India’s Dilemma with the Regional Comprehensive Economic Partnership

On 15 November 2020, a group of fifteen countries through a video conference met to finalise and conclude the Regional Comprehensive Economic Partnership (RCEP), bringing countries of three sub-regions closer together into economic integration. These sub-regions include the countries of Southeast Asia, East Asia and two from the Pacific, paving the way to a massive economically integrated region. This makes it the largest trading agreement globally, where the combined GDP of the RCEP countries will account for roughly 30% of the global GDP and will also impact the lives of 30% of the global population that live in the member countries.

There have been number of writings relating to India’s position vis-à-vis the RCEP and about India’s exit from the negotiations in November 2019. The debates have focused on two basic questions – whether India should have been part of the RCEP; or if India took the right step in remaining out of the RCEP? The real debate however rests on two distinct premises. First, India by not joining the RCEP has given in to the domestic compulsions of its economy. Second, by choosing its domestic interests, it has not stood up to its regional commitments by furthering integration. It is important to look at this from two perspectives. From a regional point of view, there is no separateness between the economic and security level integration. These are viewed as being complementary and critical to one another, particularly by the ASEAN. From India’s point of view, balancing its domestic and regional choices is not so simple a matter.

It is interesting to note that while India was a willing party to furthering its economic integration with the region, the numerous FTA’s signed by India, particularly with the ASEAN, has not yielded much result. India’s trade deficit with the ASEAN has been evident, where the FTA in trade in goods has been more beneficial to the ASEAN states. However, the comparable advantage that India would have had in the FTA in services has also not materialised. At the time of the India-ASEAN FTA in goods, several commentators suggested that the two should be combined given that India was a net exporter of services that ASEAN countries imported. This still remains a critical issue and even as India and ASEAN are seeking to review its FTA in trade in goods, there is little convergence between the interests of the two.

At the time that India pulled out of the RCEP, it was clear that concern relating to its domestic competitiveness was a critical factor. This was evident in the protests from dairy farmers and cooperatives where concerns over an influx of goods from countries like Australia and New Zealand were worrying. With increased tariff reductions, the issue of cheap imports of dairy products from other manufacturers would have impacted the Indian market. Similar are the concerns in the agricultural sector. Some commentators have argued that the issue of competitiveness should have been a credible factor in ensuring that India joined the RCEP.This is not the case. Knowing that competitiveness is an inherent weakness, and moving ahead on the RCEP would have been more detrimental for the Indian economy in the longer run affecting the lives and livelihoods of millions. Competitiveness cannot be improved overnight and absorbing the shocks on the domestic economy would have been critical. The RCEP agreement will come into force in 2021 and within a period of twenty years the reduction in tariffs would amount to 90% on goods among the member countries.

Had India remained in the RCEP, it was expected that with countries of ASEAN, South Korea and Japan, it would look at the possibility of reducing tariffs by 90%, while with countries like China, Australia and New Zealand the tariff reduction would have been 74 %, pushing India to absorb serious domestic economic shocks to further its regional integration through the RCEP. Furthermore, in May 2019 itself India identified that it had a trade deficit with 11 of the RCEP members, which would only have increased further had India been part of the RCEP. For the year 2019-2020, India’s trade deficit (in US $) with Chinais (51.2 billion); ASEAN (23.88 billion); Australia (7.7 billion); New Zealand (0.2 billion); Japan(7.7 billion); and South Korea (11.4 billion), was a critical factor that also pushed India’s choices. Signing the RCEP would have pushed this deficit further for India, without addressing the concerns India raised.

India’s withdrawal from the RCEP negotiations also comes in the backdrop of the ongoing US–China trade war and the impact that it was having on the regional economy. China’s efforts to push ahead with the agreement was based on two critical factors, first it was keen to push ahead the RCEP as a counter veiling strategy to address the implications of the US-China trade war. Second, China’s efforts to move ahead on the RCEP, was also indicative of the leverage it had with the rest of the regional countries, with which it was already integrated economically. India does not have that advantage and in light of that, the move to pull out of the RCEP was more abouteconomic leverage rather than a narrow political move.

Even while India’s decision to pull out of the RCEP was not impacted by the pandemic, more recently the Indian economy has shrunk even further. While some economists have assumed that India’s growth rate will eventually return to 6.5% annually after the pandemic, other studies, like that of the global economic forecasting group, Oxford Economics has assessed that over the next five years India’s economic growth will be at around 4.5 % annually till about 2025, which will have a further impact on the Indian economy. In light of this, India’s choice to address its domestic concerns was a pragmatic one.

Professor Shankari Sundararaman is Professor of Southeast Asian Studies, School of International Studies, Jawaharlal Nehru University, New Delhi.

© 2018 Kalinga International Foundation Designed by Nescant Info Systems