India opened its markets to the world in the early 1990s, but policy makers in the country have always been on the back foot over the issue of signing more free trade agreements (FTA). At the core of this hesitation, lies Indian domestic goods market players’ opinion, who feel threatened by the import surge and competition, which they fear will come with such agreements.
For long India has employed a protectionist stance towards its domestic manufacturing market coupled with uninformed and populist political backlash that has prevented it from signing FTA’s, the most recent example being our stance on Regional Comprehensive Economic Partnership (RCEP) agreement, over fears that it will result into steep reduction of tariffs thereby opening the floodgates for imports resulting into a deluge that would engulf the domestic market.
A major concern voiced by most of India’s opposition of the current ruling government was about the setback that the Indian dairy farming industry would face from imports of dairy products from Australia and New Zealand, which would adversely hit the livelihood of some 50 million milk producers in the country.
Before delving into India’s stance on RCEP and its dairy sector being affected, one needs to understand the dichotomy that the current Indian economy is facing. On the one hand the GDP growth has dipped below five per cent and on the other, policy makers are targeting becoming a US$ 5 trillion economy by 2024-25. However, it is afraid of opening its market fearing stiff competition from imports. So, at a time when it should be on the front foot hitting sixes in the slog overs to meet the target, the policy makers are busy defending the market in the face of competition.
While Indian policy makers should have taken the toughest decision for their team to succeed, India seems to have gone on the back foot as it declined to sign on to the long negotiated RCEP agreement. Relying on cut-and-dried permutations and combinations of imports destroying the domestic market, India failed to comprehend that the country also requires low barrier export markets to drive faster economic growth.
It seems that India has failed to learn lessons from the past as in case of the FTA signed between India and Association of South-East Asian Nations (ASEAN). The forecast then was that of gloom and doom, predicting the terms of trade would weigh heavily against India. However, with time analyses have concluded that after the FTA, India’s exports to Asean countries increased substantially, with the largest access gained in Thailand, Cambodia, Vietnam, Malaysia, and the Philippines.
Similarly, threat to the Indian dairy sector from New Zealand’s dairy industry is also a figment of imagination and result of politics driving popular sentiment. As the old adage goes, ‘if a glass is half empty, it is half full,’ – in terms of RCEP, India has only weighed the empty portion of the glass but have failed to look at the brighter side.
It goes without saying that RCEP poses certain challenges for India, especially in the way the member countries are going to deal with sensitive commodity clause and will react to India’s dominance in the services sector. Also, there will be concern over India’s stance on protecting its manufacturing sector, a place where it faces the highest trade deficit and fears that it might accentuate with signing RCEP agreement.
These fears can be mitigated by making strategic policy decisions, like proper field placement during a tight T20 match. Instead of fearing imports from New Zealand’s dairy industry, size of which is not even half the size that of India’s, we should look at strategic collaboration and technology import at low prices to provide a boost to India’s traditional dairy farming industry and focus should be increasing our production and look for greener pastures to push domestic dairy products.
At a time when the global economy impacts even the remotest of domestic market, the frog in the well stance would not take India anywhere. Similarly, for New Zealand partnering with India through FTA’s would make it more visible on the global economy’s pitch. As for India, to push economic growth on a priority basis it should not stay out of one of the largest free trade blocs of the world and given its consumer market size, RCEP will also provide India to push historic trade reforms, by employing robust policy decisions at domestic levels.