Former Niti Aayog VC Arvind Panagariya slams India's move to raise tariffs

Favours India's stimulus strategy, criticises NEP focus on spending more at school level without correcting teaching structures

Former Niti Aayog vice-chairman Arvind Panagariya on Saturday slammed India's move to raise tariffs, saying it will discourage firms from growing bigger. He also opposed the New Education Policy's focus on spending more money on the school education without rectifying the teaching structure there.

He also said that India did the right thing by not going for a big stimulus as such a move by US did not produce results.

Answering queries at India@75 Summit, organised by the Confederation of Indian Industry, he said though Aatmanirbhar Bharat policy of the government did not talk of restricting trade, tariffs have increased since then instead of coming down.

"I have not seen licenses... I am worried about tariffs," he said to a query by former CII president Naushad Forbes.

He said increasing tariffs would encourage micro and small firms to remain as it is since their domestic market will be assured.

Pointing out that the notion of comparative advantage is bit subtle, Panagariya said the misconception is that if imports are substituted by local production, the economy will become big in size.

In fact, curtailment of imports reduces exports, he said, adding the economy will then produce what it is not good at producing and will not produce what it is good at producing.

The professor of economics at Columbia University said imports and exports move in the same direction if you see their long time series.

On comparison between Indian and Chinese economies, he said the gap between the two is too enormous. Chinese economy is five times bigger than India's and such even if China's grow at three per cent India will have to grow by 15 per cent.

Panagariya defended India's strategy of not going for large stimulus. This did not produce results in US, he said. The US economy contracted 32.9 per cent in the second quarter of 2020.

He said the big stimulus would not have worked since the supply curve is vertical. The time for next stimulus will come when inventories will start piling up, he said.

The professor of economics said India will be self-reliant when the government does not have to use the direct benefit transfer schemes as the economy would then be generating enough jobs and entrepreneurs. He said he is though not advocating stopping these schemes altogether.

On NEP, he said the policy wants expenditure on education to be incresed to six per cent of GDP from the current four per cent, mainly at the school level. Pointing out that two-third of schools in India are run by the government, he said these schools and teachers cater to very few students.

To a query, he said he is not unduly worried about rise in powers of bureaucrats because of the Disaster Management Act in these times of Covid-19 as these will go away once the crisis is over.