India had no option but to withdraw from RCEP

Jatin Desai
Sunday, 10 November 2019

India finally opted out of the Regional Comprehensive Economic Partnership (RCEP). Prime Minister Narendra Modi announced this decision on November 4 at RCEP summit held in Bangkok.

India finally opted out of the Regional Comprehensive Economic Partnership (RCEP). Prime Minister Narendra Modi announced this decision on November 4 at RCEP summit held in Bangkok. The PM referred to Mahatma Gandhi in his address while announcing the withdrawal, when he said, “Neither the talisman of Gandhiji nor my own conscience permits me to join the RCEP. The statement issued, at the end of the third summit and after 27 rounds of negotiations, announced the end of the negotiations. Now, India is not a part of the agreement but can join later.”

India’s decision was not totally unexpected. The pressure was growing on the government not to sign the RCEP agreement as it will affect various sectors. Till last month, the Indian government was in for the agreement. Commerce and Industry Minister Piyush Goyal made a statement in Nagpur, “If India remains out of RCEP, we will be left isolated from this large trading bloc. 

The trade among RCEP countries is about $2.8 trillion. Had India signed, it would have been the largest free-trade bloc covering around 45 per cent of the world population, nearly a third of global GDP and 30 per cent of global trade.

The agreement is now between 15 nations viz Association of South-East Asian Nations (ASEAN) countries Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore and Thailand and five others Australia, China, Japan, New Zealand and South Korea. The Congress, Left parties and even right-wing organisations like Swadeshi Jagran Manch were against signing RCEP.

Various farmers and workers’ organisations were on the road demanding not to be part of the RCEP alleging it will affect them worse. We regularly use tariff to protect our consumers, farmers and other sectors. Just a couple of days ago, the government of India decided to import onions from Egypt and Afghanistan to counter growing prices. Earlier, the government had ban onion export to check the rising prices. Ban on exports affects farmers. The agricultural sector is the most vulnerable. They find it difficult to compete in the global market.

China is a major player in the RCEP. India has bilateral free-trade agreements (FTA) with many nations of the RCEP. India’s trade with ASEAN and Japan has increased post-FTA. However, it led to more import than export. India’s export to the RCEP countries is 15 per cent of its total exports while the import is around 35 per cent of its total imports. The result is the trade deficit. India’s trade deficit with China is about $53 billion.

India’s contention was the agreement is mainly unfavourable to it’s agrarian and services sector. There was also an apprehension that the trade deficit with China would have increased massively. 
If India had signed, it would have flooded the Indian market with Chinese goods. There was fear that China may re-route its goods via other RCEP countries. India was also worried about the lack of safeguard measure to check against import surge. Thus, it is quite clear that the RCEP would not have benefitted India.

The dairy sector is pleased with the decision. Dairy giant Amul welcomed the Centres’ decision and said it will protect the interest of 10 crore dairy farmers. The dairy industry is successful in India and especially in Maharashtra and Gujarat. As the agreement offered zero-duty imports, the dairy sector would have found difficult to compete with New Zealand and Australia.

At the same time, the fact is India missed a major global FTA network. The message goes to the global community, that India continues to prefer its protectionist policies at the cost of the global trade network.

 India needs to strengthen its domestic economic, agrarian policies and see if we are able to compete with other nations in the international market. Export needs to be increased. The rise in exports can only reduce the trade deficit.

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