Former NITI Aayog Vice-Chairman Arvind Panagariya has shifted his stance on India’s trade relations with China. In a recent interview, Panagariya, a prominent economist, revealed that the Galwan clash in June 2020 made him reconsider China’s reliability as a trading partner.
Panagariya had previously advocated for India’s participation in the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement involving 15 Asian nations, including China. However, the violent Galwan Valley incident, which resulted in the deaths of 20 Indian soldiers, changed his perspective.
Economic and Political Considerations
Panagariya explained that international trade decisions are not solely based on economic factors but are also influenced by political considerations. While he once saw the RCEP as a beneficial platform for India to engage in a larger market, the geopolitical tensions with China made him re-evaluate this position.
“Politics plays a significant role in our trade decisions,” Panagariya said in an interview with Moneycontrol. “The Galwan incident convinced me that China could no longer be fully trusted as a trading partner.” Consequently, he has since advocated for India to distance its trade relationship with China.
Avoiding Import Barriers
Panagariya cautioned against imposing import barriers on Chinese goods, which he argued would harm India’s economy by restricting access to essential and competitively priced inputs for domestic producers. He suggested that rather than cutting off trade with China entirely, India should strengthen its trade ties with like-minded countries.
To achieve this, Panagariya recommended hastening the conclusion of a free trade agreement (FTA) with the United Kingdom and pursuing similar agreements with the European Union. This approach, he believes, would reduce India’s dependence on China and shift trade towards more geopolitically aligned and friendly nations.
Economic and Geopolitical Benefits
The economist, currently a professor at Columbia University, highlighted the dual benefits of forging FTAs with the UK and the European Union. Economically, these agreements would increase competition for Indian producers and provide consumers with access to cheaper imports. Geopolitically, they would help India realign its trade relationships away from China towards more cooperative partners. “An FTA with the UK and the European Commission would expose our producers to greater competition while giving consumers access to cheaper imports,” Panagariya stated. “Geopolitically, it shifts our trade away from China towards friendlier countries.”
The Impact of the Galwan Clash
The Galwan clash was a turning point in India-China relations. The deadly skirmish marked a significant deterioration in bilateral ties, leading to multiple rounds of talks aimed at resolving disputes along the Eastern Ladakh border. Despite these efforts, relations have not normalized, reinforcing Panagariya’s concerns about the trustworthiness of China as a trading partner.
Risks of Trade Sanctions
In December 2022, Panagariya warned against severing trade ties with China, arguing that it would hinder India’s economic growth. He emphasized that engaging in a trade war with China, whose economy is significantly larger, would be detrimental to India. The $17 trillion Chinese economy has a greater capacity to withstand and retaliate against trade sanctions compared to India’s $3 trillion economy. “Engaging China in a trade war at this juncture would mean sacrificing a considerable part of our potential growth,” Panagariya noted. He also cautioned that punitive measures against China would likely provoke a strong retaliatory response, as seen with the United States.
Panagariya’s comments underscore the complexity of India’s trade strategy with China, balancing economic interests with geopolitical realities.
Panagariya’s insights reflect a strategic shift towards enhancing India’s economic resilience by diversifying its trade partnerships and reducing dependence on China amidst ongoing geopolitical tensions.
(With inputs from agencies)
