India can’t turn its back on free trade
India’s state is a mirror of its noisy, messy democracy. It’s often hard to achieve even a modest internal consensus between government departments in New Delhi: Right now, the heads of several ministries are scrambling to find a common position on the Regional Comprehensive Economic Partnership (RCEP) — a giant trade deal that stitches together India, the Association of Southeast Asian Nations, Oceania, China, Japan and Korea.
At the end of August, ministers from the 16 RCEP countries will meet in Singapore; India needs to work out a constructive stand by then. There’s a very real chance that if New Delhi’s negotiators continue to be obstructionist, the other 15 countries will move ahead without India. India’s goods trade deficit with China appears unsustainable: It was $63 billion (Dh231.4 billion) in 2017-18, up from $51 billion in the previous financial year and $16 billion ten years ago. That’s 60 per cent of India’s overall trade deficit. As far as Indian policymakers are concerned, much of what’s being imported is substandard or otherwise fair game for antidumping legislation. China is the main target of Indian antidumping action, with 214 separate investigations opened. Less justly, specific Indian sectors are panicked about competition. Steel — which is slowly recovering after years of pummeling thanks to Chinese overcapacity — is one of them. Dairy producers obsess about Australia and
New Zealand. Manufacturers worry about everyone.
But the validity (or otherwise) of Indian concerns is beside the point. The problem is that, at the moment, RCEP is the only game in town — and New Delhi runs the risk of being left on the sidelines.
If India doesn’t have a more positive, forward-looking approach ready by the end of the month, then it must also abandon its ambition to infiltrate global supply chains. And that would be a disaster for a country that will shortly have both the world’s largest workforce and a mere two-percent share of world trade.
How can India move forward? Most importantly, it mustn’t let China run away with the initiative. India is hardly the only country concerned about China’s overcapacity and its ability to dump goods wherever it pleases. A regional trade agreement that prevents countries from bringing fair, transparent and temporary anti-dumping actions is in nobody’s interest — a point India needs to make to countries like Japan.
China has cleverly used regional and bilateral trade agreements to shortcut the World Trade Organisation, just as the US has in the past. RCEP shouldn’t be one of them. If, and only if, the deal begins to build a new and equitable architecture for trade in Asia and the Pacific, does it deserve to succeed. Yet, India cannot afford to be villain of the piece. The signalling would be awful; most observers would see such a move as the final culmination of a turnaway from the world. India has raised tariffs on 400 products over the past two years, a major departure from a generation-long trend towards greater openness. It has unilaterally scrapped investor protection treaties with almost 60 countries. Even the government’s choice of economic policy advisers reflects a new distrust of the world.
The government believes, perhaps, that India’s fragile status as the only mildly bright spot amid collapsing emerging markets means that it doesn’t need anything from the rest of the world. This is absurd. In fact, India needs more than ever. Investors are interested in India only because they think they can make money here. An India that retreats from the turnpike of world trade to the dirt road of autarky — to borrow a metaphor from one of the American-educated economists who’s been eased out of government — is one that will be poorer in both the medium- and long-term. India needs to find a way to be more positive about RCEP.