An inward turn

India’s decision to not join RCEP will have adverse implications

India has decided not to join the Regional Comprehensive Economic Partnership — at least for now. The 15 other nations in this new trading bloc, consisting of the Association of South East Asian Nations and other countries with which it has trading links including Australia, New Zealand, Japan and Korea, have come to a satisfactory conclusion of their negotiations, and will be moving forward to operationalise the pact without India. This is not the conclusion that anyone could have wished. It is unfortunate that a major reconfiguration of the trade architecture is taking place on India’s doorstep and it is unable to join in. In fact, it reflects poorly on successive governments’ inability to raise the competitiveness of Indian industry leading to fears about the consequences of joining the RCEP. This is unfortunate as there were clear benefits of open trade with such a large proportion of the world’s population and GDP. Despite the concerns, the government should have taken into account the deeper strategic pitfalls of walking out of the talks. The country risks being cut out of the rule-making process for the RCEP and give China further space in the regional trade and security architecture.

There was some acrimony connected to how the issues played out, with the state-controlled Chinese media in particular claiming that India had raised new concerns at the last minute, an allegation that was forcefully denied by Indian government sources. The prime minister himself insisted that India had participated in the negotiations in good faith, and its eventual exclusion was determined by the Gandhian principle of ensuring that the poorest be benefited by every policy decision. But the truth is that greater openness to trade would certainly have benefited the poorest by raising their ability to buy goods produced at competitive prices. The issue was, in the end, the protection of Indian industry and the fate of services trade, in which India believes it has a comparative advantage. Certainly, there is no reason to suppose the blame is not shared for this outcome. India’s concerns about rules of origin and the non-market nature of the economy of the People’s Republic of China are entirely warranted, and there should have been greater effort made by the other 15 countries to take these legitimate issues on board. The final going statement by the 16 leaders was more conciliatory, noting India’s outstanding issues and saying that India’s joining the agreement would depend upon how the other countries managed those issues going forward. But it is not clear under what circumstances that additional negotiation would take place, or if indeed all energy has gone out of the effort now.

While many producers in India, particularly in vulnerable sectors like dairy, might draw a sigh of relief, this is overall a welfare loss for India and one that will hurt the economy increasingly over time. It is now clear that the government has turned protectionist — recent optimistic statements about the perceived gains from RCEP by senior officials and ministers have turned out to be belied. Nor is the Opposition better, since the Congress Party, for example, was very harsh on the prospect of signing the RCEP — an agreement that its own government had taken the initiative to begin in 2012. Instead of seeing RCEP as an opportunity to conduct competitiveness-enhancing reform at home, the Indian political class has instead decided to turn inward. Future generations will rue this shift.