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  Opinion   Columnists  23 Nov 2020  Sreeram Chaulia | Beyond the RCEP: India matters in Indo-Pacific

Sreeram Chaulia | Beyond the RCEP: India matters in Indo-Pacific

Sreeram Chaulia is a professor and Dean of the Jindal School of International Affairs.
Published : Nov 23, 2020, 11:54 pm IST
Updated : Nov 23, 2020, 11:54 pm IST

Since the signing of the RCEP agreement, criticism of India for sitting out the mega free trade pact has arisen in some quarters

 All the hopes pinned on Prime Minister Modi’s “AtmaNirbhar Bharat” and “Make in India” drives would have been eviscerated had we been in RCEP.
  All the hopes pinned on Prime Minister Modi’s “AtmaNirbhar Bharat” and “Make in India” drives would have been eviscerated had we been in RCEP.

Since the signing of the Regional Comprehensive Economic Partnership (RCEP) agreement by 15 nations on November 15, criticism of India for sitting out the mega free trade pact has arisen in some quarters. Myths have been propagated that deserve to be debunked.  

The first line of attack is that India has hacked at its own feet because remaining outside the pan-regional integration process will hamper India’s economic growth and transformation. This argument is not supported by empirical evidence from previous free trade agreements. Barring the South Asian Free Trade Agreement (Safta), which came into force in 2006, all the other FTAs have produced trade deficits for India.

 

By 2019, India had a deficit of $22 billion with Asean, thanks to the India-Asean Comprehensive Economic Cooper-ation Agreement (CECA), which has been operational since 2010. Likewise, the India-Japan Comprehensive Econ-omic Partnership Agreement (CEPA), in vogue from 2011, and the India-South Korea CEPA, in effect from 2010, have engendered progressively larger deficits for India. Signing these FTAs did increase overall trade volumes between India and its partner countries, but India’s market became more open to imports without reciprocal benefits for Indian exports.  

Liberal proponents of consumer welfare contend that the deficits should not matter as Indian consumers gain from the influx of cheaper foreign-made goods. But the widening trade deficits have adverse implications for India’s macroeconomic stability and ability to strategically plan its economic future.

 

External affairs minister S. Jaishankar explained the crux of the matter by reminding us that past FTAs led to “de-industrialisation” of sectors of the Indian economy by pumping in cheap foreign goods and removing economic incentives to build our own indigenous manufacturing base.

The challenge, Mr Jaishankar rightly says, is “whether India will become a first-class industrial power or not”. Multiple studies have shown that if India joined the RCEP on the bargaining terms we got after six years of negotiations, the already alarming surge of Chinese goods would have swamped India and rendered it permanently uncompetitive and crippled.

 

Already, even without an FTA, China had a worrisome trade surplus of $48.6 billion with India in the 2019-2020 financial year. With China sitting as the 800-pound gorilla in RCEP, which doesn’t prohibit China’s notorious state subsidies to its exporters and doesn’t block Chinese exports rerouted via other RCEP members, India would have committed strategic suicide by entering the club.

All the hopes pinned on Prime Minister Modi’s “AtmaNirbhar Bharat” and “Make in India” drives would have been eviscerated had we been in RCEP. For example, the billions of dollars of incoming FDI flows to India to manufacture consumer electronics for sale in our domestic market and for export would evaporate if our gates were wide open for tariff-free Chinese mobiles, laptops or television sets.

 

Protectionism and import-substitution indeed failed in earlier eras and stunted India from developing world class export-oriented products. But the record FDI inflows and improvements in “Ease of Doing Business” in the Narendra Modi era are rays of hope for a late industrialisation renaissance, which needs at least one more decade before judging its success. In this intervening decade, we ought to be cagey ab-out FTAs involving predatory exporting giants.      

The second myth about India not joining RCEP is that the other RCEP members — the Asean nations, South Korea, Japan, Australia and New Zealand — have been deeply disappointed and India has marginalised itself by abandoning these partners when they needed it the most to counter the Chinese behemoth from within. This too is a misrepresentation. India already has FTAs with 12 out of the 15 RCEP members. Only Australia and New Zealand lack FTAs with India, but its trade with them too has been growing. We have already been quite generous with all RCEP members and remain committed to elevating our strategic partnerships with many of them. Just because we are not in RCEP does not mean India has lost its appeal in the eyes of these countries.

 

Admittedly, there is far greater economic cooperation potential to be unlocked by India with RCEP members other than China. But one must not downplay the defence and geopolitical dimensions of India’s salience in the Indo-Pacific region. The recently strengthened “Quad” security dialogue mechanism has spurred enthusiasm in Japan and Australia, which are speeding up military interoperability for balance in the Indo-Pacific. Japan and Australia may have signed RCEP, but China is far from neutralising the “Quad” or softening opposition from Asean biggies like Viet-nam and Indonesia to Chinese intimidation.  

The present multilateral and multipolar international environment is complex, and countries often hold overlapping memberships in a variety of groups. Owing to the interests of private corporations and big businesses, RCEP members see economic value in trading and investing with China. But there is also deep fear and anxiety among their national security establishments and ordinary citizens about China’s territorial aggrandisement and economic blackmail. This is why, after the Covid pandemic hit, Australia, Japan and India formed the Supply Chain Resilience Initiative (SCRI) to avoid dependence on a single hegemonic power. India is bang in the middle of these new structures and not a sideshow.

 

The third myth about India and RCEP is that we are rudderless if we do not coalesce into the Asia-wide economic connectivity network because the US and Europe will provide scant solace. It is true that India has not had much joy getting market access to Western countries due to their protectionist politics. But trade experts believe India might secure better terms than what was offered in RCEP if it moves forward FTAs with the EU and the Gulf Cooperation Council (GCC). One must be unsentimental in the pursuit of national interests, which is what the Modi-Jaishankar duo is trying to do.

Another heartening shift is that the Europeans want to permanently deploy military assets in the Indo-Pacific alongside the US to restrain China. France, Germany and the Netherlands are advocating accelerated trade and political linkages with democratic nations like India and Indonesia to contribute to rebalancing in the Indo-Pacific.

 

RCEP is not a talisman for India’s economic or geopolitical rise. We should move past what was lost by missing the RCEP bus. There are other conducive regional and global vehicles to propel India as a “leading power”, and it is on its way.

Tags: regional comprehensive economic partnership, rcep, indo-pacific