Monday, 8 August, 2022
HomeEconomyIndia’s rejection of RCEP trade deal is a sign of weakness

India’s rejection of RCEP trade deal is a sign of weakness

India’s decision is a disappointing window into how much has changed in New Delhi since it became one of the initial movers of the RCEP process.

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India, which has for some years now been raising walls against the rest of the world, appears to have definitively turned its back on freer trade. Fifteen of the 16 countries involved in negotiations agreed on Nov. 4 to sign up to the giant trade agreement known as the Regional Comprehensive Economic Partnership. Only India, after months of uncertainty, chose to hold back for the foreseeable future.

The decision wasn’t free of acrimony. The Chinese claimed that India had raised new demands at the last minute; the Indians insisted that they were simply holding out for the same concessions they always had. These include special protections from cheap Chinese imports and a tighter integration of services trade into the agreement.

India’s concerns are not entirely unreasonable. Of the 16 economies in the RCEP process, China stands out. Many of its domestic policies are trade-distorting. That means its participation in free-trade agreements needs to be constrained institutionally. It should always have been treated differently from the others.

Even so, India’s decision is a disappointing window into how much has changed in New Delhi since it became one of the initial movers of the RCEP process seven years ago under then-Prime Minister Manmohan Singh. Even Singh’s Indian National Congress party now opposes RCEP. With his departure from the political stage, there are few official voices left in favor of openness.

India now lacks both ambition and imagination; it fears the world rather than embracing it. In retrospect, it’s the two decades of optimism after the 1991 reforms that seem exceptional. Talking points released to media by the ruling Bharatiya Janata Party stressed the “pro-Indian industry” steps that the government of Prime Minister Narendra Modi had taken since 2014 — a long list, in fact, of tariffs and barriers.

Almost comically, the press release described India’s long history of trade skepticism as “the days when Indian negotiators caved into pressures from the global powers on trade issues.” Trade negotiators around the world will be hard-pressed to recognize this description.

Indian officials who till a few weeks ago were warning that staying out of RCEP would only “isolate” India are today arguing that the agreement is against India’s national interest. What they actually mean is that Indian sectoral interests have successfully captured its government. Prime Minister Modi, speaking at the summit, insisted that his decision on RCEP would have to meet the test that Mahatma Gandhi specified for policy: It must improve the lives of the poorest. The reality is that, for a country like India, freer trade, cheaper goods and more reliable prices do indeed improve the lives of the poorest. Those hurt are the industrial blocs that seek protection from competition.

In effect, Modi’s decision is an admission that even the prospect of joining a massive regional trade agreement isn’t incentive enough for New Delhi to launch deep, competitiveness-enhancing economic reforms. If Indian industry were to enjoy more flexible land and labor markets, less red tape, and more access to capital, it could certainly manage to insert itself into the global value chains that will henceforth be dominated by RCEP.

But the political will to make those reforms is absent. The government has simply calculated that it’s easier to sell a departure from RCEP as “courageous” than to manage the politics surrounding domestic reform. The “national interest” doesn’t come into it at all.

The prime minister, speaking at the summit, insisted India was still committed to trade, but that “global economic and trade scenarios have changed” since 2012. It’s hard to tell if he means anything other than that more nations are skeptical of trade than they were a few years ago. Of course, India — which will need to develop an export industry if it is ever to grow beyond lower-middle-income status — should not be among those countries.

But Modi could also have been reflecting on where President Donald Trump’s abandonment of the Trans-Pacific Partnership has left Asia. An India uncomfortable with China’s trading power no longer has a U.S.-backed option to consider. The TPP still exists under a new name, without the U.S.; RCEP, without India. The “Indo-Pacific” as an economic geography is losing ever more meaning.

For India, meanwhile, the questions that existed about its development path yesterday are still valid today. How do its politicians intend to provide jobs to its hundreds of millions of deprived young people unless they produce goods for the world, and not just each other?

RCEP had dangers, yes. Trade always does. But India is hardly in a position not to take risks. Governments can try to shut out the world. Unless they can also shut down Indians’ aspirations, however, isolationism will eventually backfire on them. – Bloomberg 

Also read: RCEP deal will turn ‘Make in India’ to ‘Buy from China’: Rahul Gandhi targets Modi govt


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  1. Exit from RCEP boils down to this. Various interest groups and pressure groups representing producers, and traders have won over consumer interests, as the consumers are not organized at all. None, including the government considers consumers interests important. Consumers in India miss the opportunity to obtain cheaper and quality imports. India also loses big markets in ASEAN region on account of not being party to this Pact. Random attack of Government of Amazon and Flipkart also show that this government cares very little for consumer interest. Only votes of traders matter to the Baniya Janata Party.

  2. This is armchair criticism. There is no insight in the article, only broad, sweeping statements, presumably inspired by a desire to oppose anything that Modi govt does. This ‘article’ is nothing more than a tweet blown to 1,000 words.
    Please learnt how to write an article, first. Here is a good example, which also happens to be a solid refutation of Mihir’s views:

  3. Dear Mihir Sharma, Free Trade Agreements are not an instrument to build competitiveness. You build competitiveness and then join the FTA. The past experience clearly proves this. Yes P M Modi knows that the Indian industry is weak and decided not to join. A very reasonable decision. Economic policies should be guided by the realities and not ideologies especially neoliberal ideologies. So please stop the gospel that tariff liberalisation is the only way to build competitiveness. If that is true then India industry would have built that competitiveness vis a vis Japna, South Korea, ASEAN etc. Please speak sense

  4. Very apt and timely. India truly suffers from a deep inferiority complex, even more so now. It is more than 70 years since political independence, but India seems to be as paranoid as ever, in fact worsening with time. Constantly looking for foreign approval, but strangely refusing to engage with the world. Just a matter of time before the rest of the world loses interest, if it hasn’t already, as India continues its journey into global irrelevance.

  5. India now fears the world, rather than embraces it … That applies to our foreign policy as well. Dominated by phantom fears, verging on paranoia, not seeing the ocean of opportunities that the waves of the Arabian Sea bring to the Gateway of India all through the day. At the risk of stretching the argument to absurdity, one would say that the men who brought bales of synthetic fabric and other consumer goods without import licences were also promoting free trade. They were responding to national needs more honestly than the netas and babus seated in Udyog Bhavan who ran the maze of the licence permit raj. 2. India is turning its back to the world. It fills me with pain to say this, but the world too will turn its back on India.

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