India should encourage the entry of China’s currency into the International Monetary Fund’s basket of Special Drawing Rights (SDR), and support the internationalisation of the Renminbi, Chief Economic Advisor Arvind Subramanian said on Monday.
“India must support the entry of the Renminbi into the IMF’s basket of SDRs. As the currency becomes more international, the more open it will become to the world. At the same time, the less China will be able to manipulate it, which is to India's advantage,” Mr. Subramanian said during a lecture titled “Reassessing ‘Eclipse: Living in the Shadow of China’s Economic Dominance”.
In addition, India’s strategic objective should be to strengthen multilateral institutions and use them to pressure China, Mr. Subramanian said. In particular, he added, India should try to make the Asian Infrastructure Bank as universal as possible - especially convincing the US to join - to counter China’s regional interests through the bank. He termed the US' refusal to join the Bank a “huge mistake”.
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Regarding any common ground between India and China, the CEA said that the two countries shared an interest in pushing a global agenda for the cleaning of coal. “Both countries predominantly use coal, and should push for a global initiative to clean coal,” he said.
He added that India has some things to learn from China. “India should seek to emulate the Chinese model of development that is based on exports and building reserves. The power of $3.5-4 trillion of reserves is not to be sneezed at,” he said.
Against the background of the speculation, sparked by the recent crash in Chinese stock markets, that China’s ascendancy is at an end, Mr. Subramanian said that his view is that the country will pull out of the current trend and return to an upswing. “China has the resources, the political will, and a desire for wealth, power and stability deep rooted in its DNA to enable it to cushion this transition to the best of its abilities. If you take a long view of Chinese history, the exception has been a Chinese decline, the rule has been of a Chinese ascendancy in global markets,” he said.
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The Chinese transition, he said, was one of a huge shifting of resources from manufacturing to services. “The Chinese model based on manufacturing and exports is running out of steam and the Chinese leadership knows that. There is a shift to services. However, they have such a large surplus of manufacturing capacity that the resource reallocation will be very painful,” he said.
The question, the CEA said, was if China will be able to politically withstand the pain caused by this turmoil.