The Regional Comprehensive Economic Partnership (RCEP) is a proposed free trade agreement between the members of ASEAN, India, China, Japan, Australia, New Zealand and South Korea. The pact aims to cover trade in goods and services, intellectual property, investment, etc. The 16 prospective signatories accounted for half of world population, about 39% of world GDP and about 40% of world trade.
INDIA’S TAKE ON JOINING RCEP
India has decided to not join RCEP since its initial demand was rejected by the other RCEP nations. India has stated that the agreement was unacceptable in its current form and did not accommodate India’s concerns and “core interests”. PM Modi himself stated: “Whenever I try and gauge India’s interest in light of her joining RCEP, I do not get an answer in the affirmative; neither Gandhiji’s policy of self-reliance nor my wisdom allows me to join RCEP.”
Commerce and Industry minister also lauded PM Modi for his “bold and courageous decision to not join RCEP, since it was against our economic interests and national priorities.”
Our government view on RCEP certainly puts India in a strong, negotiating position that it hitherto lacked in its previous trade agreements. This has cost India in all of its earlier trade agreements, which it had signed without much demands and negotiations. Such unfair deals had increased India’s import without little growth in export. With the glooming threat on its treasury and a surge in its import bills, India should look into analysing its earlier trade agreement with major trade blocs and countries. Joining RCEP would increase India’s import bills that in turn would deplete its foreign exchange reserves. And depletion in foreign exchange reserves is ever good for any economy.
WHY INDIA REFUSED TO JOIN RCEP?
In the backdrop of current economic slowdown its best for India to pull out of the trade agreement. There are many points to support the fact. First, no mutual gains seem to be made for India. The ASEAN market, along with the Japanese and Chinese markets are highly competitive and enjoys low cost of labour, particularly in Vietnam and Indonesia. Also flexible laws for doing business, lower corporate taxes and better logistics system give these markets an upper hand in merchandise goods than that of India. On the other hand, India’s domestic industries are not competitive vis-à-vis ASEAN, Japan and China for merchandise goods. India’s domestic industry is still at infants levels and needs protection to become globally competitive. Sectors like textile, dairy, farming, metal and ore, electronics, rubber,etc would face stiff competition from other RCEP members if India had opened its market for free trade. One way these potential losses in RCEP market on merchandise front can be compensated by gains in services. But absence of commitments from other RCEP countries for the same pushed India into a backseat.
Second, according to NITI Aayog report, India was unable to utilise from its trade agreements from major countries and trade blocs. The FTA utilisation by India has been abysmally low between 5 and 25 percent. Even after signing trade agreements with major trade blocs, India’s exports have increased only marginally while its imports has increased multi-fold. Its deficit, after signing FTAs with ASEAN, Sri Lanka, Korea and Japan, has almost doubled in the last five years – from $54 billion in 2013-14 to $105 billion in 2018-19. Moreover, India’s net exports to countries without a trade agreement were only marginally lower than its net exports to countries with FTAs. In contrast, the imports from countries with trade agreements were substantially higher, pushing India into a trade deficit.
Third, India major concern on becoming a dumping ground for China has staked its claim on snubbing RCEP. Due to US-China trade war, China is searching for a potential market with huge population and consumer demands so as to support its export-oriented industries.
Besides, China has adopted an aggressive control over export-import circuit. It has changed the trade equation with the ASEAN countries after inking ACFTA- standing for ASEAN-China free trade agreement- in 2010. ASEAN-6 (Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam) had a trade surplus of $53 billion in 2010 which has turned into a trade deficit of $54 billion in 2016. In retrospect, India has demanded to keep trade barriers for china to which it has trade deficit of about $54 billion out of $105 billion in 2018-19.
Fourth, farmers and dairy industry is protesting against India’s joining RCEP as their industries
would be affected by the global competition from Australia and New Zealand. Both the countries have higher productivity in agriculture and dairy while India still lacks resources to remove inefficiencies in agriculture and dairy. With trade barriers remove in agriculture and dairy, Australia and New Zealand would take over the Indian market.
Lastly, the present economic slowdown demands for a push to domestic manufacturing through incentives. The Indian government is trying to bring economic reforms in the hope of increasing investment and manufacturing. Opening the domestic industries to global competition while they are still at infant level may be suicidal, given how Indian government take steps to boost its flagship programme “Make In India”.
CONCLUSION: India cannot afford to join RCEP in its present form. Its key demands for trade restrictions on
China and closing its economy, if flooded by foreign goods were rejected by RCEP members.
However, they had kept doors open for India, should India change her mind. At this point, its manufacturing is at the lowest level, so it is best for India to make its industries resilient and
to stay away from such trade agreement that can hamper these growth prospects. Also, India should form a separate trade agreement with China such that its trade deficit could change into surplus. Taking advantage of the trade war, India can become an investment hub for Chinese companies with the hope of entering large markets like India. Besides, India can continue its negotiations with other RCEP nations and can bargain for opportunities such as more trade in services and minimum investment. Clearly, India’s withdrawal has made RCEP less effective than at its developing stage. Its world trade share and GDP share have reduced significantly. Therefore India should advantages of large population and large consumer
demand to its favour. It is time for Indian government to financially support domestic industries at their infant stage so to minimize their cost and make them efficient enough to capture domestic and global markets and once these industries have expanded withdraw the support. This investment expenditure would certainly help India tackle the ongoing
slowdown and China’s impending threat.
As a country with huge population, India can be benefitted from a pact with connects major economies of the world just like EU. Although RCEP seems a right move in the right direction, it undermines India’s position and is more of a roadmap to china than to ASEAN or other countries. Hence, RCEP is a deal for the future but not for the present.
By Priyanka Bora
The Commerce Society, SRCC 