NEW DELHI India has every chance of becoming an export powerhouse, Prime Minister Narendra Modi's top economic adviser told Reuters, despite an ill wind blowing from China that has hurt the ability of Asia's third-largest economy to compete.
Arvind Panagariya, the Columbia University economics professor tapped to run the government's policy think tank last year, said in an interview he had seen China's slowdown coming as wage costs there grew.
"It was only a matter of time," said Panagariya, 63, describing "miracle" growth rates sustained by China for decades as without precedent.
The natural slowdown in the Chinese economy offered an opportunity, he said, because rising wages and an ageing workforce will encourage manufacturers to move to places where labour costs are cheaper - like India.
From parity in 1980, China's economy has outgrown India's fivefold to $10 trillion.
India's best choice would be to emulate China, said Panagariya, disagreeing with naysayers who argue that advances in labour-saving technology make that impossible.
"Many pessimists think that manufacturing is now passe, that the robots are coming, 3D printing is coming," said Panagariya. "None of those factors is going to be a barrier to India becoming a manufacturing hub right now."
In the short run, though, China's slowdown and weakness in its yuan currency are creating headwinds.
India would be "very concerned" if China were to allow a major devaluation in the yuan currency, said Panagariya, who is also India's negotiator for the Group of 20 summit being hosted by China this year.
"In the end, that not only makes Indian goods less competitive in the Chinese market, but also India's ability to compete with the Chinese in third markets is impacted," he said.
Figures this week showed that India's merchandise exports fell in December for the 13th month - and were down by nearly 15 percent from a year earlier.
That meant India was losing its share of the global trade pie, said Panagariya, attributing some of those losses to the appreciation of the rupee against currencies other than the U.S. dollar.
He highlighted Modi's decision to build out India's coastal ports to improve access to the world market for goods as one key initiative to expand India's 1.7 percent share of world exports.
Modi has also promoted a "Make in India" drive that, after a slow start, has attracted U.S. auto makers and Chinese consumer electronics firms.
LOOSER MONEY, TIGHT BUDGET
India is the world's fastest growing large economy - outpacing even China - with the government forecasting real GDP growth of 7.0-7.5 percent in the fiscal year to March 31.
But a collapse in prices for oil and other commodities has meant that nominal economic growth is only half the level factored into Finance Minister Arun Jaitley's plans. That has cut into revenues.
Ahead of Jaitley's budget next month, Panagariya urged the Reserve Bank of India to cut interest rates and called for a less ambitious inflation target to underpin growth.
At the same time, he advised against "tinkering" with borrowing targets, saying the government's credibility was riding on its commitment to bring down the budget deficit to 3 percent of GDP over the medium term.
While no comment was available from the RBI on Panagariya's call for easier monetyar policy, private sector economists said Modi should instead focus on policy execution on the ground.
That includes reviving stalled infrastructure projects and helping farmers recover after two years of drought.
"We believe progress on implementation should get expedited," said Shubhada Rao, chief economist at Yes Bank in Mumbai. "Interest rates alone are not holding the growth recovery to ransom."
(Additional reporting by Neha Dasgupta in Mumbai; Writing by Douglas Busvine; Editing by Nick Macfie)
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