India’s abstinence from RCEP bodes well for South Asia
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When leaders from 15 Asia Pacific nations triumphantly affirmed their commitment to the Regional Comprehensive Economic Partnership Agreement (RCEP) — the world’s largest trade pact — on Nov. 15, India chose to relegate herself to the side-lines voluntarily, having withdrawn from negotiations late last year.
Intense domestic pressure – piled up by the economic front of the Hindu right-wing, farmer’s body and industry lobby – compelled the Narendra Modi government to stay away from the deal, because it can potentially induce further de-industrialization. India’s foreign minister Subrahmanyam Jaishankar defended the decision, as he felt there is no point in encouraging unfair production advantages from abroad, through heavily subsidized product import, thus locking the country into obligations with damaging consequences.
Besides, mandarins in New Delhi’s corridors of power are smelling a conspiracy to keep India out of the vital economic grouping. Indian negotiators believe they need something more tangible to convince the domestic audience that the nation’s economic interests, with which the lives of commoners are intertwined intricately, have not been compromised. The RCEP in its present form, however, offers little hope for India, as it provides no elbow room for a substantial give and take. In fact, there was no convergence on multiple areas of critical importance too – like delineating the starting point for bringing down tariffs, introducing safeguards against import surge, framing strict rules on the origin of goods, resolving issues involving non-tariff barriers vis-à-vis China and ASEAN, formulating mechanism for controlling excessive dairy imports and accommodating Indian interests in the services sector.
The RCEP is estimated to increase global GDP by $209 billion and global trade by $500 billion within the next decade. By its sheer outreach, and due to the capacity to strengthen supply chains, the mega trade agreement can potentially catalyze post-pandemic economic recovery in Asia and across the globe.
Seema Sengupta
The RCEP is estimated to increase global GDP by $209 billion and global trade by $500 billion within the next decade. By its sheer outreach, and due to the capacity to strengthen supply chains, the mega trade agreement can potentially catalyze post-pandemic economic recovery in Asia and across the globe. So, was India wrong in viewing RCEP through the Chinese prism exclusively, thus getting trapped in a paranoia?
While there is no doubt that accepting the RCEP, as it is, entails a huge political cost for Modi, the risk was perhaps worth taking because it would have provided the nation an opportunity to iron out some critical trade issues – including deficit with China and the rest of East Asia without having to engage with each of them separately. Also, India could have leveraged the RCEP membership to advance her dream of becoming a global manufacturing hub, by exploiting the opportunity of tariff-free access – both outward and inward.
I communicated with Pushpanathan Sundram, former ASEAN Deputy Secretary General, on India’s protectionist approach, leading to abstention from the regional trade agreement. He agrees that there is a short-term benefit in this insular attitude, given the size of the Indian economy, but warns of an erosion in competitiveness if Modi overplays the nationalism card. He questions the rationale of India negotiating for a better deal for seven long years if there was no benefit in joining the grouping. Indeed, in any free trade agreement, contracting parties are supposed to gain in some areas and loose in others, but end up on the profit side eventually. Nathan also believes that if at all there was any apprehension of China manipulating the RCEP, India and Japan, together, could have been an effective counterweight to any form of hegemony.
International trade has undergone a radical shift in character from the days of mercantilism, when domestic markets were fiercely protected from import surges, while simultaneously putting emphasis on diversifying export. New Delhi must realize the futility of shunning multilateralism, when there is a real shift in the world’s center of economic gravity toward Asia, which will account for 50 percent of global GDP and 40 percent of global consumption by 2040. Moreover, given the fact that since 2012 India has set an ambitious target of taking manufacturing sector growth to 25 percent of the country’s GDP, sufficient availability of the export market is a sine qua non for success.
But for that to happen, India’s manufacturing competitiveness needs to be honed, by tapping the potential closer home in South Asia, apart from abandoning an escapist attitude. Nathan concurs, and points out that the RCEP being more focused on trade in goods, the Indian industry should have been prepared for this transition at least five years in advance. Since regional integration in South Asia opens up a larger market and scope for intra-industry trade, it provides for an opportunity to attain competitiveness in a phased manner, by producing for the SAARC market initially, before eying for a greater share in the regional and global space.
Most importantly, the combined capital of a rejuvenated neighborhood can help strengthen New Delhi’s bargaining capacity in the member-driven multilateral trading bloc, just as countries in South Asia can leverage India’s successful integration into RCEP, and associated right to preferential access, to their strategic geo-economic interests.
- Seema Sengupta is a Calcutta based journalist and columnist
