In his speech at the RCEP summit in Bangkok on 4 November, Prime Minister Narendra Modi said, “The present form of the RCEP Agreement does not fully reflect the basic spirit and the agreed guiding principles of RCEP. It also does not address satisfactorily India’s outstanding issues and concerns. In such a situation, it is not possible for India to join RCEP Agreement.”
This is a rational move as far as India is concerned. It would not have been wise joining the RCEP given the present state of affairs. That does not mean that India should altogether give up on RCEP. Rather, it should think of joining the mega-trade bloc at an appropriate time.
Within India, opinion on RCEP is quite divided. The first point of objection is that India’s trade deficits have always widened with nations after signing free-trade agreements (FTAs) with them as in the case of FTAs with the ASEAN, Japan, Korea, and Singapore, most of which are RCEP nations.
There is concern in certain quarters, like the Swadeshi Jagran Manch (SJM), that it will negatively affect India’s agriculture and dairy sectors, which are not in a position to compete with Australia and New Zealand.
On the other hand, there are trade economists and free trade proponents who believe that RCEP is beneficial for the Indian economy. The long-term benefits of joining the bloc far outweigh the short-term costs. If India wants its ‘Make in India’ to become a global success, it must participate positively to become a part of the Asian value and supply chain which either begins or ends in India.
It’s all very simple, really. With a free trade agreement in place, Indian manufacturers will be able to ship goods and sell them elsewhere without having to worry about, say a 30 per cent tariff. This way prices can remain competitive and Indian manufacturers can actually have a shot at selling a lot of these goods abroad. On the flip side, India will also have to open up its borders and that’s a contentious topic.
India is concerned that cheap Chinese goods and agricultural produce from Australia and New Zealand could flood Indian markets. That would obviously hurt local producers. So, India wanted a tariff structure that wouldn’t exactly open the floodgates.
Also, RCEP countries account for almost 27 per cent of India’s total trade. However, India imports more from RCEP countries than it exports. Ideally, when you open up your borders you would want to reduce the deficit and help boost the country’s export engine. But here’s the thing: China alone accounts for over 60 per cent of the deficit and the ‘Red Dragon’ isn’t like other countries. From India’s point of view, it’s very hard to export to China, even if you had a free trade agreement in place. For instance, most of India’s exports are services-based, like IT. But services don’t factor prominently in these trade agreements. So how does one expect India to bridge the gap?
And even if it did, how would India contain the free flow of goods coming in from China. The idea to include an auto-trigger mechanism — so when the volume of imports crosses a certain threshold, safeguard duties would suddenly kick in to contain the dumping. Unfortunately, the member countries did not warm to this idea.
And finally, even if all our concerns were heard, this would still be a bit of a gamble. If the deal didn’t work miracles within a year or two, the political repercussions would be unimaginable. It’s evident that India was holding its cards close to its chest in the hope that other countries would pressurise China into accepting India’s terms. India is a big market and without India, this whole RCEP thing looks a bit like a damp squib.
New Zealand can certainly play a major role in quashing dairy fears in India. In fact, straight after the RCEP meeting, New Zealand Agriculture Minister Hon Damien O’Connor visited India and had wide ranging visits and meetings with senior officials. However, what is needed is regular senior level ministerial visits to India to ensure New Zealand exporters’ interests are also presented to the Indian bureaucrats and government ministers. It is heartening for New Zealand exporters to see two meetings between New Zealand and Indian Prime Ministers but then what’s next? India provides so many global opportunities for our leaders to be on the world stage but are we giving enough attention to one of the major players in RCEP for our exporters like our counterparts across the ditch are or are we wanting to play safe with the influence of other players in the RCEP deal?
Now that bilateral negotiations are being pursued under the umbrella, India has to find the right equation to extract the maximum benefits from this mega trade deal. The challenge is huge, but so are the opportunities, if analysed and implemented in the right way.