Last opportunity

India can't afford to ignore RCEP

The countries in the Regional Comprehensive Economic Partnership (RCEP) have again sought to determine if some agreement can be found by which India can join the trading bloc. India was supposed to be part of the grouping, which is centred around the Association of Southeast Asian Nations (Asean), but the government pulled out at the last moment when some of its demands were not met by its negotiating partners. The government’s concerns, particularly when it comes to imports from China that may receive hidden subsidies, cannot be dismissed out of hand. Certainly, the RCEP nations and India will have to try and meet halfway when it comes to market access demands and some safeguards against Chinese imports. On the former, at least, there appears to be some hope of a compromise. 

The problem is, however, that there are apparently divisions within the government on how to proceed. The commerce ministry — in spite of being generally sceptical about trade agreements in recent years — is nevertheless willing to at least examine the possibilities being opened up by the suggestions coming in from the RCEP nations. But the Ministry of External Affairs is apparently holding on to a hard line against India coming to any agreement with them. Again, there are good reasons for the foreign ministry’s concerns. There are some who would view India joining the RCEP as ceding ground to a Beijing-led trading order. The RCEP was, in this view, a counterweight to the US-led Trans-Pacific Partnership (TPP) — and although the US under President Donald Trump dropped out of the TPP, India choosing to join the RCEP might still be seen as a signal. Given the state of relations with Beijing at the moment, the foreign ministry might well feel that this is not the time to make any such concession. 

Yet in the end India’s larger interests must be allowed to prevail when it comes to economic policy. And here there is a clear path that India must follow. The fact is that, especially given the disruption brought to the global trading regime in the wake of the weakness of the World Trade Organization and the spread of the Covid-19 pandemic, India must seek at all costs to find a way to embed itself in supply chains. For that, like it or not, the RCEP is the only game in town. Some policymakers have argued that free-trade agreements signed over the last decade and more have not helped India. But that is not the fault of the agreement — it is the delay in bringing in competitiveness-enhancing reform that is to blame. The government has in any case made it clear that such reform is now on the agenda. Opening up to trade with the RCEP nations will introduce further pressure to increase competitiveness, and also be a clear signal that the “self-reliance” agenda currently being discussed has nothing to do with autarky, but is more about increasing domestic productive capacity. India cannot afford to miss the bus on manufacturing exports at this last moment of opportunity that has been provided. The government should settle its internal differences and revisit the possibility of joining the trading bloc.