After RCEP, what’s the road ahead?
The Indian government must be complimented for showing conviction in standing up to pressure, both internal and external, and not bowing to conditions that didn’t take account of its core national interests in Bangkok last week. It’s clear that India refused to play ball as the proposed Regional Comprehensive Economic Partnership, or RCEP, in Prime Minister Narendra Modi’s words, “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’s not possible for India to join the RCEP Agreement”. The entire proceedings, as is usually the case in a multilateral diplomatic jamboree, revolved around words like “free” and “fair”, notwithstanding the fact that things emerged contrary to it for India. Thus, the joint statement too conceded: “India has significant outstanding issues which remain unresolved... India’s final decision will depend on a satisfactory resolution of these issues”.
Clearly, India’s position stood vindicated, that was further reinforced by the commerce minister’s statement: “India’s decision to be out of RCEP is final unless other countries involved... uphold its demands… India’s decision will depend on a satisfactory resolution of these issues.” Thus, there emerged a fissure in the RCEP (participating) states to feel good and come to a consensus in pushing through the programme. As of date, it’s an aborted takeoff, the preparations of which began more than seven years ago at the behest of 10 Southeast Asian nations, that subsequently proposed to include six more, three from the Far East (China, Japan, South Korea); one from South Asia (India) and two from the Pacific region (Australia, New Zealand).
An astonishingly ambitious plan of action without doubt, RCEP invariably had to have its bumps. This was mainly due to big differences in virtually everything — demography and geography; economics and export; import and industry; polity to state policy. A simple calculation based on the well-known “54 factor” — the calculation and analysis of each country does not indicate a smooth flight for RCEP anytime soon, notwithstanding the fact that “RCEP is without India” at this point.
No doubt it was conceived with good intent, but the future (the “Matsanyaya” of Indian philosophy): “big fish gobbling small fish”, to this writer, appears more than a reality. Else, China wouldn’t have had come with a prompt statement through its foreign ministry spokesman Geng Shuang within 24 hours of the Indian withdrawal: “We will follow the principles of mutual understanding and accommodation to negotiate and resolve those outstanding problems raised by India, and we welcome an early joining by India”. When did we hear such Chinese eagerness to address Indian concerns in a multilateral forum? It’s hard to recall.
“It (RCEP) is conducive to the entry of Indian goods into China... It will also help Chinese goods enter markets in India”. But Chinese goods are already all over India. Obviously, China wants more. Much more than what stands today. And India? What sort of goods from India will enter China? Without hindrance? Without matching technology? The Chinese spokesman tried to explain: “We do not deliberately pursue a trade surplus against India. We can expand and increase our cooperation in investment, production capacity and tourism and make a bigger pie out of cooperation for sustainable and balanced development”. Good words, but without specifics, from the high table. The idea is more focused. India must be taken on board for Beijing’s meat and India’s morsels. What happens to India’s human resources and service industry? There is silence! The real truth is that it’s only to “help Chinese goods enter markets in India”, much more than ever before. China is under pressure owing to industrial overcapacity and emerging counter-pressures by the West to make Beijing open up its markets, finance, banking and service industries.
That said, what lies next for India? To this writer, though India has done well in the past 25 years, it’s time to focus more on structural and procedural economics. There are a few issues to be revisited, if deemed fit. Taking a cue from three countries as case studies — Japan, the US and China: Bank; budget; currency; import; saving; fiscal deficit; current account; and agriculture investment.
Japan stood demolished in 1945. By 1970, Japan dazzled the world. How? Thanks to Joseph Dodge (ex-Detroit Bank) who steadied Japan through “banker’s conservative philosophy”: sound currency, balanced budget, financial stability and fiscal discipline. First, the traditional Japanese deficit spending was reversed. Japan got a “balanced budget” after a long time, supplemented by credit restrictions and expansion of trade production; stringent curtailment of expenditure and expansion of government revenue. And finally, through currency stabilisation: Dodge fixed 360 yen to the dollar, which remained unchanged for 22 years. Japan emerged as an economic superpower.
Earlier too, in the US, its first treasury secretary, Alexander Hamilton, sowed the seeds of future prosperity when he submitted his plan for a national bank in 1790. His logic was simple: “Banks are nurseries of national wealth”. Although the Hamilton action plan lasted only 22 years, the subsequent role of US banks in the development of its economics was there for all to see. However, India today needs to watch more over “bank scams” rather than “bank service”. Else, the economy can only dip, not develop.
In the Chinese case, the indelible impression of the Japanese model is clearly visible. Deng Xiaoping admired the spectacular two-decade Japanese recovery and took the cue. First, China went into its shell. With singleminded determination, Beijing curbed all non-essential imports, devalued its currency and made it rock steady like what Dodge had earlier done to Japan, and gave all facilities to foreign corporations to bring capital, technology and shift their production facilities to China. The result? High rates of domestic savings and investments and exports. China controlled its current account deficit (pertaining to excess import and deficit export) in no time; started having a balanced budget, thereby making its fiscal deficit history; and took direct and strict control of the entire economic system under the state, thereby transforming comrades into capitalists. Proletariat yesterday; bourgeoisie today and tomorrow!
In one sector, however, China looked somewhat vulnerable, as almost two per cent of fertile agricultural land was reportedly lost owing to massive industrialisation of the countryside, thereby compelling Beijing to revisit agrarian distress and irrigation.
For India, therefore, the challenges today are many. From these case studies of Japan, the US and China emerge food for thought. Apart from bank, budgets, currency, the import/export imbalance, domestic savings, fiscal deficit and current account deficit, India faces a gigantic challenge in developing agriculture with investment and technology. It’s because, even today, despite stabilisation, the average annual rise of the Indian demography stands at almost
1.8 crore, and the Indian government’s Economic Survey
2018-2019 (Volume 2) reports that “the growth in the agriculture sector witnessed tapering”.