Arvind Panagariya at Idea Exchange: ‘Asia is where the economic centre of gravity is shifting to; India has to be part of it’

Now about Asia. RCEP, to me, is a bit of a problem because of the geopolitics. China sits in there. But there is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (formerly TPP), that is the one we should look at. The situation from the 1990s has changed, and, perhaps now, we can be a bit more confident on issues of IP protection and labour standards. Ultimately, Asia is where the economic centre of gravity is shifting to and therefore, we can’t afford to not be an integral part of some sort of larger trade grouping. Strengthening our ties with the Association of Southeast Asian Nations (ASEAN) is very important. We need to look at that because, in five years, the three-largest economies of the world, two would be in Asia, and of the four largest, three will be in Asia. So, we do need to set ourselves up to be an integral part of that.

A FTA is a two-way street. If we seek access to the larger market, then we have to give concessions… When we started trade liberalisation in 1991 and knocked down tariffs till 2007, we did it for ourselves

Anil Sasi: When you say that we should go beyond and look at the TPP equivalent, is that a stiffer challenge for negotiators?

It is… It is a stiff challenge because entry into the RCEP would be relatively easier on both sides. The current membership of RCEP is very welcoming of us and Japan, particularly, has been very keen for us to join. At our end, too, this doesn’t involve any big commitments on issues of intellectual property or labour standards and so on. The big elephant in the room is the presence of China in RCEP. I think, geopolitically… that’s a bit of a redline. It is the same issue for the TPP as well because China has an application. I suspect, with countries like Australia being part of the TPP as well, will probably also be keen to have India in there instead of China. From that perspective, there may be some leverage that we have there.

Anil Sasi: On these bilateral deals, there seems to be a propensity to go for early harvest pacts. If that were to be the formula with the UK or the EU, would that be a problem?

To me, that’s not the problem, because the early harvest has typically focused on the trade side of it. That is, to me the most critical aspect of any agreement that we are signing. In the worst-case scenario, suppose it does not translate into a Comprehensive Economic Partnership Agreement, that’s okay. We do have some leverage on services, meaning some cost advantage in providing services. It may or may not be applicable in this specific case, considering that we are talking about the UAE, for example. Presumably, the services trade advantage doesn’t translate very much because the UAE is probably not a major importer of services. But as a matter of principle and credibility, it is a good thing to complete the full Comprehensive Economic Partnership Agreement.

Amitabh Sinha: What is your idea of developing Nalanda University? Are you looking at a big modern university or a more focused university on Indic studies?

I tell you my understanding of this, as it stands now. The original idea was, of course, put into action by the previous UPA government. It started with Amartya Sen in the role of the chancellor. The present government inherited that project. There is a lot of sentiment attached to Nalanda. It was, at one time, globally, probably the only equivalent of an Ivy League university that existed in those centuries… But in modern times it must have disciplines that are relevant to students. It’s still a young institution, with about 300 full-time students. But Rajgir is a small town, so bringing in first-rate faculty is a challenge… There are 16 or 17 countries that are stakeholders in the institution; India alone is not a stakeholder. It will take time to build up the university. Indic studies will always be an integral part of this institution, but we will offer mainstream branches as well.

When Rs 2,000 was introduced, it was done because if you wanted to re-monetise the economy, it was the quickest way to put the money back in… Beyond that there is very limited rationale for the note to exist

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Amitabh Sinha: We’ve announced the net zero for 2070. How do you look at that long-term strategy?

It’s not an area of my expertise, but I have some thoughts on that. First of all, is it something feasible by 2070? If the Europeans and the Americans can get to net zero by 2050, I think we can get to net zero by 2070. It will require a lot of innovation in green energy. So, 10 years after China, we can definitely get there. That’s my broad point: given that there are these other countries, which are committed to earlier dates, if they can deliver, we can deliver. Have we made good progress? I think so. We actually fulfilled our Paris commitments already. We are the only country that has delivered, so early, seven years in advance. I would also put effort into our own local environment clean-up. There is how we should really orient this. I would rather choose a path in which we directly benefit our own citizens, which means that we clean up our urban cities.

Sukalp Sharma: Russia has emerged as our major trade partner, in the last year, after the invasion of Ukraine. What would be your comment on going for an FTA with Moscow?

Politics is very much going to be a part of that discussion. I suspect there’ll be great hesitation on our part to go for such an FTA. But from an economic point of view, if you asked me today, is Russia my big priority? I would say, no. It should be on my list. We ought to have everybody on the list. But in terms of priority for negotiation, if it is a matter of investing our negotiating resources and research resources into FTAs, I would really like us to go and pull it off with the UK first, simply because it’s already 90 per cent done. Then move on to the EU, which is the big one. The sense I get is that our trade with Russia is not terribly large, except for the recent growth in oil imports. Personally, I think that we need to pay a lot of attention to Asia… we need to get going in that region. A very large population is located there. If you think in terms of employment implications, if we were to, for example, really be able to replace China in some of the labour-intensive products like apparel, we would generate an enormous amount of employment… This is a population of something like five to six billion people. Even if you think of two pairs of shirts and trousers, you’re talking about close to about 12 billion shirts and 12 billion pairs of trousers. Somebody is going to have to make them. We ought to do that.

Sukalp Sharma: There is a lot of talks these days about carbon capture and recycling to produce sustainable fuels and other materials like polymers, etc. Do you think that sector is at a stage where it can give scalable solutions to India?

My own understanding is that these are expensive technologies. Certainly, carbon capture is not a cheap technology. Even if we set goals that in the next five years, this is how much I want to reduce my carbon emissions, there’s no reason to do it through carbon capture. We got many low-cost avenues to bring our carbon emissions down. As an economist, I say go for what is most cost-effective.

Amitabh Sinha: The only problem is that there is no net zero without carbon capture and utilisation or without carbon-dioxide removal technologies. If we don’t have that at some point in time, there is no achieving net zero anyway.

I hear you. I would let the US and EU do that carbon capture for now. We already know that China is not net zero by 2050. India is not net zero by 2050, which means that the US and Europe will have to be net minus something and not just net zero. Let the richer countries, whose carbon is in the environment predominantly, do that. That should not be our first priority. I’m not saying we should never do it. Over time, as they do more of this carbon capture, the cost of carbon capture will also come down. And at some point, it will become cost-effective for us. But we have to do our cost calculation today. Where will I reduce carbon at whatever target that I choose most cheaply? That is how I approach it. It seems to me that today if I want to reduce my carbon emissions by x units, carbon capture is not the first technology that comes to mind.

Aanchal Magazine: Despite the new labour codes getting approved, they have not been enacted and seem to have been put on hold till elections. You also mentioned reforms in land laws being crucial. How do you see these affecting India’s push for growth?

Each of these codes have areas where the rules and regulations have been entirely relegated to the states. Even if there’s one state which has not written its own rules and regulations and enacted them, you create a vacuum because the new law will not kick in. And the old laws are repealed because the new central codes have been implemented. That is the problem. So now, they are trying to get every single state to write the rules and regulations, but there are some laggard states.

The only way around this is to have some sort of amendment passed in the Parliament, in a language which allows the Central government to write the rules and regulations. And the amendments (should) say that any state which doesn’t write them, in those states, those written by the Central government will kick in.

Land is a different problem. I’ve often talked about moving workers out of agriculture into industry and services. For that you need cities to expand and new cities created. How do you do that when land is so expensive? The only way is to take policy measures which will increase the supply of land. There are only two or three ways to do it, you either increase the supply of land horizontally or increase it vertically. Vertically means, you raise the FSI (Floor Space Index), which in India tends to be incredibly low. As a result, Indian cities keep expanding horizontally.

With these two problems, there is also the acquisition issue. Because in India, there are all kinds of encumbrances that exist on land. Often, you don’t know who the actual owner is. So then buying it becomes more difficult. This is where the government can step in and acquire land for a potential buyer.

Soumyarendra Barik: With regards to the EU India trade deal, some of India’s policy decisions, for instance, the data protection bill’s draft faced a lot of criticism for some of the provisions like data localisation, etc. Given Europe’s stand on privacy issues, do you see that becoming a point of friction when the two eventually sit at the table?

A FTA is a two-way street. If we seek access to the larger market, then we have to give concessions. What we need to understand is that most of the concessions are not to our detriment. From when we started the trade liberalisation in 1991 and kept knocking our tariffs down all the way up to 2007, basically, we were doing it for ourselves… It’s the same for data policy. We need to come up with something rational. We actually don’t face a serious political problem with respect to the EU.

Harikishan Sharma: The RBI has announced the withdrawal of the Rs 2,000 note. What will be the economic impact of this?

It’s not going to have a whole lot of impact. This is only 10 or 11 per cent of the total currency in circulation right now.

This is not an unexpected move. Even when it was introduced, it was done because if you wanted to re-monetise the economy, after having purged the Rs 500 and Rs 1,000 notes, a Rs 2,000 note was simply the quickest way to put the money back into the economy… Beyond that there is very limited rationale for a Rs 2,000 note to exist. It will hopefully encourage more people to transact digitally.

Shubhajit Roy: But don’t you think that the convenience cost argument needs to be addressed by the government?

As of now, if it is causing hardship, or even inconvenience, there is no fear. The government said that it will remain a legal tender after September 30. So you can keep it. But to me, it doesn’t sound like a very compelling argument. The government has the right to take notes out of circulation in the public interest. If we accept the role of the government, as a body which we appoint to pursue public interest, that is something that the government ought to have the right to pursue.

Harish Damodaran: As an economist, how much does rising inequality concern you?

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First of all, I don’t think there is any country which doesn’t experience rising inequality. When I look at India, what do I worry about the most — poverty…You speak of rising inequality, my calculations don’t show that. I have done a paper on COVID, the poverty and inequality during and after COVID. Inequality, in fact, has fallen quite dramatically. I looked at the’21-’22 PLFS (Periodic Labour Force Survey). During that period, inequality had not gone up, because when GDP is concentrated in urban areas, the activities that the rich were performing got hit harder — transportation, construction… I’ve argued that at length in the paper.