 "China should make infra loans attractive, says Panagariya")
Panagariya, who attended a round-table on India-China economic cooperation between NITI Aayog and China's Development Research Centre (DRC) early this week, said China, which is pushing for its investment in big-ticket infrastructure projects in India like the high-speed train should make its loans more attractive.
“High-speed rail is an expensive proposition. What kind of finance the Chinese are willing to bring to the table is important. The Japanese are bringing incredibly attractive finance to the table.
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"They are offering 40-year loan where there is no payments for 10 years and after that only 0.3 per cent a year. So it is a highly concessional loan. The Chinese are not offering anything close to that. So there is a big difference between the Chinese Japanese offers," he said.
China is vying with Japan to build bullet trains in India.
While Japan is currently conducting feasibility study for Mumbai-Ahmedabad bullet train, China has undertaken a similar exercise for the Chennai-New Delhi corridor.
“Eventually, we need high speed rail. Fiscal constraints we face. Land is a problem, which we must solve and is solvable. That does not worry me so much. Finance is important. If we are getting limited amount of finance, then we have to make a decision to make use of high speed rail or expand the electrification of existing railway,” he said.
India has sought China's assistance to increase the speed of the existing network as well as modernise some the of railway stations.
China's outbound investment in different parts of the the world rose to $95.21 billion in the first 10 months of this year, registering an increase of 16.3 per cent.
Last year, China's ODI amounted to $102 billion making it third biggest investor after the US and EU.
Chinese officials say Chinese investments in India so far amounted to about USD three billion.
On India's mounting trade deficit with China, Panagariya pointed to the restrictions in Chinese market.
"From the economist point of view what we have to worry about is the overall aggregate deficit. Bilateral deficit with a single country is less of a problem with a caveat that if this it is due to some specific restrictions in the country with the surplus," he said, replying to a question about the trade deficit with China exceeding $46 billion last year in about $70 billion trade.
"That asymmetrically impact the exports of the county with deficit. So if India's exports are low to China it is because the commodities India is capable of exporting face high restrictions in China," he said, pointing to New Delhi's efforts to prevail on Beijing to open up more for India's IT and pharmaceuticals.
On concerns about China's economic slowdown impacting India, he said, "Chinese economy is $10 trillion, which is second largest. Even if it goes slower rate 6 to 7 per cent in ten years or less it will cross US economy which is around $16 trillion."
China's economy has dipped below seven per cent to 6.9 per cent in the third quarter.
"I do not see that 10 per cent is even better, but there are no examples of an economy that has grown about 10 per cent for more than three decades. The slowdown of China is certainly consistent with the experience of South Korea, Taiwan and Singapore which are grown at those kind of rates," he said.
"China's slowdown is not a big surprise. But quite contrary if China continued at 10 per cent for the fifth decade that would be surprise," he said.
"As far as India is concerned we still have both in terms of large Chinese market for India to benefit from but also the slowdown means China's export expansion will decline or at least the growth in export expansion will decline. That gives opportunity for India to capture part of the market space that China will be quitting," he said.