MUMBAI – Rarely do India’s major and often fractious political parties agree with the government’s stand on issues related to trade, jobs and the domestic economy.
But in the run-up to today’s signing of the Regional Comprehensive Economic Partnership (RCEP), now the world’s largest free trade agreement comprised of 15 Asian nations, politicians from across the political divide sought to take credit for India’s exclusion from the pact, in the name of protecting “national interests.”
India dropped out of the RCEP’s negotiations in November 2019 after participating in 28 of 31 rounds of talks over a six year period. India’s withdrawal, announced last year in a joint leader’s statement issued at the end of an Association of Southeast Asian Nations (ASEAN) summit in Bangkok, said that India had “significant outstanding issues which remain unresolved.”
New Delhi’s decision owed largely to concerns RCEP participation would expose Indian producers and manufacturers to a flood of cheap and mainly Chinese-made imports, an unequal trade flow Indian officials say would have jeopardized millions of local businesses, industries and jobs.
Indian textiles, agriculture and dairy sectors, which employ hundreds of millions of workers, are seen as the most vulnerable to Chinese and other RCEP signatory imports. Under the pact, India would have been required to steadily drop tariff levels.
China already enjoys a huge trade surplus with India, which hit US$48.6 billion in the 2019-20 fiscal year period, according to Indian official statistics.
Rising anti-China sentiment in India, which has spiked after recent clashes on the two sides’ Himalayan border, has crimped overall trade, which was down 7% year on year over the same period, the steepest fall since 2012-13.
Last year’s decline marked a steady reversal in bilateral trade growth, which was up 3.2% in 2018-19 and 22% in 2017-18.
Last week, India’s Foreign Ministry said in response to queries that recent RCEP talks did not address New Delhi’s outstanding issues and concerns, though India remains committed to deepening trade ties with ASEAN. RCEP also includes China, Japan, South Korea, New Zealand and Australia.
New Zealand, Japan, Vietnam and Malaysia are all known to be lobbying India to reconsider its stand, which is allowed for through a special clause in the agreement.
But “that’s unlikely. India hasn’t benefited from FTAs as it is not an export-driven economy but an import-dependent one. India in RCEP will create a backdoor FTA with China,” wrote renowned Indian geostrategist Brahma Chellany.
RCEP proponents say it will help signatory nations to emerge faster from the pandemic’s economic devastation including through greater participation in and access to regional supply chains.
They note China has rebounded quickly from its rapidly contained Covid-19 outbreak, the origin of the global pandemic, and that regional trade is bouncing back in trend.
At the same time, resurgent outbreaks in Europe and the United States raise questions about how long it will take for Western markets to recover comparatively.
With 8.8 million Covid-19 cases, India has the second-highest number of infections in the world behind only the US. India’s gross domestic product (GDP) contracted 23.9% in the quarter ended on June 30 but is now showing signs of recovery.
“Value chains are where RCEP’s real value for the Indo-Pacific lies,” Jeffrey Wilson, research director at the Perth USAsia Centre, wrote in a recent commentary.
“Not only is it a large trade agreement, but it also has design features that specifically aim to support global value chains. Rather than loosening just a bilateral single link, RCEP will genuinely unlock regional value chains,” Wilson wrote.
That’s raised criticism of India’s decision against joining the pact, including among Chinese academics and commentators.
“Opting out of the RCEP means India will be isolated in the next round of globalization and regional economic integration, but for other RCEP members, it means they will meet fewer obstacles in promoting regional economic integration,’’ Liu Zongyi, secretary-general of the research center for China-South Asia Cooperation at the Shanghai Institute for International Studies, wrote in the Communist Party-run mouthpiece Global Times.
But Indian political leaders counter that they are protecting domestic interests from cheap and, in China’s case, often state-subsidized cheap imports.
They say that no protections against such an unequal trade surge were promised at the RCEP’s negotiations. India is believed to have sought an automatic trigger of increasing tariffs at a particular level of imports but other signatories declined to agree.
“When I measure the RCEP agreement with respect to the interests of all Indians, I do not get a positive answer. Therefore, neither the Talisman of Gandhi nor my own conscience permits me to join RCEP,” Prime Minister Narendra Modi said in a statement at the third RCEP summit in Bangkok last year.
Indian industry is already vexed by a sharp increase in imports from China that have adversely impacted small and medium-sized factories in particular. At the same time, India’s exports are often blocked by non-tariff barriers imposed by China, Indian trade groups and associations claim.
India’s large dairy industry is also vehemently opposed to the RCEP. Australian and New Zealand producers, analysts say, could flood Indian markets and kill off mainly unorganized and inefficient small-scale Indian producers.
Per cattle yields in India are among the lowest worldwide and recent government bans imposed against cow slaughters on religious grounds have further hobbled the industry by forcing farmers to feed and maintain cattle beyond their milk-producing primes.
Indian textile, steel and tire industries, all protected in varying degrees from foreign imports, would likewise face sudden stiff competition from RCEP nations.
That’s a reflection of the the high price of doing business in India, with prohibitive costs and procedures for buying or renting land, high water and electricity tariffs, and, as ever, thick red tape for receiving clearances from municipal authorities.
Modi’s decision to withdrawal from the RCEP was no doubt also influenced by politics. The Indian National Congress said in November 2019 that “a forceful opposition by the Congress ensured that Modi’s government didn’t barter away interests of India’s farmers, dairy producers, fishermen, as also small and medium enterprises and shopkeepers.”
China’s incursion this year into Indian territory at Ladakh, punctuated by an incident where at least 20 Indian soldiers were killed by Chinese troops, was effectively the nail in the coffin of India’s participation in the China-led RCEP.
Analysts say New Delhi will instead look towards a new version of the competing Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) free trade pact, particularly if the US decides to join the agreement outgoing US President Donald Trump scrapped and incoming leader Joe Biden has hinted he would rejoin.