December 9, Indian and Chinese troops fought along the Line of Actual Control (LAC) in the Tawang sector of Arunachal Pradesh. The Indian Army said that “a few personnel on both sides” were hurt in the fight.

An economics professor at Columbia University, Panagariya, said that both countries can play the trade sanctions game, but China’s 17 trillion dollar economy is more likely to hurt India’s 3 trillion dollar economy than the other way around.
“Now, there are people who want to “punish” China with trade sanctions for its border violations… “China won’t sit still, as its response to US sanctions shows,” he said.

Panagariya said that even the US, with a large economy, has failed with its sanctions against China and Russia.

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“The sanctions against Russia have cost its close ally, the EU, a lot (GDP: USD 1.8 trillion only). So, this is a very dangerous situation, “he pointed out.

Between April and October of this fiscal year, India and China had a trade deficit of USD 51.5 billion. This is the difference between what they bought and what they sold.

According to the most recent government data, the deficit in 2021-22 was USD 73.31 billion, up from USD 44.03 billion in 2020-21. From April to October of this fiscal year, imports were worth USD 60.27 billion and exports were worth USD 8.77 billion.

Panagariya said New Delhi buys many of its imports from Beijing because China is the cheapest.

China doesn’t always offer India’s exports the best price.

We sell them to other countries that trade with us, like the US. It shouldn’t worry you that this causes a trade deficit with China and a trade surplus with the United States. Panagariya said.

Panagariya advised trading more with other nations rather than using trade sanctions to cut trade with China.

We should capitalize on India’s strong growth prospects over the next decade and grow the economy quickly. Our sanctions threats will be taken more seriously when we are the third largest economy.

Panagariya says that changes in the current account balance don’t worry him, and that as a fast-growing economy. India should even borrow up to 3% of its GDP from abroad to pay for its investments.

India had a current-account surplus of 0.9% of GDP in 2020–21 and a current-account deficit of 1.2% of GDP in 2021–22.

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