Ever since 15 Asian nations signed the Regional Comprehensive Economic Partnership (RCEP) agreement with India sitting out of the mammoth trade deal, several myths have started to float with many speculating that India has hacked its own feet. But there is more to it and experts believe that India might have done the right thing.
On November 15 this year, when these nations including China as a major partner signed the mega free trade agreement, India stuck to its last year’s decision of not joining the pact. While some believed that it might do harm to India, Dean and professor of the Jindal School of International Affairs, Sreeram Chaulia thinks quite the opposite.
Writing for The Asian Age, he says that India already has quite a few Free Trade Agreements (FTAs). All the FTAs other than the South Asian Free Trade Agreement (Safta), which came into force in 2006, have brought deficits for India, he points out.
According to data, till 2019, India had a deficit of US $22 billion with ASEAN due to the India-ASEAN Comprehensive Economic Cooperation Agreement (CECA). India has similar agreements with Japan and South Korea which have only brought deficits for India by opening the economy for imports rather than exports.
He writes how External Affairs Minister S Jaishankar “explained the crux of the matter by reminding us that past FTAs led to “de-industrialisation” of sectors of the Indian economy by pumping in cheap foreign goods and removing economic incentives to build our own indigenous manufacturing base.”
Amid this, a significant factor which kept India away from the RCEP is the growing influence of China in the pact. Chaulia cites multiple studies to point out that joining RCEP would have meant a surge in Chinese imports to India making it permanently ‘uncompetitive and crippled.’
In the financial year 2019-2020, he writes, China had a trade surplus of US $48.6 billion and that too without any FTA agreement between the two.
“With China sitting as the 800-pound gorilla in RCEP, which doesn’t prohibit China’s notorious state subsidies to its exporters and doesn’t block Chinese exports rerouted via other RCEP members, India would have committed strategic suicide by entering the club,” Sreeram Chaulia writes.
China, he says, would have shattered Prime Minister Narendra Modi’s ‘Atmanirbhar Bharat’ and ‘Make in India’ schemes by taking over the electronics market in India. The billions of dollars of FDI that flows in India to manufacture consumer electronics would have been impacted due to tariff-free Chinese products, he writes. On the other hand, the improvements in the ‘Ease of Doing Business’ have shown growth in the present day.
Many speculate that by not joining the RCEP, India has disappointed other members like ASEAN nations Japan, Australia, New Zealand and South Korea. But Chaulia writes that other FTAs with the same nations can compensate for that. India already has FTAs with 12 out of the 15 RCEP members. Only Australia and New Zealand lack FTAs with India, but its trade with them too has been growing, he says. In fact, groupings like the Quad have helped the nations work together with each other, he argues.
Moreover, despite being part of the RCEP, there is unease about China in the national security establishments of several countries.
This is why, after the Covid pandemic hit, Australia, Japan and India formed the Supply Chain Resilience Initiative (SCRI) to avoid dependence on a single hegemonic power, he writes.
Contrary to what others have to say about India’s decision, Chaulia believes that even if India is not getting much access to markets of the Western nations, the country still has a chance to establish FTAs with the EU and the Gulf Cooperation Council (GCC). “One must be unsentimental in the pursuit of national interests, which is what the Modi-Jaishankar duo is trying to do,” he writes.
India has many opportunities globally even if the nation keeps away from the RCEP as it is not a talisman for India’s economic or geopolitical rise, he writes.