Moving on from RCEP
Work on making both industry and economy more competitive
India has finally decided not to become part of the Regional Comprehensive Economic Partnership (RCEP). The decision comes after seven years and tens of rounds of negotiations, and is likely to be widely debated. India is now not part of the 15-nation trade bloc – of the 10 Association of South East Asian Nations (Asean), China, Japan, South Korea, Australia, and New Zealand. India has said the deal disadvantages its services and agrarian sectors. It is also worried at the prospect of the country being flooded by cheap imports from China, some routed through the other RCEP signatories. And it is worried about the lack of adequate safeguards. Some of these are justifiable. For instance, the Asean China Free Trade Area agreement, signed in 2002, has benefitted China much more than it has the Asean countries.
Yet, by not signing the deal, India has missed the opportunity to be part of global supply chains, and closed the door on some trade opportunities in the region — a not-so-easy trade-off for a country that has grown its economy the fastest when exports have done well. There’s more, though. The Indian economy is in the grip of a slowdown now, and the country’s entry into RCEP at such a time would have caused significant pain. It may have meant more industrial distress. And it could have caused more jobs to be lost at a time when enough are definitely not being created. Whatever the reason, the deal is off for now, although India can choose to revisit it at a later date.
The important question for New Delhi to ask is: “What now?” For one, bilateral trade agreements become even more important now. India would do well to close a trade deal with the United States (which, like it, is also out of big trade blocs). It should also explore trade deals with Australia and other key countries in the region even as it works to close the renegotiation of its free trade agreement with Asean. For another, India will have to work hard (and use the time it is out of RCEP because, at some stage, it will have to become part of it) to make its own industry, including small industry, more competitive. That will require agricultural reform. It will mean addressing the crisis in the country’s financial sector. It may require new labour laws. In effect, it will require India to ensure that its industry and economy are competitive enough to hold their own.Protectionism is good as long as it serves the objective of boosting competitiveness. Thus far, India’s record on this isn’t great. Its high walls have usually served to make Indian industry and the economy complacent at best and downright uncompetitive at worst. That will have to change.