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India Asks China To Make Its Infra Loans Attractive

Arvind PanagariyaThe Indian market is growing at a rapid pace and there are a number of exciting projects in the pipeline that are attracting investors from a number of countries especially China and Japan. A round table conference recently took place between India and China to see how best both countries can co-operate to further economic development. The meeting was held between China’s Development Research Centre (DRC) and India’s National Institution for Transforming India Aayog (NITI).

One of the key discussions was the development of high speed bullet trains in India that has huge potential for Chinese companies. Both China and Japan are vying to gain the upper hand for this multi-billion dollar rail system and according to Arvind Panagariya, the Vice-Chairman for NITI Aayog it is Japan who has a better opportunity due to the attractive infra loan plan they have in place.

Japan has put forward a forty year infra loan proposition where there are no loan payments for the first ten years and after which only 0.3 percent will be charged each year. China has not made any concessions on its loan procedure and hence the odds are heavily tilted in Japan’s favor. As of now Japan has taken on a feasibility study to build bullet trains between Mumbai and Ahmedabad while China is doing a feasibility study for Chennai- New Delhi.

Panagariya has stated that the two biggest constraints to building bullet trains in India is land and finance. Panagariya is confident that the challenge of acquiring relevant land can be solved but the financial costs associated with such a massive project is a bigger issue. China and Japan will have to conclude their feasibility studies and then provide a quote and India will most likely proceed if that quote is within the fiscal budget for the bullet train project. If the quote is over the budget, then India will have to work with its existing railway system and seek to upgrade its facilities for the time being.

China is the third biggest investor into India’s economy after the United States and Europe. India also has a rising trade deficit with China but Panagariya wasn’t very concerned with this.

In a statement, Panagariya said

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. 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