Further curbs on Chinese imports and a trade deal with the United States may follow India's move to pull out of the Regional Comprehensive Economic Partnership (RCEP).
China figured prominently in New Delhi's move on Monday to pull out of the pact after 7 years of back and forth negotiations. India said on Monday that a lack of assurance on safeguards to protect the domestic industry from dumping by China and no credible promise by Beijing to allow market access to Indian goods were reasons it was quitting the pact.
As a result, the government will double down on its efforts to curb imports from China, which were more than $70 billion in 2018-19, senior officials in the know said. "Presence of significant amounts of major non-tariff barriers that are publicly known and China's unwillingness to remove them were major hindrances towards a treaty," a trade expert said.
India had also feared that rules of origin would continue to be flouted by Chinese producers, who ship high-value goods such as mobile phones and electronics through Vietnam and other Asean nations, to dodge relatively higher tariffs.
Possible US deal
The latest twist in India's policy on foreign trade may, however, benefit the US. "US President Donald Trump has over the past two years continued to put pressure on India for a broad based free-trade agreement (FTA) talks. These may start sooner rather than in the distant future," a senior trade expert said.
Case in point: During Prime Minister Narendra Modi's last visit to the US, Trump had promised a trade deal with India “very soon”, and a larger deal down the line. This was followed up by Commerce and Industry Minister Piyush Goyal last month batting for 'closer trade engagement' with the US. "India and the US have resolved most of their broad trade differences and the countries must look at a much larger deal like a bilateral agreement," Goyal had said in no uncertain terms.
While both nations are sorting out multiple fights over the reduction of tariffs and market access, trade negotiators have been trying to create a 'trade package' encompassing multiple sectors. The package consists of mutual trade concessions that provide an amicable solution to grouses from both sides. India is considering the dismantling of its current price cap regime for coronary stents with a trade-margin policy, while it may also allow lower duties on import of certain information and communication technologies products such as high-end mobile phones and smart watches from the US. Further, bilateral talks are expected soon.
Over the past few months, the government has upped the ante against the previous United Progressive Alliance regime, bashing it for compromising India's trade interests. The government had also remained cautious on not repeating a deal similar to India's FTA with the Association of the Southeast Asian Nations (Asean) bloc. India's revenue foregone due to New Delhi's first major multilateral deal has more than doubled to nearly Rs 26,000 crore in 2018-19.
Being the basic framework of the RCEP deal, the FTA with the 10-nation grouping came into effect in 2010. Exports to the 10 economies stood at $37.4 billion in 2018-19, up by 9 per cent on year. On the other hand, imports were higher at $59.31 billion, up by 25 per cent from the previous year's $47.13 billion.
The figure has strengthened calls for a more stringent review of existing FTAs with South Korea and Japan, which haven't been able to reduce India's trade deficit with these nations. On the other hand, the revenue department feared the tax loss may be as high as Rs 60,000 crore for the proposed RCEP.