Eliminate Poverty by Empowering the Poor

(with Surjit Bhalla)

Introduction

  For half a century, the Indian Welfare objective has been to Alleviate Poverty. This objective has changed over the past four five years to eliminate poverty. Both the authors of this article have separately and jointly argued for more than a decade that it is possible to do so even with current expenditure on the numerous separate welfare programs of the Union government into a single umbrella and conversion to Direct cash/benefit transfers. [i]  With issue of #UID to 99% of adult population in India, it is now completely feasible to implement these ideas. This note, reassess the numbers and suggests a practical path to poverty elimination.

Extreme Poverty and New Standard

  If the latest World Economic Forum (WEF) report is to be believed, 60% of the Indian population was poor according to the World Bank poverty line of 3.2 PPP dollars per person per day. For Indians, the PPP conversion is easy because the World Bank, for close to 40 years, has never formally admitted it, but has defined its poverty line to be near identical to the official Indian poverty line. In 2011, Poverty rate based on either Tendulkar or World Bank poverty criteria in India was 14 % (based on NSS survey data with 7 day recall period for perishable food items like fruits & vegetables.)

The WEF result of 60 % poor in 2017 is obtained by raising the poverty line from PPP$ 1.91 to PPP$3.2 (68%) and keeping consumption levels identical to those observed in 2011/12. Correcting this mistake by allowing consumption to increase by the actual nominal compound growth of 10%  in per capita consumption observed in national accounts data, one can calculate the poverty rate by constructing a synthetic NSS distribution for 2017/18 by keeping the real distribution the same as in 2011/12. One then obtains the result that percentage poor in India (using PPP$3.2 poverty line) are 36 %, not 60 %. This contrasts with the percentage of poor of 5% in 2017/18, using the same method, but a  PPP$1.91 poverty line.

This last number is critical to appreciate the transformation that has happened in India over the last two decades. Absolute poverty, from close to 50 % in 1993/94, now less than 5 %. India is now close to a middle economy, not a poor economy. Which means its own Tendulkar poverty line needs to be raised, in real terms, by close to 60 % - to Rs. 2100 per person per month, or Rs. 70 per day, in current prices.  With this poverty line, a third of the population is absolutely poor in India – and this we believe should be the target of a new welfare policy.

Welfare Transfer System

 The gains from a reformed welfare system (cash transfers) are enormous, and the expenditure involved minimal. A central message, for politicians and policy makers alike, is that India is no longer a “poor” country in the traditional World Bank $ a day poor sense. That concept was there in the early 1990s. India is today a lower middle income economy, and should be thought of as such. It is the lower middle class that should be the prime focus of policy, for both moral and political reasons; the lower middle class (the emerging middle class) is about a third of the population.

 That a new welfare policy is needed is also made clear by the following calculation – Total welfare subsidies (food, fertilizer, petroleum, interest rate subsidies etc.) in 2017/18 are estimated to have been 2.73 tr. In 2017/18.  The present leaky and diffuse welfare system reaches only a quarter of the poor and lower middle class; and involves an expenditure level of Rs. 2.73 trillion.

Existing welfare programs (e.g. Public Distribution System of food grains) have a targeting efficiency of less than 30%.  Use of UID/Aadhar and cash transfer programs can significantly reduce the leakage in welfare programs.  Targeting efficiency can increase to 80% from the 30% level at present.  With the target of 33% of the population, and leakage of only 20%, approximate expenditures involved will be Rs. 500 ppm (400 divided by 0.8).  For a third of the population – 430 million – this comes to a total income transfer (or subsidy level) of Rs. 2.6 trillion.

Tax revenues for both corporate and personal income tax are buoyant – both up approximately 19 % in 2017/18, despite nominal GDP growth, at 9.5 %, being the fifth lowest since 1980. This tax buoyancy opens doors for a reformist fiscal policy – doors that can lead to greater tax collection, lower tax rates, and greater, and more efficient, tax redistribution. Doors that can lead to a golden era of fiscal policy. Below we outline some of the reasons why we expect that a blueprint will be laid out for such reforms in the Budget to be presented on February 1^st.

Welfare Reform

  The Unique ID number (UID)/Aadhar provides the base for a comprehensive reform of the Welfare expenditure system of the Union government.[ii] Elements of this have already been put in place, through the conversion of LPG and 84 schemes across 17 departments using direct benefit transfers (DBT). A comprehensive reform, will ensure that every deserving person is identified and gets his/her welfare entitlement, with leakages minimized.
    Latest available data shows that 88.5% of the total population and ~99% of the adult population over 18 years of age is with an Aadhar number. The budget must make an allocation usable by all welfare departments and district collectors to ensure that this residual 1% gets an Aadhar number, using photo ID if there are finger print problems.  This provides the basis for a comprehensive Tax-Transfer system, which can be layered (for ID protection and Privacy reasons) by providing a separate Welfare Identification Number (WIN) or Welfare Entitlement Number (WEN), linked confidentially and within the firewalls of Government to Aadhar. The Welfare Entitlement Card (WEC) would be a smart card with separate slots for DBT, Food subsidy, Fertilizer subsidy & crop income insurance, health insurance, and health and education-training expenditures and NAREGA/job subsidies. This Welfare Entitlement Card  could also act as a photo ID card for all those entitled to receive Welfare payments.

   The recent ASER study shows that ~50% of 14-18 year olds despite having been schooled cannot read write or do basic arithmetic. Worse the actual learning seems to have deteriorated over the years. This despite the fact that government likely spent 5 % of GDP and households 3.5 % of GDP on education (NSS data 2011/12). The solution must be a combination of public education reforms by increased use of e learning (for teachers & brighter students), well regulated, modern competition and empowerment of the poor and marginalized, by putting the spending power into their hands to ensure accountability of public education institutions. Dissatisfaction has also been expressed at the effectiveness and quality of the public health system, particularly of  the primary & secondary health system on which Govt. spends Rs 500,000 crore (5 % of GDP) and households are forced to spend more than 6% of their budget (or 4 % of GDP). This too requires a combination of wide use of e-medicine, regulatory reforms, transfer of government health expenditure to the poor, which can be subsequently increased to conform to a modern and just health system.

First Stage

  We propose that all subsidies be linked to Aadhar and be paid as DBT. This means that all petroleum product linked subsidies (kerosene, diesel, petrol) must be integrated with the LPG subsidy & renamed petro-product subsidy. Though a large part of the fertilizer subsidy is a petroleum linked urea subsidy it also has other mineral linked components. As it’s directed at farmers undertaking crop agriculture, it can be converted to an input subsidy per unit of cultivated land, along the lines Telengana input support scheme. The third major subsidy, for Food/PDS should either be converted to DBT or a monetary entitlement for purchase of food from any registered food shop, including currently licensed PDS outlets. Similar entitlements must be defined for health insurance and health expenditures and on basic education, job training. All these would incorporated in a Welfare card which incorporates smart card technology to incorporate all the welfare entitlements mentioned above. The Welfare ID or Entitlement number would be linked to the Aadhar data base behind the firewall, to ensure that each and every citizen in the lower half of the population, receives all the welfare benefits she/he is entitled to and that these benefits are not siphoned off by corrupt officials.

Second Stage

   In the second stage the new Cash transfer system would be linked to and integrated with, the Personal Income Tax system (with PAN) to create a Negative Income Tax/Net Income Transfer System (NIT) as proposed by us earlier as part of Personal Income Tax Reform. [iii]

-----------------------

A version of this article appeared on the Op ed page of the Indian Express, under the title "Smart Policies for Redistribution." http://indianexpress.com/article/opinion/columns/smart-policies-for-redistribution-india-welfare-system-aadhaar-5040695/ .

---

[i]  Arvind Virmani, "Poverty and Hunger in India: What is needed to Eliminate Them, The Pakistan Development Review, Volume 46, Number 2, Summer 2006.  http://pide.org.pk/pdr/index.php/pdr/article/view/2135.  Arvind Virmani, “Poverty And Hunger In India: What is needed To Eliminate Them,” Working Paper No. 1/2006-PC, Planning Commission, February 2006. http://planningcommission.nic.in/reports/wrkpapers/wk_pov106.pdf ,  http://planningcommission.nic.in/reports/wrkpapers/index.php?repts=wrkpap.

[ii] Unique ID Number (UID),  https://sites.google.com/site/chintan1997reg/institutional-reform/uid

[iii] Income Tax Reform II: Afeasible Negative Income Tax/Net Income Transfer System (NIT) http://dravirmani.blogspot.in/2017/01/income-tax-reform-ii-feasible-negative.html , http://dravirmani.blogspot.in/2017/01/income-taxt-reform-i-benchmark-flat-tax.html

"Public Health" is key to Malnutrition

Introduction

    Every time a "Hunger Index" comes out, it attracts wide publicity & discussion. Nobody seems to notice, that the "Hunger index" doesn't measure "Hunger" at all. When this author found objective survey data on "Hunger" in India, both the Planning Commission and EPW vetoed its publication. Why? Possibly because it threatened too many intellectual vested interests.

    The author and consultant for the Indian part of the "hunger index" admitted, that the index is mostly about Child stunting, wasting etc, which have collectively come to be called "child malnutrition". If the real problem is Child Malnutrition, then we need to understand this problem and find solutions to it as we did over last decade.

 India's under 3 year old Child malnutrition rate(%) was double the poverty rate (%) and 20 times the per cent of hungry in India (% of households in which any member had less than two (2) full meals, on any day of the month (i.e. even one day without 2 square meals, counts as hungry) .

Child Malnutrition

There are three broad aspects of malnutrition that must be kept in mind when devising strategies for dealing with it. [i]   

1)    The ability to access such food items.  This depends on household income or ability to sustain certain levels of consumption.  The rate of Poverty (Head count ratio) is the standard indicator. 

2)    Household/family knowledge and information about good nutrition.  This includes knowledge about the locally available foods that are good from the nutrition perspective.  This can be based on, (a) traditional age old knowledge (old wives tales). (b) Ability to read coupled with availability of appropriate reading material on nutrition. (c) Access to media such as newspapers, radio and TV, coupled with propagation of such information on the radio (d) Special programs that directly educate mothers about child rearing and nutrition such as ICDS.

3)    State of health.  Even if the right kind of food and nutrition is available a child may not be able to consume and/or absorb it properly due to ill health or sickness.  For instance a child suffering from diarrhea much of the time is unlikely to be able to ingest much good and healthy food and absorb the nutrition, even if it is freely available and provided to the child by the mother/parents. Historically it has been demonstrated across many countries that public health measures like clean drinking water, sanitation, sewerage, control of communicable and epidemic diseases and public health education play an important role in reducing mortality rates at every age and across gender.  In the Indian environment access to water and toilets, breast feeding (to impart immunity in an unhealthy environment), access to sound health advice/treatment, prevalence of vaccination and availability of vitamin supplements are possible indicators.

Poverty

Poverty affects cross State differences in Child malnutrition, it has to be addressed through economic growth, reform of welfare programs etc. Our research confirms that average per capita GDP is an important  determinant of poverty.[ii] It also showed that higher agriculture growth has an impact on poverty reduction in addition to its normal contribution to overall GDP growth. A special focus on agricultural growth in poorer states and in States with opportunities for productivity improvement can therefore be justified in terms of poverty removal even though it may not have any impact on overall growth. The empirical results also justify an added focus on rural roads and telecom connectivity (in addition to the general effects found earlier) to the extent that they promote the development of agriculture. Development of rural connectivity also improves market integration and labor mobility, which in turn will remove the differential and segmented impact of growth on rural and urban poverty. The research also showed that the consumption share of bottom 40% of the population is an important determinant of poverty. Targeted benefit programs should therefore focus on the bottom 40% of the population. It is essential to set up a comprehensive data base with unique IDs, photographs and Bio-metric identification, that will eliminate fraud and help identify the poorest 30% to 40% of the population.[iii]

Malnutrition Solutions

The research on cross-State differences in child nutrition outcomes shows, that the greatest social welfare benefits from direct intervention by government to improve the lot of the bottom 40% can come if it focuses on two long neglected quasi-public goods.[iv]  First, Public health including communicable disease and vector control, quality drinking water, drainage, sewerage and solid waste disposal in every city, town and village in the country. Second universal primary education and literacy to a global standard that is visible in outcomes. 

Improvement of public health education and public health facilities clearly has a positive effect on nutrition outcomes.  The ICDS program seems to have helped in providing public health education to mothers and thus contributed to the outcome.  The policy implications, however, extend beyond nutrition to other health outcomes. A comprehensive program for improving civic amenities of a public health nature to a defined standard is necessary to remove visible symbols of divide between rich and poor that slums and other neighborhoods with poor drainage and sewage create.

For every existing town, States must plan and install a modern drainage, sewerage and water supply system with water storage and purification, sewage treatment plants and garbage disposal sites.  The impact in terms of economic activity, health and nutrition can be enormous.  Government should help develop consultancy firms that can Plan and organize such systems and organizations that can compete with each other to build these systems across the country.  Once 100% coverage of towns is attained, we should extend the planning effort to semi-urban areas and villages in co-operation with Panchayti Raj institutions and NGOs.  We may not be able to match the quality of public health  and civic services routinely found in the villages of High income country’s, but we must target a quality level equal to that of middle income countries.

    This brings us back to the broader question of other quasi-public goods that are of critical importance to the poor.   Literacy can help in acquiring knowledge about hygiene, nutrition and sanitation.  Government must ensure that every citizen, has the education that (s)he is supposed to acquire with the completion of Primary education.  But this education must also be made more relevant by providing information on matters that will improve their lives (health, hygene, nutrition) and equip them to find useful information.

Cross-country Lessons

Our cross-country results show that the quality of public health, as measured by variables such as access to better sanitation and improved water sources, is an important factor in explaining cross-country variations in the prevalence of malnutrition.[v]  It indicates that improvements in environmental sanitation could have a significant impact in reducing malnutrition in India.  It also confirms the importance of primary education, particularly of females, in helping spread information and knowledge about personal hygiene, sanitation and nutrition.  Much more could however be done through appropriate school curricula and media campaigns to promote public health education.

Conclusions

  Once the current targets of the Swach Bharat Mission are met it should be raised to a broader and more comprehensive level: A comprehensive end-to-end water-sewage-sanitation system for the country. One that starts with clean drinking water and unpolluted irrigation water and ends in fertilizer and usable water. Similarly Union government health initiative must be focused on classic public health and public health education in schools and family health programs (like ICDS).

-----

A version of this article appeared in the Indian express OP ed page on October, 2017 under the banner "What schools have to do with health" http://indianexpress.com/article/opinion/columns/global-hunger-index-india-child-mortality-poverty-what-schools-have-to-do-with-health-4897121/

---

[i] Virmani, Arvind, “Causes of Child Malnutrition In India,” Working Paper No. WsWp 1/2007,  July 2007. MalnutritionChild07July.docx .

[ii]  Virmani, Arvind, “The Sudoku of Growth, Poverty and Malnutrition: Lessons For Lagging States,” Working Paper No. 2/2007-PC, Planning Commission, July  2007. http://planningcommission.nic.in/reports/wrkpapers/wp07StJl12.pdf , http://planningcommission.nic.in/reports/wrkpapers/index.php?repts=wrkpap.

[iii] Virmani, Arvind, “Poverty And Hunger In India: What is needed To Eliminate Them,” Working Paper No. 1/2006-PC, Planning Commission, February 2006.  http://planningcommission.nic.in/reports/wrkpapers/wk_pov106.pdf .

[iv] Virmani, Arvind, “Causes of Child Malnutrition In India,” Working Paper No. WsWp 1/2007,  July 2007. MalnutritionChild07July.docx .

[v] Virmani, Arvind, "Undernurishment of Children: Causes of Cross-country Variation," Working paper No.WsWp 4/2012, October 2012 [WsWp 4/2012. Nutrition12oct.docx . 

Growth Prospects: Deceleration, Demonetization, GST

Introduction

   The advance and revised estimates for the year 2016-17 gave as some indication of the effects of demonetization on GDP growth. However, there were doubts and disagreement between analysts about whether the negative effects would be limited to Q4 of 2016-17. With the CSO releasing data on Q1 of 2017-18, we are in a better position to provide a quantitative impact of demonetization on GDP, as the effects of demonetization can be separated from the earlier deceleration of growth from its quarterly peak in mid 2015-16. We are also in a position to take stock of earlier forecasts of GDP for FY 2017-18.

Demonetization

  From the GDP data now available, we estimate that Demonetization reduced GDP growth by ~1.2% point in first half of 2017 or by ~0.6% point in 12 post-Demonetization. This is at the mid-point of my forecast range of -0.2% to -1% on 12 month basis[i]. The methodology, though far from perfect, accounts for /adjusts for the decelerating trend in quarterly GDP growth since the middle of 2015-16. 

Deceleration in GDP growth

         GDP growth decelerated from 7.9% in July-Sept 2015(Q22015-16) to 5.7% in April-June 2017(Q1 2017-18), while GVA decelerated from peak of 8.2% to 5.6% over the same period.  Our analysis suggests that the GDP growth deceleration since mid-2015-16 is due to the following factors:

(a) Monetary policy has not only been tight for last two years, but has tightened over last 18 months because of sharply falling inflation. The real repo rate has been on an uptrend from the beginning of 2014, rising from a neutral 0.3% in January 2014 to 6.3% in august 2017. The direct negative effect of rising real interest rates has been strongest on manufacturing and construction, Another consequence of high real rates relative to global rates, is excessive capital inflows into debt (and carry trade, which gives free money to foreigners). This results in appreciation of the real effective exchange rate of the Rupee (REER 36), which has appreciated from 104.7 to ~120 over the same period. Since February 2015 it has however moved progressively above the gradually appreciating trendline & appreciated by 6.6% till July 2017. This in turn resulted in loss of competitiveness & worsening of net exports of goods (Exports-Imports: X-M), which are almost 62% of its absolute value in Q2 2015-16 and 48% of its absolute value in Q1 2015-16.

 (b) A return of the Indian economy from deflation to inflation in manufacturing & other internationally tradable goods. Inflation measured by the deflator for manufacturing, which was negative from Q1 of 2015-16 to Q1 2016-17 turned positive in Q2 of 2016-17 and has risen progressively since then. Similarly inflation as measured by mining deflator turned positive i Q3 2016-17 for the first time since Q2 of 2014-15. The deflation results in leads and lags in input & output prices that result in overestimation of value added in manufacturing & other goods, while the return to normal inflation reverses these effects on inputs & outputs so that average growth measures values which would have prevailed in absence of deflation episode.

(c) Public Sector bank(PSB) NPAs were incurred largely in 2009-13, after the Global Financial Crisis(GFC) in 2008, partly because of the unjustified euphoria generated by quick recovery in 2009 due to appropriate fiscal monetary policies. The recovery led to abandoning of fiscal sobriety in 2010 & lending pressure by government on Public sector banks. However, the increasing NPAs were more hidden or in speculative domain. Tighter regulations on NPAs since 2014 and their disclosure to public forced Banks,  companies and capital markets to see & evaluate the risks more carefully and clearly, worsening Credit/Investment in 2015 & 2016.

Reforms for Growth

With uncertainties and risks from introduction of GST still hanging over the economy, the key question at this point is what specific policy changes can help revive growth: The following reforms, in order of feasibility and impact, should be accelerated by government:

(1) Government must refocus on subsidy reform and put the savings from reduction in corruption and administrative efficiency, into public goods infrastructure investment. This will be an important driver of grwoth as long as private corporate investment remains weak.

(2) It should expeditiously complete already launched reforms in Bankruptcy law, rules & procedures and the cleanup of the NPAs in PSBs. 

(3) To get the full benefits of GST and minimize the costs, the GST council must undertake drastic simplification of the GST (to 3 slab System with one base rate, basic food, health, education as exempt sectors & surcharges on 6-12 carefully selected indutries+services).[ii]

(4) Reform Export-Import (EXIM) policy (Agriculture, Textile), and unify customs (import) duty into a uniform 10% duty on all manufactures & minerals (GST is seperate).(a) Suspend the IT-electronics agreement for 3-5years (if possible).  Either through EPZs or FTZ or other temporary mechanisms (5-10years) provide an opportunity to Labor intensive industries & Export Supply Chains to shift base from China to India.[iii]

(5)  Two consecutive normal monsoons provide an opportunity to eliminate all export controls & QRs  on agricultural commodities and reduce export duties to zero immediately. If government wants to help farmers on a permanent & longer term basis, it should also repeal ECA & APMC, approve all GM seeds recommended by the GEAC & induce hold-out States to join the National e-market for all agricultural products. Remaining impediments to FDI in food retailing of agricultural & related products should also be removed.

(6) Education is one of the remaining heavily controlled sectors of the Indian economy. Central Govt. can make a start by replacing controls on higher education with modern, rational regulation (based on asymmetric information & moral hazard problems faced by users).

(7) Reform of the two most distorted markets, labor & land, are not 0-1 processes. They have multiple dimensions, each one badly riddled with controls, distortions and corruption. So a phased program of labor & land reform can be drawn up and implemented step by step over next five years as political opportunity permits.

Outlook

    In my judgment the negative effects of demonetization on GDP are largely over. Because of fears of getting shortchanged on input credit from GST, there was an inventory draw down in June, and a possible slowdown in production even before that. Both these will be offset in August and Q2 of 2017-18. On balance I expect the economy to bottom out in July, but the speed of recovery will depend on the reforms & Monetary policy. 2017-18 GDP Growth is likely to be below my mean forecast of 7.5%, but within the range of 6.75% to 8.25% that I had forecast at the beginning of the financial year.[iv]

----------------------

A version of this article appeared in Economic Times on 8/9/2017 under the banner, " Post-demonetisation economy: Exorcising DeMo’s demons" at https://blogs.economictimes.indiatimes.com/et-commentary/post-demonetisation-economy-exorcising-demos-demons/

---

[i]  http://dravirmani.blogspot.in/2016/11/demonetization-economics_16.html

[ii] https://www.facebook.com/arvindvirmani2/posts/780808875419702

[iii] Further details in tax reform chapter of forthcomng book: India at 70 years, Modi at 3 years

[iv] http://dravirmani.blogspot.in/2017/03/gdp-2016-17-and-2017-18-forecasts-cso.html , http://dravirmani.blogspot.in/2017/02/monetary-policy-8217.html
(a)  AV, "Towards a Competitive Economy: VAT and Customs Duty Reform," Planning Commission Working Paper No. 4/2002-PC, April 2002.  http://www.planningcommission.nic.in/reports/wrkpapers/wp_vat.pdf ; Arvind Virmani, "Customs Tariff Reform," Economic and Political Weekly, Vol. XL No. 11, March 12-18, 2005, pp. 1006-1008

India-China Trade: Q&A post-Doklam

Q1. China has emerged as India’s largest trading replacing US in March 2008.  During the economic liberalisation in 1991, the level of bilateral trade between the two countries was not significant, as the trade basket was restricted to a limited number of products. But, within a short time span, China became the India’s single most important trading partner. How would like to define the journey so far? What were the triggers for growth?

A2: The increase in trade is due primarily, if not wholly to a massive increase in Chinese exports to India, which are now 5 times its Imports from India. Consequently, India has a huge trade deficit with India. 

Q2.  There is huge amount of complexity in the relationship between India and China. And there is an undercurrent of suspicion as well. How have those factors spilled over to the bilateral trade? What kind of manifestations of that spill-over effect have we seen so far?

A2: China is a non-market economy and given its communist party controlled government and economic system, it can employ subtle forms of Non Tariff barriers, by just telling companies not to import certain products or from certain countries. Thus if doesn't even allow us to export pharmaceuticles & other items where we have demonstrated comparative advantage. It also engages in dumping manufactured goods at the cost which is less than the sum of parts used in it.

Q3. You were the Chief Economic Adviser to The Government of India, Ministry of Commerce during 2007-2009. What was your strategic outlook to handle India-China relationship during that time? What are the observations and insights you derived during that stint?

A3: In Indian system, Trade policy is under the purview of the commerce ministry. As general policy we didn't discriminate against any country wit respect to tariffs or regulatory standard. We also supported MOC in removing Non tariff barriers directed at us.

Q4. What kind of impact China’s ambitious plans like Strings of Pearls, China-Pakistan Economic Corridor and One Belt One Road (OBOR) on the India-China bilateral trade?

A5: They have no direct effect on bilateral trade. The ports built by China are largely redundant and consequently unprofitable & with very low capacity utilization. With the exception of Pakistan, the road & rail infrastructure built under OBOR are open for India & other countries to use. Pakistan doesn't allow India to use its infrastructure for transit & trade with Afghanistan or Central Asia & consequently has zero impact on bilateral trade.

Q5. How important is the normal India-China bi-lateral relation to various bodies like BRICS, RCEP, ASEAN etc.? What kind of impact will India-China relationship have on those platforms, going forward?

A5: Multilateral organizations stand on their own and depend on their own mutually accepted rules. The huge trade imbalance that China has with India is probably delaying the conclusion of an RCEP agreements. If China acknowledges this imbalance and accepts its consequence in RCEP, the RCEP could conclude much faster

Q6. China is trying to assert itself in the South-East Asia more aggressively. How will that factor reshape the India-China bilateral trade? 

A6: Aggressiveness always induces caution, and this is will have similar effects

Q7. India mainly exports raw materials to China such as cotton, ores, organic chemicals and copper. However, as the experts say that the Chinese economy rebalances to become more consumer led, there will be a further fall in exports. What’s your thought on it? How should India tackle this situation? Is there a need to re-strategize and explore new export possibilities in the Chinese market?

A7: China's trade with developing countries follows the Prebisch-Singer hypothesis of trade between the Center and the periphery: China imports natural resources from EMDCs and exports manufactured goods to them. This is an essential element of its economic development strategy. The only way this pattern to change is for China to shift its labor-intensive manufacturing to India (FDI) as it's becoming uncompetitive in China.  We welcome this move Eg to exclusive Chinese ETZ/FTZ in India.

Q8. Various sectors in India like pharmaceutical, electronics and machinery are dependent is Chinese imports. How Can India reduce dependence on Chinese imports?

A8: The "Make in India" & "Ease of Doing Business" must be used to promote these sectors especially by attracting FDI currently operating in these sectors in China and even Chinese firms that are willing to abide by rules applicable to other FDI.

Q9. The trade deficit is a cause of concern for India, which stands at $ 51.09 billion in FY2017. What can India do to reduce the trade deficit?

A9: Follow a policy of reciprocity & symmetry with respect non-tariff barriers, though we are at an inherent dis advantage in our transparent democratic system and their non-transparent one.

 Q10. What can India do to make the trade relationship with China more equal? Is the strategy to market India as an investment destination an answer?

A10: Yes we welcome Chinese investment in manufacturing and infrastructure, subject to cyber security consideration.

Q11. As per the news reports, a trade war seems to be looming between India and China after New Delhi imposed anti-dumping duties on 93 Chinese products amidst a military standoff in Doklam area. An article in The Global Times, part of the ruling Communist Party's publication group, urged Chinese firms to "reconsider the risks" of investing in India and warned New Delhi to be "prepared for the possible consequences for its ill-considered action." How do you read the situation at the moment?

A11: This is false News by hyper-nationalist elements in China. These 93 anti-dumping duties have been  imposed over a decade since the Global Financial crises in 2008, without any hint of a trade war. 

Q12. Analysts are of the view that the growth in economic ties with China will come through small entrepreneurs. However, how will the MSME sector withstand various restrictive measures and work towards the growth? Don’t you think MSME sector will bear brunt of all these developments?

A12: The issue with China is the asymmetric benefits derived by a non-market economy and the imbalance in trade. Economic ties can can progress if and only if China is agreeable to removing non-transparent barriers on India's exports. MSMEs would be the primary beneficiaries of this.

Q13. What role can the BRICS summit to be held in China play to diffuse the tension between the countries?

A13: Summits provide an opportunity for leaders to come to informal understanding. Some progress in reducing tensions is likely

Q14. What are the possibilities and opportunities both the countries can explore for economic and trade cooperation, going forward?

A14: As indicated RCEP is one forum in which progress could be made. Another is Chinese FDI in Indian manufacturing.

Q15. What should both the governments do to make sure trade shouldn’t get affected because of various developments?

A15: Remove the lacuna in the border management agreements that have ensured that scuffles on LAC don't turn into fatal incidents, and turning LAC into a better defined LOC.