 "Arvind Panagariya")
Trade economist and 16th Finance Commission Chairman Arvind Panagariya has cautioned against import-substituting policies and batted for export-oriented policies to enable India to tread on the path of high economic growth in line with what China achieved in the past.
At a recent event of the Foundation for Economic Development (FED), Panagariya said the temptation of import-substituting industrial policy is not unique to India but the intellectual support for this policy remains strong here.
“And there are hardly any champions of an outward export-focussed orientation. I fear that for India, exiting this new phase of import substitution is going to be a challenge,” he warned.
He said between 1963 and 1973, South Korea grew rapidly, and exports had been a big part of the growth, but the import-GDP ratio was even higher at around 25 per cent, which is when the temptation to reduce imports by industrial targeting of heavy and chemical industries started.
In the end, growth fell by 2-3 percentage points, he recalled.
“The difference is that they realised it quickly and, by 1979, exited the (import- substituting) industrial policy,” Panagariya said.
More From This Section
On why countries with low per-capita incomes, such as India, must focus on exports, Panagariya said the global export market was worth $32 trillion in 2022, almost ten times India’s GDP.
“Even if we can capture the global market for a few products, that’s it. We don’t have to do anything else. That really is the China story – it acquired a very large share in certain products. And that gave China such a huge boost; for 3-4 decades, it grew at 10 per cent a year,” he said.
Panagariya said he had looked at successful countries such as Hong Kong, Singapore, Taiwan, South Korea, China, and India – these are the six high-growth examples.
“My conclusion is very clear – countries that have been open are the ones that have grown rapidly,” he said.
