As it sits out of RCEP, New Delhi gets time to kick-start reforms

  • Staying away from trade deal has its share of positives and negatives
  • For the present, it is final India is not joining RCEP. But in international engagements, we always talk to countries. Doors are not shut for anybody, says trade minister Piyush Goyal

Asit Ranjan Mishra, Elizabeth Roche
Updated6 Nov 2019
Union commerce minister Piyush Goyal.
Union commerce minister Piyush Goyal.(PTI)

Five years ago in the month of November, Prime Minister Narendra Modi, just months into office, caused flutters among global leaders when he insisted that if India does not get a permanent reprieve on purchasing enough foodgrain at a subsidised rate for public distribution, he would block the trade facilitation agreement sealed in the Bali Ministerial among the World Trade Organization (WTO) members, which was signed by the previous Congress government. A confusion in the language of the Bali deal meant WTO members can challenge India’s public stockholdings for food security if it breaches certain limits. The last-minute change in stance by India came as a surprise to all and forced the US to agree to India’s proposal.

Modi attempted something similar at the just-concluded third Regional Comprehensive Economic Partnership (RCEP) summit in Bangkok, seeking to convince the other 15 members, including China, to agree to India’s belated demands of greater market access in services and measures to protect domestic industry. However, India had to pull out of the deal at the last minute as the other members did not agree to accommodate the significant changes demanded by India almost at the last minute.

In July 2008, India’s then commerce minister Kamal Nath pulled the plug on the WTO Doha round negotiations at Geneva as developed countries did not agree to the special safeguard mechanism (SSM) proposed by India to protect a sudden surge in farm imports. Nath was hailed at home as a saviour of farmers, but was blamed widely in the global media as a deal breaker. Will similar clamour grow about India being a choker when it comes to trade deals?

Jayant Dasgupta, former ambassador of India to the WTO, said that even if that is the case, India should not open its market and “let the second East India company come and take over the country in order to fend off that kind of criticism”.

“However, the fact remains that we are uncompetitive due to lack of domestic reforms whether they are land, labour, capital, technology or research and development. India should use the present opportunity to kick-start domestic refor

Graphic: Paras Jain/Mint

ms,” he said.

Modi seems to have delivered a strong statement vis-à-vis China, say analysts. India has been at a disadvantage vis-à-vis China with a trade deficit of $53 billion in 2018-19. The worry was that joining RCEP could have meant Chinese goods entering India through a third RCEP country.

There are, however, implications for remaining a hold out. “Everything these days has geopolitical and geostrategic consequences. India’s heft is because of its economic potential. Looking protectionist has its consequences,” said Sachin Chaturvedi, director general at New Delhi-based Research and Information System for Developing Countries think tank.

If India is looking at forging a free trade agreement (FTA) with Africa, for example, it would be better to negotiate as part of RCEP (or an economic bloc). “If you negotiate as a bloc, there are some distinct advantages because you are negotiating as a group, there are numbers with you,” he said.

On the positive side, neither India nor the other RCEP members seem to have completely ruled out India’s inclusion in RCEP, Chaturvedi said. “A door has been left open for India to walk in,” he said, referring to the line in the RCEP statement issued on Monday which said, “India has significant outstanding issues, which remain unresolved. All RCEP Participating Countries will work together to resolve these outstanding issues in a mutually satisfactory way. India’s final decision will depend on satisfactory resolution of these issues.”

In the short term, India needs to put its economic issues in order by enhancing competitiveness of its industries, lowering costs of credit and power and reducing the post production cost enhancement, Chaturvedi said.

According to former foreign secretary Kanwal Sibal, India opting out of RCEP would slow down its “Act East” and “Indo-Pacific” policies. “We now have all the more reason to work for an FTA with the European Union and resolve our trade differences with the US”—the single-largest market and the largest economy in the world respectively, Sibal said. In terms of technology that will help India leapfrog into the $5 trillion economy bracket that it wants to, it is Europe that India should look at partnering, he said. “If you look at IT, it is the US that is your biggest market. So these are the areas India should be looking at,” he said.

Fixing internal challenges will ensure steady growth and make India a sought after economic partner, Sibal said.

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