Exit from China-LED RCEP may temporarily help
For now, it appears to be a right decision on India's part to opt out of the China-led 15-nation Regional Comprehensive Economic Partnership (RCEP) agreement to protect the country's immediate industrial and trade interests. After prolonged negotiations for years, the agreement, sans India, was finally passed a fortnight ago. The credit for India's exist from RCEP, however, goes to the right-Swadeshi Jagran Munch (SJM), which staunchly fought against India's participation at the final stage of RCEP negotiations, last year. Few were surprised when Prime Minister Narendra Modi himself came to the domestic industry's rescue.
In a way, SJM was also responsible to save the face of industry, including multinational corporations with strong manufacturing base in India, which was highly concerned about facing uneven competition from certain aggressive Asian partners in the local market. Conveniently, large local industrial producers provided a silent consent to the SJM outburst against RCEP. Few were ready to compete with countries such as China, South Korea and Japan for a share of the local market. Already, imported products are flooding the Indian market. Getting increasingly squeezed, many local manufacturers have also turned importers of finished products.
The Covid-19 impact apart, India's economy is in a critical stage. Boasting more than half-a-trillion dollar annual imports, the country offers a great attraction to almost all exporting nations, especially from the Asia-Pacific region. In 2018-19, India's total merchandise imports amounted to US$514 billion, registering a 10.41 percent growth over the previous fiscal. Of late, the rising volume of imports is deeply eating into the country's financial resources with trade deficits widening year after year.
In 2019, India recorded a massive trade deficit of US$159.73 billion, the world's third highest after the US and UK. The CIA World Factbook noted India's current account deficit in 2018-19 as also the world's third highest. India's trade deficits with China in 2017-18 and 2018-19 were, respectively, $63 billion and $53.56 billion, the largest with any country. Clearly, the Indian economy can't sustain such large annual trade deficits for long. The RCEP agreement will bring down import duties on 80 percent to 90 percent of the goods, along with easier service and investment rules.
The single most important reason for India's reluctance to join RCEP was China. New Delhi is believed to have decided not to join any multilateral trade negotiation where Beijing is a member. India's relationship with China has turned worse since last year. In the last five years, China has made a deep inroad into India's economic system. There was no reciprocal concession from China. In 2018-19, China's two-way merchandise trade with India was $87.07 billion. Of this, China's exports to India amounted to $ 70.32 billion. It imported goods worth only $16.75 billion from India.
Officially, India had opted out of the RCEP dialogue in November, last year, when Prime Minister Narendra Modi surprised all other fellow members of the RCEP participating countries by choosing to drop out of the partnership at the Bangkok summit.
Industry in India was never comfortable with RCEP negotiations. The government was under big pressure from the SJM against RCEP. Interestingly, just a month before the prime minister himself announced India's withdrawal from RCEP negotiations, SJM organised a 10-day nationwide protest against India becoming part of such an agreement. SJM's protest programme followed RSS head (sarsanghchalak) Mohan Bhagwat's discourse about promoting swadeshi in his annual Dussehra speech, last year
Bhagwat cautioned the government against rushing into the deal. "The nation is currently facing a crisis in both manufacturing and agriculture which is resulting in job losses in the country. Though the crisis in the manufacturing is due to the lack of a comprehensive industrial policy since 1991," SJM co-convenorAshwini Mahajan stated. "The free trade agreements (FTAs) India has signed in the last decade play a major role by allowing cheap imports and hollowing out of Indian manufacturing.
In 2018-19, India had a trade deficit with 11 of the 15 RCEP negotiating countries. In the previous year, India had a US$104-billion trade deficit with RCEP countries and more than half of this was with China." While the WITS (World Integrated Trade Solutions-World Bank) data shows the deteriorating trend in the trade deficit, India's trade balance to total trade ratio deteriorated from -17.5% to -22.6% with respect to ASEAN, -43% to -56.2% for South Korea, and -30% to -44.9% for Japan. RCEP would further deteriorate the situation, argued SJM.