Former NITI Aayog Vice Chairperson Arvind Panagariya said that cutting trade ties with China could hamper India’s economic growth, reported PTI.

The economist’s comments come amid rising demand of boycotting Chinese goods after People’s Liberation Army and Indian soldiers clashed along the Line of Actual Control in Arunachal Pradesh.

Following the clashes, India’s Defence Minister Rajnath Singh had accused China of trying to unilaterally change the status quo on the border. Meanwhile, Chinese military claimed that Indian troops illegally crossed the Line of Actual Control.

“Engaging China in a trade war at this juncture will mean sacrificing a considerable part of our potential growth purely on economic grounds, it will be unwise to take any action in response to it [transgressions on the border],” Panagariya told PTI.

He added that both the countries can impose trade sanctions on each other, but China, which is a $17 trillion economy, has the upper hand when it comes to stunting India’s $3 trillion economy from growing.

“Now there are some who want trade sanctions on China to ‘punish’ it for its transgressions on the border if we try to punish China, it will not sit back, as amply illustrated by its response to sanctions by even the mighty United States,” he observed.

Over the years India’s trade deficit with China has continued to increase. Trade deficit refers to the amount by which the cost of a country’s imports exceed the value of its exports.

Between the first half of the financial year 2020-’21 and the corresponding period in the ongoing financial year 2022-’23, India’s imports from China nearly doubled from roughly $27.3 billion (Rs 2.25 lakh crore) to $52.4 billion (Rs 4.3 lakh core).

“It so happens that for many products India imports, China is the cheapest supplier so New Delhi buys them from Beijing,” Panagariya told the news agency. Meanwhile for goods India exports, China often does not offer the best price and sells them to other trade partners like the United States, he said.

“The fact that this results in a trade deficit with China and trade surplus with the US should be no reason for worry,” Panagariya said. “We should take advantage of India’s excellent growth prospects for the next decade and concentrate on growing the economy bigger as fast as possible. Once we are the third largest economy, our sanctions threats are likely to carry greater credibility.”