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Why Opting Out of RCEP Makes Sense For India


India’s decision to opt out of the much anticipated Regional Comprehensive Economic Partnership (RCEP) – a grouping that is set to become the world’s largest trading bloc, outpacing even the European Union (EU) – received mixed reactions—with the vast majority across the spectrum backing the Government decision, while disappointing some, who believe it’s a missed opportunity. In many ways, one can draw a parallel to the 18th century de-industrialisation when India’s local industries were shrinking.

What triggered this decision?

Last couple of weeks, there have been unprecedented protests across the country from a wide range of constituencies against RCEP. This includes national and regional political parties and state governments such as Kerala and Punjab. Industry associations representing the automobile, steel, aluminium, copper, dairy, textiles, pharmaceuticals and others have argued that RCEP will lead to deindustrialization, the group points out. They also said that Indian trade unions were also against the deal as they feared it will lead to further job losses in labour intensive sectors that are already reeling under heavy import competition and low growth rates.

The negotiations were focused on the trade in goods and services, investment, intellectual property, dispute settlement, e-commerce, small and medium enterprises, and economic cooperation.

However, according a report published on the Business Standard, after seven years of negotiations to create the world’s largest free trade region, in a summit held between October 31st and November 3rd in Bangkok, India decided not to join the RCEP on the account of adverse effect on the national interest.

 In an article published on Livemint, author and journalist Harsha Jethmalani said that historical data shows that regional partnerships haven’t proven to be very beneficial for India. In fact, over the span of six years (2014-19), among its trading partners, India has improved its trade balance only with Safta countries, as a whole. In case of Asean countries, as the alongside chart shows, India’s merchandise trade deficit has widened in this period.

A sensible move

It has also been pointed out by economists that the key concern for India is the dumping of cheaper goods such as dairy and farm products, and electronic items, especially from China. The RCEP deal format required India to abolish tariffs on more than 70% of goods from China, Australia and New Zealand, and nearly 90% goods from Japan, South Korea and Asean. This would have made imports to India, cheaper. Hence, ignoring these numbers and facts could have made the economy more disastrous than what it is right now.

Sharing his opinion with CXOToday, Professor Rakesh Mohan Joshi from the Indian Institute of foreign Trade said, “RCEP would have been extremely detrimental to Indian Dairy industry. The GOI decision to not join this pact vindicates the concerns of domestic industry from sectors such as dairy and agricultural. This move is clear reflection that India is carefully considering its interest to protect industry and farmers against unfair competition. Under RCEP, the poor, landless and farmers could have been exposed to unfair competition and onslaught of imported goods whereas Indian dairy and food products face a range of complex non-tariff barriers in overseas markets.”

In another response, Sanjay Bhatia, Co-Founder and CEO, Freightwalla, said, “India’s move to back out from the RCEP deal makes sense when viewed from the perspective of the domestic economy, especially the agriculture sector. With 61.5% of the country’s population having agriculture as the primary source of employment, small, micro & medium enterprises will be affected the most by the increased imports following the ease of trade across borders. India’s current trade deficit stands at USD 103.63 billion for the year 2018-2019, as compared to USD 84.45 billion for the previous financial year. If India decided to move forward with the current RCEP Deal, an expected increase in imports would have been an obstacle in India’s objective of bringing down its trade deficit as well.”

The writing is on the wall. This time, we skipped the age of de-industrialization – something we couldn’t do in the 18th century India when gave in to the European market at the cost of its local industries. Had PM Modi become a part of the bloc, our local industries such as dairy, electronics, agriculture could have suffered as our handicrafts industry did back then.

Those opposing the decision argue, RCEP could have helped with friction-less duty-free market which would have provided tremendous advantages to India’s exports. The same strata also believe India to have had an excellent opportunity to integrate itself into regional and global value chains, which at present is relatively low. It could have also given the much needed thrust to the country’s Foreign Direct Investment (FDI).

Nevertheless, we believe, had the government taken the stand as those opposing right now, we might have committed the same mistake which we did 300 years back, of letting others climb up their economic ladder at the cost of ours.

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