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Modi’s RCEP move shows sound political judgement. Don’t scoff, it’s rare these days

Pulling out of RCEP was not only an economic decision. It involved taking a call not just on India’s foreign policy but also on India’s role in evolving world.

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Prime Minister Narendra Modi exercised sound political judgement in deciding to keep India out of the Regional Comprehensive Economic Partnership or RCEP, right in the middle of the Bangkok meet called to seal the seven-year old negotiations.

This was a big decision. The RCEP is no ordinary free trade agreement. This could be the largest regional trade agreement in the world involving 16 countries from Southeast Asia and East Asia, as well as China, Australia and New Zealand. If India had joined the pact, the RCEP would have encompassed half of the world’s population and 35 per cent of the global GDP. This was not just a free trade agreement about import and export of commodities; it covered goods, services, investment and intellectual property rights. This would have affected crores of Indians involved in primary, secondary and tertiary sectors of the economy over a very long period.


Also read: India’s RCEP pullout a turn to swadeshinomics. That’s not what a crisis-hit economy needs


A tough call

It was a tough decision. There were good arguments on both sides. It is not an easy call to keep off from such a large agreement with potentially huge volumes of trade and investment. You don’t need to know the principle of comparative advantage to understand the simple economic rationale for international trade. Keeping away from zero or low tariff trade is to deny yourself the possibility of cheap goods and services from outside and bigger markets for your own products. The decision is bound to invite serious and credible criticism. Shekhar Gupta, the Editor-in-Chief of ThePrint is also among the critics of this decision. The general image of India turning “protectionist” might hurt in global fora.

This must have been a personal decision. With the departure of Arun Jaitley, now Narendra Modi has no one whose judgement he can trust on matters economic. Nirmala Sitharaman has not covered herself in glory in her stint so far as the finance minister. His Commerce Minister Piyush Goyal is a proverbial bin-pende-ka-lota (rolling stone), unless he is speaking on grave matters of gravity. Until last week, Goyal was singing praises of the RCEP and calling out sceptics. As for expert advice, barring a few exceptions, Prime Minister Modi has managed to surround himself with advisers who cannot tell him anything other than what they think he wants to hear. So, there was a made-to-order expert group report advocating the RCEP.

This was a super complex decision. The calculus of expected gains and losses was hard to sum up. There were many genuine advantages – IT sector, health professionals and teachers were eyeing additional jobs. The Indian pharmaceutical industry looked forward to bigger markets. Industry wanted cheaper steel. And of course, the consumers could benefit from cheaper goods, and not just from China.


Also read: India quitting RCEP indicates global trade could be in for another Cold War


A complex calculus

All these potential gains had to be weighed against serious possible losses. Indian manufacturers feared an onslaught of cheap Chinese goods. Retailers feared big investment in e-commerce, further marginalising their business. Some of the local industry and trade may have been seeking protection to hide their inefficiencies, but there was an underlying, and legitimate, need for state support against predatory trade. And the timing was just plain bad, what with the economic slowdown, falling revenue, rising trade deficit and growing unemployment at home.

The biggest anxiety concerned the producers of primary goods. The partial experience of earlier free trade agreements and the losses to rubber, coffee, coconut, cardamom and pepper farmers had served a warning to Indian agriculture. A similar fate awaited wheat, cotton and oilseed farmers if India embraced the RCEP. All the major farmers’ groupings – from the All India Kisan Sangharsh Samiti (AIKSCC) and the Indian Coordination Committee of Farmers Movement (ICCFM) to RSS-backed Swadeshi Jagaran Manch – stood in staunch opposition to the deal. The dairy sector faced a near-certain disruption as RCEP was bound to open the doors for cheap and subsidised milk powder from New Zealand. Cooperative dairies were up in arms, led by no less than R.S. Sodhi, the managing director of Amul. This is why India had so far kept agriculture more or less off the FTAs.

So, the calculus of RCEP worked out to intangible gains in the long-run versus tangible and immediate losses, forcing the domestic industry to face competition now versus later, consumer versus producers, a few corporates versus a vast number of small manufacturers, traders and farmers.


Also read: India stayed out of RCEP because it couldn’t risk another China-dominated ASEAN


Not just economics 

This was not just an economic decision. This involved taking a call not just on India’s foreign policy but also on India’s role in the evolving world. This has been a weak spot for PM Modi, even though he has abler assistance now. It is one thing to organise NRI spectacles abroad, and quite another to engage in hard-core global diplomacy. The RCEP was seen as an opportunity to tap into the China-US trade war. The informal Mamallapuram summit with President Xi Jinping was mainly an attempt to open the doors for that. Apparently, it did not work. Meanwhile, the PM has had better success with US President Donald Trump. At least he thinks he has. So, there is a temptation to balance China with the US with the help of an FTA with the latter.

Finally, this was a political decision. Signing the RCEP would have invited consolidation of opposition against him, from movements to political parties. This would have lent strength to accusations of an anti-farmer and anti-small trader government. Significantly, the Congress had at last woken up and had taken an anti-RCEP position, reversing its earlier posture. The evocative statement by Jairam Ramesh, likening the RCEP to the third jhatka after demonetisation and the GST, could become the war cry of opposition. This was the last thing Narendra Modi needed just when Haryana and Maharashtra election had reminded the BJP that economic woes have not disappeared from the voters’ mind.

Hence the sudden recall of Gandhiji’s talisman. You might call it a cover-up. You might say that the reference to farmers’ interest is in bad faith. The breaking point of the negotiation was not agriculture or dairy, but the Indian government’s demand for assured market access in export of goods and services and an import cap on China. You could call it a case of sour grapes after the failure of the Mamallapuram summit. You could call it a hasty retreat, making a virtue of political necessity. Yes, it is all that. But it is much more than that.

I call it political judgment. Don’t sneeze at it. It’s a scarce commodity these days.

The author is the national president of Swaraj India. Views are personal.

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21 COMMENTS

  1. Agree with you totally. India businesses and farmers need to learn to compete and become efficient. The same fears were raised in 1991 after liberalisation and again after India joined WTO. Have our businesses disappeared since then.

    If a PM with two majority mandates in Lok Sabha cannot push this through, then we deserve to be where we are today – a poor third world country.

  2. PROBABLY , YADAV BEING A “NATIONALIST ” DID NOT KNOW THE SCALE OF PROTEST AGAINST RECP ORGANIZED BY THE CONGRESS IN KARANATAKA AGAINST IT . THE SO-CALLED NATIONAL PRESS IS TODAY A NOTIONAL PRESS NOT AWARE OF RUMBLINGS BELOW THE GROUND AS THEY ARE READY TO GENUFLECT BEFORE THE NEW AND RUTHLESS POLITICAL MASTERS , WHO WILL NOT HESITATE TO FOIST CASES-EITHER FAKE OR OTHERWISE- AGAINST DISSENTERS

  3. Yadav has been unfailingly & unfairly targeting the Congress on RCEP reflecting exactly what Modi and his party were doing during the UPA years . While in opposition the BJP had opposed RCEP and in ruling developed love towards it before abandoning it sensing it would give the opposition a platform in the backdrop of poor economic management since 2014 -saved only by cheap prices of commodities especially crude oil in international markets. Yadav probably does not seem to know that inflation containment under Modi has been at the expense of the farming community,even as China has insidiously captured Indian market from pencil onwards to computers and beyond tilting trade balance more and more securely and irrevocably towards China. Personal aggrandisement and megalomania are kindred qualities of a politician , but when these qualities overtake national interests common people suffer . No amount of Howdi-Modi or such events will increase India’s economic heft, though it may make a person’s shadow larger than he himself

  4. Whether sound or unsound, the decision has been taken. As usual, a major part of the population is simply unaware of the event and its impact. They will come to know about it through the next election campaign. What is worse is that even the Opposition has taken its own sweet time to reverse its stand. It indicates that they too may not have the kind of advisors or intellectuals or their leaders don’t pay attention to those who are there.
    It must feel like herding a flock of very unruly and yet very gullible sheep to every person in Mr. Modi’s shoes while representing the country in international fora.

  5. Was it a tough and courageous decision or was it fool-hardy? Did we compromise Indian economy over the long-haul by placating the vested interests who wants protectionism? As Mr Shekhar Gupta rightly says, we are pathetic when it comes to global competitiveness in practically all fields ranging from agriculture to manufacturing and services. We have had decades, since economic liberalisation in 1991, to pull ourselves by our bootstraps to be globally competitive but we have instead wallowed in mediocrity, thanks to business, farm and trade lobbies who fuel our political parties. It is nobody’s argument that we ought to open our doors wide and be swamped by foreign goods but at the same time do Indian consumers have to accept substandard stuff in the name of nationalism? For instance, we are the second largest milk producer in the world yet we fear competition from New Zealand. Why? Only because we have failed to modernise milk production and manufacture of dairy products. Milk is nutrition yet Indians don’t count anywhere when it comes to consumption at individual level. Is it not a matter of shame then that we are high up in Hunger Index? Again, why is our agriculture productivity so low? Why is our agriculture product wastage so high? Why is it that we have to import every small thing from China? Isn’t it because of our gross inefficiencies built into the system? Not joining RCEP may provide us a temporary respite but can we afford to run away forever from the truth?

    • You have to go to the school level to see that theoretical subjects dominate the syllabus.

      Almost all of India’s problems can be traced to one serious problem: lack of good engineers and technicians.

      A country is basically run by engineers.

      Modi has indeed put in a lot of effort, as a politician, to create the right atmosphere for growth. But there are few people and companies taking up the challenge.

      • I agree with you that our education system is fossilised. In fact it kills curiosity and independent thinking in childhood with our rote learning system. So why haven’t we been able to reform our education system? Who is to blame?
        What happens to the bright engineers in India? Most of them leave the country to flourish elsewhere. I did my engineering many decades ago, from IIT and I decided to stay back in India unlike most of my batch mates. When I joined the workforce I found, sadly, our companies didn’t allow fresh thinking busy as they were copying obsolete technology long discarded by the West. It was unbelievably frustrating to not use what you learnt but merely follow outdated practices.
        The only area where good engineers have thrived is in the IT field, and that is because we didn’t have legacy to burden them.
        Engineers build nations but the vision has to come from an architect.

  6. Kayar. Darpok. Napunsak.

    Can’t compete anywhere, except in cricket.

    Yadav is the latest one in the glorious tradition of Indians encouraging this infantile behavior.

    Modi has only a 56cm chest, not 56 inch.

    Naam bade aur darshan chotte.

    • Correct. Modi’s tough image is only a myth. In reality none of the decisions he has taken since 2014 are bold. All his decisions, including demonetisation, have only been politically expedient. Real courage would have been in fulfilling his slogan ‘minimum government maximum governance’, by shedding the state’s arbitrary powers. Modi has no guts to do that.

      • He has a slogan for every problem.

        He is now actually trying to have maximum government and minimum governance.

        The strange part is that the Indian people forgave him and he got re-elected. Hope they have more sense in the future.

  7. First, on a lighter note, I find that Yogendra has started discovering virtues in Modi and BJP, if you read this article and the previous one! This is a welcome change as Yogendra is coming to realities on the ground. Secondly, though keeping out of RCEP as of now is a logical move, it is due to the fact that we cannot compete against the world. This is a serious matter as many parts of our economy are just not efficient mainly due to higher taxes, labor and other factor inefficiencies, corruption, infrastructure, high cost of borrowing, ease of doing business etc, and not because of any natural or technological reasons. Even more serious is that Modi in last over 5 years, has done nothing specifically to address these issues in a holistic manner. If anything, under Jaitley, the issues were allowed to be side lined or delayed wasting a strong mandate. Thirdly, Modi should now come out with his own economic Talisman for India to become efficient manufacturer so that we can open up and compete with the world and benefit from trade liberalization. He has the mandate and the political capital do a lot if he explains to the people at large what and how he intends to do.

    Modi may have warded off domestic political headwinds due to RCEP or USA may be happy about it but that is hardly the issue for the country. It is time he comes out with a clear action plan for next 5 years on how he is sequencing the various economic reforms without diluting any pro poor policies. there is no need of surprises like demonitization. A firm time line will set the ball rolling for the economy. BJP is now politically in a very strong position and all the so called and much hated Hindutva issues- Art 370, Ram Mandir, UCC, removal of word ‘secularism’ from Preamble to the Constitution of India etc are on course and will be sorted soon under his leadership. He has taken good measures on anti corruption – Benami Property Act etc and he runs a clean government anyway. So political issues are hardly the issues for which Modi will be required henceforth but his political capital is badly required for long delayed economic reforms that India needs badly. Hope he delivers.

  8. The consequences for India’s foreign policy will be as far reaching as those for the economy. Indian diplomats will feel a slight chill in the air – nothing to do with air conditioning – when they interact with their foreign counterpart. Don’t buy Republic TV’s fairy tale that a India is now setting the global agenda. One of these days, Bangladesh will join RCEP. Logically, so should Sri Lanka.

  9. This decision establishes two facts: One, our farmers, traders and manufacturers cannot withstand competition. They want maa baap sarkar which protests them. For Modi government, consumer interest who are not organised is less important than the interest or organised sector like Farmers, Traders and manufacturers. As you have rightly noted, this decision, besides denying us quality products at lower prices, also denies access to market in ASEAN region.

    • I hope that you will recognize the irony in this statement. For the last 5 1/2 years one has been constantly subjected to how the congress in the hands of the Nehru-Gandhi family has ruined the country. That is putting the issue in reverse. It is the nature of Indians to want “maai-baap Sarkar” which made the congress behave this way. Whatever little English and science education that we can boast of is thanks to mentality of people like Nehru to promote modern scientific education. If not for that, we would be as hopeless as the Arabs or the Pakistanis.

      • Arabs are not hopeless. All of them are richer then Indians and provide millions of jobs to Indians over so many decades. No Arab country scores as low as India in HDI, hunger, disease, law & order etc. All this without adopting English as their main language. Indians will be happy if they can catch up with the lifestyle of an average Arab. But that’s not going to happen thanks to past and present socialist governments, starting with Nehru and continuing with Modi. As for as Pakistan they are a just a more messed up version of India, anyone can guess why.

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