India needs to be extra cautious in RCEP trade deal: CEA Arvind Subramanian

“I am a little bit ambivalent about RCEP, as it will involve a lot of opening up to China. We have a natural complementarity vis-à-vis Europe. We export labour-intensive goods to Europe and they export capital-intensive goods to us. In case of the Asean and China, it’s not the same thing. So what’s the advantage for us (in RCEP)? I am not saying it’s bad or it’s wrong, but I am saying we need to think more carefully about that. There is also the geostrategic dimension we need to take into account. So that’s a more difficult and richer discussion that the government needs to have," said Subramanian in a post-Economic Survey interview.

India has a $50 billion (around Rs3.2 trillion) trade deficit with China. Tensions between the nations have been high in the past over Chinese military intrusions, most recently in the Doklam area of Bhutan, and the China-Pakistan Economic Corridor, which is proposed to pass through Pakistan-Occupied Kashmir.

The fact that most RCEP members are not ready to open up their services market, as proposed by India, makes the proposed deal more disadvantageous for India, said Subramanian. “If other nations are not going to open up services and if it’s all about opening up manufacturing, then it’s a different dynamics."

RCEP is a grouping of the Asean’s (Association of Southeast Asian Nations) 10 members plus India, China, Japan, South Korea, Australia and New Zealand. It envisages regional economic integration leading to the creation of the world’s largest regional trading bloc, accounting for nearly 45% of the world’s population with a combined gross domestic product (GDP) of $21.3 trillion.

Asean members have been putting pressure on India to open up its market for more than 90% of their traded goods, while they remain reluctant to India’s proposal to allow free movement of Indian skilled professionals in the RCEP region. There is growing clamour for India to either exit RCEP or resist its early conclusion.

Former foreign secretary S. Jaishankar, at a recent presentation before the parliamentary standing committee on commerce, called for “observance of due restraint" and not concluding trade arrangements not in India’s medium-term interests.

Commerce minister Suresh Prabhu last week insisted on concluding a “balanced and collectively satisfactory" RCEP agreement that includes a services pact. “It is important to address the sensitivity of member countries and their aspirations as negotiations gather momentum. We would all aim to achieve an RCEP that results in the realization of the potential of the three key pillars of RCEP—goods, services, investment—in a manner that is balanced and collectively satisfactory. Keeping this in view, India will be working closely and constructively with all RCEP member nations, particularly Asean, towards early conclusion of negotiations," he said, while hosting the Asean trade ministers’ meet to mark 25 years of dialogue partnership between the two sides.

Stressing why RCEP needs a strong services pact, Prabhu said globally, trade in services is growing faster than merchandise trade. “Services are becoming a dominant driver of growth in both developed and developing countries. Services contribute almost two-thirds of India’s GDP and surplus in services trade finances almost half of our trade deficit. India currently runs an around $10 billion trade deficit with the Asean grouping," he added.

A government official, who was earlier involved in the RCEP negotiations speaking under condition of anonymity, said Asean cannot agree to India’s proposal for opening up its services market as the grouping’s members have themselves not opened up their services markets to each other. “The best way forward is to conclude a low-ambition RCEP deal and get done with it," he added.