Rediscovering integration: World Bank argument on trade is worth hearing

Besides the argument that India must re-evaluate its approach to trade pacts, including the RCEP, other in-progress deals like those with the EU and the UK, must be the targets for political attention

In the latest edition of the World Bank’s “India Development Update”, the multilateral institution argued that, despite challenging external conditions, India’s medium-term growth would be relatively strong. The Bank’s forecast for growth in 2024-25 is 7 per cent, marginally below what the Reserve Bank of India (RBI) currently expects, but in line with many market forecasts. Yet the report also highlighted one major way to deal with “challenging” external conditions: Using trade links. Although India has boosted competitiveness domestically, including through investment in infrastructure and digitising various trade formalities, its overall trade policy remains shackled by an uncertainty about the possibility of and benefits from export growth.

While tariff and non-tariff barriers have risen over the past decade or so — a point also made by the World Bank — the problem remains that India is still to conclude major trade deals. Its agreements with Australia and the European Free Trade Association — essentially Switzerland and Norway — are relatively shallow. The former is only an early-harvest deal, and attempts to deepen it into a proper trade agreement are still ongoing. Meanwhile, deeper deals with really consequential trading powers — the European Union (EU), for example — are being held back. The benefits of a deep trade deal with the EU, and the parameters of such an agreement, are hardly difficult to comprehend. In this context, India’s determination to protect every single sector and outdated business model in negotiations is confounding.

The World Bank report specifically mentions regional integration as a problem India needs to address. There is some truth to this concern. Its position in South Asia limits some forms of connectivity, given the geopolitical tensions that India must contend with to its west. But trading integration to India’s east has also been limited. The “India Development Update” argues in particular that India must re-examine the benefits of the Regional Comprehensive Economic Partnership (RCEP). While India participated for years in the RCEP negotiations, it eventually withdrew at the eleventh hour. From the point of view of New Delhi’s strategists, the problems with the RCEP have not changed: The bloc continues to be Beijing-centric, and puts into place a trading network that increases China’s national strength. But, from an economic point of view, the arguments seem harder to defend.

India already has trade agreements with almost all RCEP countries. Given the integrated nature of today’s supply chains, products made in those other countries will naturally have large amounts of Chinese value added. Foreign investors are happy to enter into RCEP value chains because they recognise the benefits of frictionless trade between the multiple economic dynamos of East and Southeast Asia. India has voluntarily chosen to stand outside this system, even as countries like Vietnam benefit from it. It now appears, as the World Bank points out, that countries like Bangladesh will seek greater integration into the RCEP and other plurilateral agreements. This will further freeze out India. The World Bank’s broad argument that India must constantly re-evaluate its approach to trade agreements, including the RCEP, is well taken. And, certainly, other in-progress deals, such as those with the EU and the United Kingdom, must be the targets for greater energy and political attention.