'US-China trade war opportune time for India to attract multinationals'- Arvind Panagariya

Last Updated: Jun 26 2019 18:46
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Eminent economist Arvind Panagariya said that the escalating trade war between the US and China is an “opportune time” for India to attract the large multinationals looking for alternative locations outside the Communist country.

Speaking at a panel discussion organised by the Consulate General of India in New York, Panagariya strongly called for India to slash tariffs on imported motorcycles and automobiles through “give and take” negotiations with the US.

He said as the large multinationals “are coming out” of China, “it is an opportune time for India to do whatever it will take to bring these multinationals to the Indian shores”.

“This is also a great time for India to begin attracting the large multinationals that are now looking for alternative locations. Their wages have gone up and the trade war with the US has begun to close the access of the multinationals into the US market in a big way,” Panagariya said on Monday.

The US and China have been locked in a bruising trade war since Trump imposed heavy tariffs on imported steel and aluminium items from China in March last year, a move that sparked fears of a global trade war.

US President Donald Trump has already imposed 25 per cent tariffs on USD 250 billion in Chinese imports and China has retaliated with tariffs on US goods.

Panagariya stressed that the US was asking India to open up its markets.

“It is a good thing for India. I would open it unilaterally but here is an opportunity to actually negotiate with the US. Give them something and get something in return,” he said at the event titled ‘Economic Priorities for the New Government’ of Prime Minister Narendra Modi.

Panagariya, who served as the first Vice Chairman of the NITI Aayog from January 2015 to August 2017, acknowledged that there were “some sticky issues” such as data localisation, but added that other issues such as tariffs on the Harley Davidson motorcycles can be resolved.

“Go zero tariffs on Harley Davidson. What is the problem? How long are you going to punish your own customers - (after) 70 years of protection. Today auto tariffs in India are close to 100 per cent plus. Why, who is it benefiting. Some of these tariffs don’t make sense,” he said.

Panagariya emphasised that rather than using tariffs, India can use the exchange rate to its advantage.

“Let the rupee depreciate a bit, it will open the door for your exporters while it also compensates for the tariff liberalisation. This is exactly what we did in the 1990s,” he said, adding that this will help make the Indian goods much more attractive and boost exports.

“I see this completely in India’s interest,” he said.

Panagariya, Director at the Raj Center on Indian Economic Policies at Columbia University, however, sounded a pessimistic note on India’s current trade environment with the US, saying this is a “source of serious worry”.

“You do not want to get into a trade war with the US. India has been generally on the good side of the US, then why head into this,” he said at the event The panel discussion was organised in partnership with the Deepak and Neera Raj Centre for Indian Economic Policies and the US-India Strategic Partnership Forum (USISPF).

The US has terminated India’s designations as beneficiary developing country under the Generalized System of Preferences (GSP) programme.

“India has implemented a wide array of trade barriers that create serious negative effects on United States commerce,” the Office of the US Trade Representative said in March this year.