India runs the risk of being cut off from the economies in Southeast Asia and beyond if it says no the proposed Regional Comprehensive Economic Partnership (RCEP) deal, industry body Confederation of Indian Industry (CII), said.
Prime Minister Narendra Modi will sit down with RCEP leaders on Monday, the official deadline for the deal to be finalised. But India has pointed out its displeasure with regards to services trade, market access and safeguards on dumping by China.
Not being part of the RCEP will hinder investments from many countries, thus halting its efforts to increase its integration into regional and global chains, CII said.
However, a report on the RCEP — commissioned by CII and submitted to the government last year — had recommended that India should not reduce tariffs on products, the trade of which is dominated by China, under RCEP talks. Products on which anti-dumping duties are levied, had also been recommended for exclusion from the tariff reduction list. But CII President Vikram Kirloskar has now said any decision of joining an agreement of this size and magnitude must not be based on our concerns with regards to just one country. “A large section of the Indian industry has expressed serious concerns about joining RCEP on the basis of a very genuine reasons, especially pertaining to China. But free trade agreements (FTAs) must be considered from their long-term impact, both on our domestic market and the access it provides. Some of our industry may be domestically focused today, but in ten years would want the access to this most vibrant region,” he said.
The 16-member RCEP has the potential to become one of the largest economic regions, even dwarfing the European Union.
In 2017, RCEP countries contained 47.6 per cent of global population, contributed 31.6 per cent of global GDP and 30.8 per cent of global trade.
India has had mixed experience of deriving benefits from its past FTAs, as compared to the way some other countries like South Korea, Chile, Mexico and now Vietnam have utilised these for their economic benefit, CII said. "The missing link in the entire debate on FTAs in India is the importance of FDI. Unfortunately, in India we have always done the impact analysis of FTAs in terms of export and import and that too bilaterally but never realised how these countries used FTAs to successfully get integrated into the global value chains," the chamber stated.
India’s integration into global value chains continues to be low. According to CII this has been due to preferential agreements not being deep enough vis-à-vis other agreements of its FTA partners. The future momentum for regional integration in Asia-Pacific will draw considerable strength from the conclusion of negotiations for RCEP and the growth of regional value chains facilitated by RCEP through cross-border flows of trade, investment and people, CII said.
Through the RCEP, CII hopes these value chains can be reconfigured as several nations, including developed ones like New Zealand show low backward linkages which India can exploit. However, member nations such as South Korea, Malaysia and Philippines have high trade efficiency as well as established linkages.
“The general perception is that the importance of India is more as a consumer of final product markets. But as RCEP progresses and favourable tariffs and Rules of Origin (ROOs) kick-in, India should become a major hub for coordinating regional value chains through itself – both as a major market for final products and as a location for third-country exports, primarily to the West Asia, Africa and Europe” Kirloskar added.