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RCEP Imbroglio: India’s Strength or Weakness


A lot has been written about Prime Minister Narendra Modi’s decision of moving away from the Regional Comprehensive Economic Partnership (RCEP) and we at CXOToday too appreciated the value in doing so. Having pondered over a variety of factors leading up to the decision and its aftermath, we believe that the decision makers need to now stop celebrating and start looking at things with an objective viewpoint.

Did India’s decision of pulling out from what is ostensibly the world’s largest trading bloc that outpaces even the European Union result from our strength or was it a result of our political leaders and administrators realizing our weaknesses, from an economic and process point of view?

Before going into the details, let’s just hark back to the decision itself. Earlier this month at Bangkok, India  chose not to join RCEP at the very last minute around issues related to the free-trade agreements with 15 other members. Modi said he backed out because of India’s need to protect the vulnerable sections of our society such as dairy and agriculture, electronics and garments.

Of course, this begs the important question – Should a country adopt a protective approach instead of taking steps to strengthen the industries and make them competitive across the world? Or are we just following the game plan of someone like Donald Trump who seems to believe that globalization is passé and so is inter-dependence.

The Walkout

Writing in Livemint, Sudipto Mundle says the very first reason is the incapability of Indian industry to compete with their counterparts in other RCEP countries, especially China and that too without tariff protection. In early negotiations, India sought tariff elimination on 80% of imports from the ASEAN and 42% from China. However, as the talks progressed, India was forced to accept much lower tariffs, causing fears of higher industrial imports adding to bigger trade deficits.

Anything related to agriculture is nothing less than the holy cow (pun unintended) these days. And the Modi government sought to cash in on this front by stating that small and marginal farmers back home cannot compete with the high-productivity mechanised agri-business of other RCEP partners. Since India continues to be an agrarian society, government disfavoured liberalization and tariff cuts. The story of dairy farming was pretty much the same as Australia and New Zealand have the potential to flood the world with milk and milk products.

The Real Reasons

While all of the above rings true, it begs a very important question for our policy makers – Even after 72 years of independence, why is it that India is not competitive on the global stage? What makes the vulnerable sections of our society remain vulnerable even today? Parliamentarian Dr. Shashi Tharoor said the British plundered India, which accounted for over 25% of global GDP in the 1700s to just 3% of GDP when they left in 1947. Seventy-two years later, should we still blame it on the Brits?

The other countries did not have to walk out, either because they are prepared or they have the risk appetite which India does not seem to be having. Let us draw parallels to China, which is apparently the boldest of the partners, at least among the Asian countries.

China and India became republics around the same time and both have had the same struggle as far as the population is concerned. However, China has shaped itself as the leading world economy that can take on even the United States and win. What is the reason that India doesn’t hold the same might as China? The problem is perhaps with the policy makers who are not wise and smart enough to take decisions with a long-term view.

Amit Kapoor writing in wire agency Indo-Asian News Service (IANS) says India’s first mistake was to adopt wrong economic policies right from the start. Both China and India were labour-intensive economies but Beijing used its resources right by setting up industries that focused on human resources instead of machines. However, India went after heavy industries that didn’t utilize enough of the labour available.

The inefficiency and incompetency of our economy has been the subject matter of several discussions in the past. Manufacturing costs become significantly higher due to higher wages, costlier power and poor quality infrastructure. In such a scenario, if free trade is allowed minus tariff caps, India could find itself home to dairy products from Australia, electronics from China and vegetables and rice from the far eastern countries.

This also makes us question how good our country is from a trader’s or manufacturer’s perspective. High rate of interests, high manufacturing cost, subsidies to the consumers, all these factors combine to make the manufacturing or production as a whole a very costly affair in India.

Economics isn’t Politics

There is no doubt that India has abundant resources and natural talent to make it big. What is the need of the hour is the desire to do so, at the policy level. Which is where the political will comes into play over the economic decision-making. Can we take the cue from China and have a long-term vision with an attention for the minutest of details?

Can our leaders move away from political correctness to economic necessities? Or would the battle of the ballot that is unleashed once every five years continue to maintain the status quo where the vote bank retains its authority over every other bank.

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