Brig. JS Rajpurohit, Ph.D.
November 10, 2019


Image Courtesy: Wikipedia

RCEP and India are at crossroads today. The meeting of members of RCEP that took place recently in Bangkok, Thailand, on 04 November 2019 invited a large number of responses in media and strategic circles that have a tinge of both positivity and negativity. While all optimism was visible and when Indian Prime Minister Mr. Narendra Modi was to make his choice, he chose against joining RCEP to which there were resentments from RCEP members from developed countries. An economically growing country like India had possibly, for the first time, exhibited far-sighted vision and refused a choice at any world forum. Majority Indians who had a limited world view of the concept and agreements of RCEP were shocked, including Congress leaders. The majority had no clue and did not even bother; they have their daily challenges to worry about. Political leaders across India are busy resolving Maharashtra and Haryana state assembly election issues and the formation of the government. However, it was a big no for India from Indian and foreign economists and experts in the field. RCEP without India and Trans-Pacific Partnership (TPP) without the US would be like two major shareholders not participating in the growth of a company. Professor Chintamani Mahapatra, Rector, JNU, New Delhi, and an expert on the US tweeted, “India seems united in the decision to stay away from RCEP, and it reflected in both government and opposition taking credit for it.”

Joining RCEP would have paved the way for Free Trade Agreement (FTA) for all member nations amongst each other, and it would have an opportunity for China to load Indian market with cheap Chinese goods and balance of trade which is already tilted in favor of China, and it would have further increased the gap. Similarly, the trade imbalances with other members would have grown. Negotiations for RCEP have been in progress since 2012, and yet some issues irk the Indian economy and society. This was one such time where intense negotiations by Indian experts involved in the process to have given strong recommendations to the Indian government for a better economic future. Negating the offer is one such recommendation that closes more options for India than it opens. All big Asian economies and other nations wanted India to be an active member of the organization for the simple reason that it satisfies their economic hunger.

RCEP includes ten members of ASEAN and an additional six to include Australia, New Zealand, Japan, South Korea, China, and India. These sixteen countries primarily desired access to free trade amongst themselves for economic prosperity and development. This group of countries would then have become the largest forum for free trading on the planet. Essentially, this will warrant India to cut down important duties by about 80 percent on Chinese goods, 86 percent Australia and New Zealand, and approximately 90 percent for products from Japan, South Korea, and other ASEAN countries. The impact on the transfer of technology and e-commerce will also be negative for India. Despite plans of India going digital, it still has not been able to get the best of technologies, and even ratification of the treaty would have failed to cap payment of royalty by Indian companies to foreign companies.

India is already a signatory to FTA, with 14 out of sixteen countries of RCEP. China has been pushing cheap goods in India, and therefore, signing the pact would have further deteriorated the economic situation. Industry and farmers in India would have been the worst hit. India has a glaring trade deficit to the tune of approximately $90 billion in 2018. Indian imports to these countries far exceed exports, and matching quality and cost is a severe challenge with Indian goods. Indian exports to any of these developed countries are not qualitatively competent enough and hence are unlikely to pick up the pace. Non-Tarif Measures (NTM) imposed by China in India are the highest by China in any country and has affected trade barriers in technology, sanitary, and phytosanitary areas. The IT hardware industry in India has been suffering because of NTM.

India has been negotiating with member nations of RCEP, and leaders of all these nations persuaded Mr. Narendra Modi to accept and sign the treaty. Efforts of Mr. Abbe, Prime Minister of Japan, also could not change the Indian decision. However, the long term perspective by Indian economic experts led by Mr. Piyush Goel, Commerce and Industry Minister, seems to be the way forward for India. If India had the qualitative edge as compared to other member countries of ASEAN, SAARC, and TPP, an FTA and signing of RCEP would have been justified. In the absence of this edge, the economy of India is likely to be affected adversely. While the decision to opt-out of RECP is rational, India’s non-membership in both RCEP and TPP may create an economic gap for trade among the member nations.

China, Japan, South, Australia, and New Zealand have no option but to continue with RCEP without India. If adopted, this approach will leave India in an economic flux and will require India to muster up all its economic might to improve the quality of output at the cheapest cost and compete with these very nations in the international market. Tough negotiators that Chinese is, China has now offered to lower down its stance instead of blocking India from this forum. China understands that the availability of substantial Indian market and revenues that it can bring in to China is important for its own economy. Mr. Geng Shuang, Foreign Ministry spokesperson of China, said that the RCEP is open, and China is ready to follow principles of mutual understanding and is ready to resolve challenges that India faces and address reasons because of which India declined to sign the treaty.

The US and India are also finalizing major trade agreements, and are also identifying areas of common interest, where FTA can be incorporated in mutual economic ventures. This signals a new approach to the bilateral relationship between the two countries. Kautilya said, ‘enemy’s enemy is your friend’. As such, the US that has been against India in the past has shown strategic interest in a strategic partnership. The ongoing US trade war with China could also be the reason for the US opening new fronts on trade with India. India looks forward to sustaining its independent economic decision on RCEP, and this may well be the beginning of a significant era for the Indian economy.

*** The author is Brigadier in Indian Army and is serving as Group Commander, Group HQ NCC, Gorakhpur (UP) ***