Trade potential

India should reconsider its Rcep decision

Growth in global trade is expected to remain subdued in the medium term, largely because of slower economic growth and increasing geopolitical fragmentation. But this is not stopping relatively small economies from finding new sources of growth. In India’s neighbourhood, Sri Lanka and Bangladesh, for instance, are reported to be considering joining the Regional Comprehensive Economic Partnership (Rcep). The President of Sri Lanka, Ranil Wickremesinghe, in fact, recently said his country had applied for membership in the trading bloc. Rcep comprises 15 nations from the Asia-Pacific, aiming to facilitate the movement of goods and encourage the member nations to look within the region for suppliers by simplifying customs procedures and rules-of-origin laws. For Sri Lanka, which is dealing with an economic crisis, easier access to regional markets could help it become more competitive. For Bangladesh, too, a ticket to Rcep could help compensate for export loss as it exits from the group of least developed countries.

India is the second-largest trading partner of both Bangladesh and Sri Lanka. Joining Rcep would grant them access to markets in the larger Asia-Pacific region. It will also open up markets for China in India’s neighbourhood, and will again raise the question of whether India should reconsider its decision on Rcep. India exited the negotiating-table four years ago owing to concern over the potential increase in the import of cheaper goods from Rcep member countries, particularly China. Broader geopolitical and national-security considerations were also at play. While the defensive Indian viewpoint may appear apt for the moment to many, longer-term considerations demand that India reconsider its decision. Notably, Australia and Japan also decided to join Rcep despite ongoing geopolitical tensions with China. India has clearly let go of a chance to become part of the world’s largest and most dynamic trading bloc, which has the potential to shape regional trade patterns and enhance transnational economic integration. With two other South Asian nations set to join Rcep, India’s opportunity cost will only increase.

However, if India reconsiders its decision, most member nations would likely accept its membership. Besides, as things stand, not joining the group hasn’t helped India contain its trade deficit with China, and it has increased significantly. Being in the group would have given India the opportunity to deal with trade-related issues more effectively, besides opening up markets of member countries. To improve participation in global trade, which is critical in boosting local manufacturing and generating employment, it is important to be part of large global value chains. However, India has been working with a different strategy of higher tariffs, along with fiscal incentives for large manufacturers. Additionally, to compensate for its decision to not join Rcep, India is working on various free-trade agreements (FTA). The gains, however, would be limited, and potential FTA partners would also demand greater access to Indian markets with lower tariffs. To be sure, India will not be able to leverage its export and manufacturing potential by only signing a few FTAs in different parts of the world. Substantial improvement in product quality and export opportunities can be realised through participation in multilateral trading agreements. It is in this context that the question of Rcep would keep resurfacing.