Rejecting RCEP making it tough for India to raise exports: Experts

India’s refusal to join the Regional Com­p­rehensive Economic Partnership (RCEP) — the free trade bloc of 15 Asia-Pacific countries — will keep the count­ry’s exporters out of the world’s biggest and fastest growing trade and economic bloc.

In the last 10 years, the combined imports by RCEP member countries have grown at compound annual growth rate (CAGR) of 5.9 per cent against 4.3 per cent in total world imports during the period. In comparison, goods import by North American countries such as United States, Canada and Mexico grew at a CAGR of 4.6 per cent in the last 10 years while imports by Western Europe grew at an annualised rate of 2.8 per cent during the period.

In 2019, these 15 RCEP countries’ combined imports goods were worth $4.96 trillion. This is against $3 trillion worth of imports by North American countries and $3.4 trillion by Western Europe, according to data by the United Nations Conference on Trade and Development (UNCTAD) (See adjoining charts). India's merchandise imports in the last 10 years grew at a CAGR of 6.6 per cent during 2009-10, rising from $257 billion in 2009 to $486 billion in 2019. Its merchandise exports grew at a CAGR of 7 per cent to reach $324 billion in 2019 against $165 billion in 2009.

Total imports by RCEP members countries such as China, Japan, South Korea and Australia were up 77 per cent cumulatively in the last 10 years, growing from around $2.8 trillion in 2009 to $4.96 trillion in 2019 calendar year. Other key members of RCEP include Indonesia, Vietnam, Malaysia, Singapore, New Zealand, The Philippines, Cambodia and Myanmar.

In the same period, total world imports were up around 50 per cent cumulatively from $12.6 trillion in 2009 to $19.3 trillion in 2019.

As such, RCEP countries accounted for nearly 26 per cent of global imports in 2019, up from 22 per cent in 2009. In comparison, North America's share in world imports was up 40 basis points during the period while the share of Western Europe was down by around 270 basis points during the period. One basis point is one-hundredth of a per cent.

Economists say that the policy decision to stay out of RCEP will make it difficult for India to increase exports which has become an Achilles Heel for the country in recent years. “All empirical evidence suggests that it will be tough for a country to grow exports and the overall external sector without being a member of major free-trade blocs such as European Union (EU), North American Free Trade Agreement (NAFTA) or Association of Southeast Asian Nations (ASEAN),” said Madan Sabnavis, head economist of CARE Ratings.

According to him, membership to the RCEP would have been beneficial to India given the bloc’s economic size and income gap between India and member countries. “Free trade has generally benefitted low-income countries, allowing them to capture a greater share of labour-intensive product market. Most RCEP countries are richer than us and this would have aided our exports,” added Madan. The growth gap between RCEP and rest of the world has furthered widened in recent years. In the last three years, imports by RCEP countries has grown at a CAGR of 8.2 per cent against world import growth of 5.9 per cent. In comparison, imports by North American countries grew at a CAGR of 4.4 per cent in the last three years while imports by countries in Western Europe grew at a CAGR of 5.2 per cent.

The UNCTAD data also suggests that RCEP trading bloc is home to five of the 20 fastest growing countries in terms of import growth — Cambodia, Vietnam, Laos and Brunei. For example, imports by Cambodia, Vietnam and The Philippines have more than doubled in the last 10 years, thanks to a double-digit growth during the period. Together, these three countries imported goods worth $388 billion in 2019–20. This is more than India's merchandise exports that year.

Experts also said that size matters in economy. “The total exports opportunity offered by RCEP is nearly 50 per cent bigger than either North America or Europe and multiples of the opportunity in Africa or Middle East. It will be difficult for India to compensate this loss by joining other trading blocs,” said G Chokkalingam, founder and managing director of Equinomics Research & Advisory Services.