Policymakers should not pay heed to the Chicken Littles claiming that the sky is about to fall on India for having opted out, but ought to pursue sensible economic reforms
It’s now official, folks: India has opted out of the Regional Comprehensive Economic Partnership (RCEP), a proposed trade agreement among the ten members of the Association of Southeast Asian Nations (ASEAN), along with six additional Asia-Pacific partners, including China and India. At a summit meeting in Bangkok on 4 November, Prime Minister Narendra Modi announced that, taking a leaf from Mahatma Gandhi, his conscience would not permit him to join. The other members are going to carry on without India.
As it happens, in the previous instalment of my column (“The Trojan horse of a trade pact that India should guard against", 4 November), cautioning against an overzealous embrace of RCEP and other preferential deals, appeared on the morning of, and in advance of, Modi’s decision to keep India out. Every now and again, one gets the timing right!
Within, as it were, mere microseconds of India’s decision, the expected chorus of what I call the Washington Consensus-Davos crowd came out, predictably, with columns and pronouncements spelling doom for India. India had made a mistake of historic proportions, India was doomed to be isolated, India had shunned freer trade, and so on. Predictably, most (but not all) of these voices were writing in the foreign press, where it is de rigueur to take India to task for its apparent lack of commitment to trade deals that, we are told, are bound to be in India’s interest—not forgetting that some (but not all) of these writers are attached to foreign think tanks and publications that have a vested interest in a certain vision of the global trading system.
Each and every one of the articles excoriating India, predictably, failed to make the important distinction between a genuine move toward freer trade and the adoption of preferential “mega" regional deals such as the RCEP. As my last column spelt out in some detail, a free trade deal is not the same as freer trade: both because of the distorting effects of trade preferences, which are not multilateral, in addition to the fact that most of this new breed of deals are mostly not about trade, but about other issues responding mostly to multinational corporate interests—such as intellectual property protection, to note one that is especially egregious in the Indian context.
The other cardinal error of those lamenting, or lambasting, India’s withdrawal from the RCEP process is that it was seen as a missed opportunity to promote domestic economic policy reforms. This is getting the cart before the horse. The notion that tying oneself to the mast of a foreign pact can be a goad to domestic policy reforms that are otherwise politically unpalatable may, perhaps, apply in the context of economies in Latin America, Africa, and elsewhere, but it is fallacious and misleading in the Indian context.
Apart from the very initial impetus of a foreign exchange crisis in 1991, reforms in India have been in thrall to domestic political economy considerations. And, thus, the decision to undertake sweeping reforms after 1991 does not reflect, as is commonly misunderstood, succumbing to the Washington Consensus under duress, but the culmination of a long process of debate and reflection on reforms within India—going back to the early days of the planning regime.
What I personally find most galling, however, in these ill-informed critiques is the cry that India will now be “isolated". This is little different from the taunt of schoolyard bullies that you are not a cool kid because you’re not part of the right social group and that is because you do not conform the norms of what the cool kids are supposed to be doing. By that logic, when Great Britain took the courageous decision to unilaterally repeal the Corn Laws in the 19th century, they were “isolated" from the prevailing but erroneous opinion which held that only reciprocal tariff cuts made sense. There is nothing wrong with being “isolated" if you take a principled decision based on sound reasoning.
The one seriously unfortunate consequence of India ditching the RCEP is, in my judgement, that it gives succour to the genuine protectionists in our midst, who are opposed to trade liberalization tout court. The fact that there were good reasons, founded on good economics, to give a distorting and problematic deal such as RCEP a miss, will not stop the ideologically driven protectionists from rubbing their hands at an important victory.
All of this points to the right conclusion: that staying out of the RCEP gives India an opportunity to focus on the correct priority—domestic economic policy reforms which have thus far gone begging in the first and second innings of the Modi government. It is heartening that, in recent remarks, India’s Finance Minister Nirmala Sitharaman has suggested that Indian policymakers will devote themselves to this unfinished reforms agenda, going forward.
Indian policymakers should not pay heed to the Chicken Littles claiming that the sky is about to fall on India for having stayed out of the RCEP. Rather, they ought to pay heed to those who argue for sensible economic policy reforms which are in India’s national economic interest—not because they win plaudits on the international conference circuit that stops in Davos and elsewhere. If the Modi government pursues these reforms, for the right reasons, they will have the last laugh, and the doomsayers will have to eat crow.
Vivek Dehejia is a Mint columnist
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