Economist Sajjid Chinoy has pitched for a relook into the government’s curb on foreign direct investments from China, arguing that allowing Chinese investments in the country will be more advantageous than slapping tariffs on imports from the northern neighbour.
Chinoy, the chief India economist at J P Morgan, who is also a part-time member in the Economic Advisory Council to the Prime Minister (EAC-PM), said that the private capital expenditure is down due to the lack of demand visibility amid the flood of cheaper Chinese imports.
Chinese exports into the US were a free flowing river, but the 32 per cent tariff slapped by the Donald Trump administration is acting like a wall, leading to the same goods being spilled out into other emerging markets like India, he said.
Speaking at an event organised by the Asia Society on Monday, Chinoy said the flood of Chinese goods at cheaper prices is creating challenges for emerging markets looking to increase their exports.
“I would argue India’s corporate capex cycle has not picked up because you need much more domestic demand visibility. In a world in which Chinese imports are flooding in, creating disinflationary pressure, and you’re starting to compete,” he said.
Pointing out to the impact of restrictions on foreign direct investment imposed by India in 2020 through “press note 3”, Chinoy said that the trade deficit with China has widened to USD 115 billion from USD 50 billion in the last five years.
In light of the “thaw” in relations between New Delhi and Beijing, Chinoy hoped for a “political consensus” is built to relook into the policy of restricting Chinese FDI, and made it clear that such a policy is “counterproductive”.
“…rather than getting Chinese imports flooding us, why not get Chinese investment into India,” he said, adding that such a move will create jobs locally and help the domestic economy.
Pointing out that India needs a lot of intermediate goods from China, a “manufacturing behemoth”, Chinoy further said, “you’d rather have the value-add accruing in India than importing from China”.
The remarks by the economist has come at a time when there are reports of a possible review of the “press note 3” that was introduced during the Covid pandemic. Concerns of sluggish private investments – which are deemed to begin a virtuous economic cycle – have also dominated for the last few years as the capex is led by the government.
Referring to the oft repeated concerns on low research and development spends by Indian enterprises, Chinoy said the investments in innovation will continue to be lower if there are tariff barriers which are created, while an openness will lead to competition and hence, make such bets essential.
“If you’re operating in a relatively closed market then the incentive to do so (spend in R&D) is not there,” he said.
In the face of artificial intelligence coming in, Chinoy advocated for more investments in advancing the human capital through efforts on education and skilling.
(This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)