Why Modi's decision on not joining RCEP makes a lot of sense

India has a trade deficit to the tune of $184 billion with the 15 member countries.

 |  4-minute read |   06-11-2019
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When it comes to India's role in the Regional Comprehensive Economic Partnership (RCEP), have we just witnessed the seven-year itch, if not a full-fledged break-up? The build up and bonhomie notwithstanding, India has just announced its refusal to join.

Modi's motive

The third RCEP summit took place in Bangkok, on the sidelines of the Association of Southeast Asian Nations (ASEAN) and East Asia Summit (EAS). At present, there are 15 signatories to the proposed free trade agreement (FTA) group - 10 ASEAN members, plus China, Japan, South Korea, Australia and New Zealand. RCEP negotiations began in 2012. During the current round of talks, India was widely expected, even reported, as willing to join. However, as Prime Minister Narendra Modi announced on Monday, November 4, "The present form of the RCEP Agreement does not fully reflect the basic spirit and the agreed guiding principles of RCEP. It does not address satisfactorily India's outstanding issues and concerns."

What was the cause for this last-minute knockback? Modi himself expressed some of India's reservations rather eloquently, invoking in the process, the father of the nation: "Neither the talisman of Gandhiji nor my own conscience permit me to join the RCEP."

modi-690_110619104858.jpgPrime Minister Narendra Modi with New Zealand PM Jacinda Ahern, Chinese Premier Li Keqiang and Thai PM Prayuth Chan-Ocha at the RCEP summit in Bangkok. (Photo: Reuters)

Had India signed on, the 16-member group would boast of over 45 per cent of world's population and nearly 40 per cent of its GDP. Even without India, RCEP could be a mighty player in the world's economic and political affairs. What, then, made us back out?

India has a trade deficit to the tune of $184 billion with the 15 member countries. This group accounts for 34 per cent of our imports, while our exports to them only amount to 21 per cent of our total exports. Joining RCEP, it was feared, might have exacerbated this deficit even more, our major trading partner and threat being, of course, China. Apart from the perennial dread of cheap Chinese products flooding Indian markets, this time the anxiety was over the impact of the agreement on India's poor and marginal farmers and milk producers.

Farm products from Australia, milk from New Zealand, palm oil from Malaysia, and so on, would affect these vulnerable parts of our population, it was argued. Hence, Modi's reference to Gandhi's talisman: "Recall the face of the poorest and the weakest man whom you may have seen, and ask yourself, if the step you contemplate is going to be of any use to him."

Scope for change

However, given India's push for 'Make in India' and increasing our share of global trade and exports, is this really the right step? Haven't we been harping on South-South economic cooperation, not to speak of our 'Act East' policy? How is India going to be a $5 trillion economy if it refuses to join FTAs and economic cooperation agreements? Are we afraid to compete? Worse, did protectionist lobbies and political pressures force our retreat? On the other hand, how true is it that India has taken a principled position as dictated by our self-interest? What, then, about the PM's higher moral stance in invoking Gandhi's talisman? Is not joining RCEP a virtuous pro-poor stance? As is usual in complicated matters, all of the above are true in lesser or larger measure. Political pressures from the Congress, the main Opposition party, as well as election results in Maharashtra and Haryana would surely have affected the government's decision. Especially given rising rural and under-employment, not to speak of farm distress and suicides.

Similarly, pressure from protectionist lobbies in the Bharatiya Janata Party and its ideological allies such as the Swadeshi Jagran Manch might have also played a role. These groups distrust the free market and question the benefits of globalisation. Another view is that despite the positive start to the discussions, India felt betrayed at the end. Some of our officials were dismayed, if not livid, over the language of the agreement, which did not reflect India's overriding apprehensions.

Time to scale up

India is rightly wary of its domestic manufacturing being throttled by China. But we should also avoid masking our inefficiency and incompetence under the guise of taking care of our poor. The poorest of our poor, whether they are rural or urban, are least affected by global competition. It is only deeply entrenched and powerful lobbies who can deliver votes or control policies that stand to lose. These include milk cooperatives and farmers' lobbies. Why shouldn't they compete or improve in the face of alternatives? In fact, Indian dairy and farm exports need to increase substantially. Likewise, to give another example, this time a domestic success story, why can't Baba Ramdev's Dant Kanti aspire to be a global brand like Colgate or Crest?

The silver lining is that this is not the end of the road for India when it comes to RCEP. We can always join later. While our tough negotiators at the ministry of external affairs will not back down from our demands, we must focus on how to persuade the other signatories to make our late entry easier. Meanwhile, the Indian economy, fortunately much more self-reliant, dependent more on domestic production and consumption than others, can afford to wait it out.

(Courtesy of Mail Today)

Also read: Why Riyadh reposes faith in Narendra Modi

Writer

Makarand R Paranjape Makarand R Paranjape @makrandparanspe

The writer is director, Indian Institute of Advanced Study, Shimla. The views are personal.

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