India favors bilateral free trade agreements over China-led RCEP
India consciously rejected the China-focused Regional Comprehensive Economic Partnership (RCEP) in favor of beneficial trade deals with key economies such as the United States and the European Union (EU), where Indian products and services are competitive, said three officials familiar with the matter. . Monday.
Narendra Modi’s government thwarted Chinese designs to use RCEP to gain unfettered access to the vast Indian market at the expense of Indian micro, small and medium-sized enterprises (MSMEs), farmers and startups, officials from three ministries said on condition of anonymity.
While RCEP states took the unusual step of adopting a separate ministers’ statement on India’s future involvement in the trade deal when the deal was signed on Sunday, people familiar with the developments said there are no new efforts in the works. march by Asean or New Delhi in this regard. .
People said Japan, which constantly pushed for the inclusion of India in RCEP to ensure a balanced outcome, spearheaded the drafting of the ministers’ statement that recognized India’s strategic importance in creating “a region of value chains yet deeper and expanded ”. One of the people said: “Japan will continue to play a leading role in the future participation of India in RCEP.”
One of the three officials with direct knowledge of the matter said: “It is well known that RCEP is not profitable enough without India. But India cannot commit to any trade bloc led by China, which is known worldwide as an aggressor. Furthermore, it is a direct threat to the sovereignty and territorial integrity of India ”.
The 10 members of the Association of Southeast Asian Nations (ASEAN), Australia, China, Japan, New Zealand and South Korea signed the world’s largest free trade agreement in a virtual ceremony hosted by Vietnam on Sunday.
More than a year before the signing, Prime Minister Narendra Modi noted India’s decision not to join the RCEP, saying at a summit in Bangkok in 2019: “When I measure the RCEP agreement regarding the interests of all Indians, I do not get a positive answer. Therefore, neither the Gandhiji Talisman nor my own conscience allows me to join RCEP.
China’s official Xinhua news agency said on Monday that India had made a “strategic mistake” and “missed the bus” to long-term growth by not signing the deal.
Also read: RCEP agreement that India did not join the booths signed now. Whats Next?
“The Chinese outburst shows how India has foiled Beijing’s design to invade the Indian market,” said a second official. “India will avoid joining agreements, which are actually free trade agreements (FTAs) stealthily with countries like China,” said the official directly involved in trade affairs.
“Unlike previous governments, the Modi government will not succumb to global pressures and will not sign uneven, skewed and useless deals,” said a third official. The government has started a comprehensive review of all FTAs, as most of them are “heavily biased against” India.
“India’s trade deficit with the RCEP states increased from $ 7 billion in 2004 to $ 78 billion in 2014. India’s deficit with China is more than $ 50 billion. India’s domestic industry is still recovering from dumping and cheap imports, ”said the third official.
India eliminated tariffs on 74% of ASEAN lines, but richer countries like Indonesia eliminated tariffs on only 50% of lines for India and Vietnam at 69%. This led to major trade distortions, the third official said. “Therefore, to sign the RCEP, India must first solve the problems of the previous FTAs and second, ensure a balanced, fair and beneficial framework in the RCEP,” he added.
While delivering a lecture on Monday, Foreign Minister S Jaishankar addressed similar concerns without naming the RCEP. He said the effect of trade agreements signed since India’s 1991 economic reforms had “been the deindustrialization of some sectors.”
“The consequences of the futures would lock us into global commitments, many of which would not benefit us. Those who argue by emphasizing openness and efficiency do not present the whole picture. This is equally a world of non-tariff barriers of subsidies and state capitalism. Without exaggeration, what we will decide now will determine whether or not India will become a first-class industrial power, ”said Jaishankar.
However, a joint statement by the leaders of the 15 RCEP states said that they would “highly value India’s role in RCEP and reiterate that RCEP remains open to India”. India’s membership will be welcomed in view of “its strategic importance as a regional partner in creating deeper and expanded regional value chains,” the statement added.
A diplomat from an Asean nation, speaking on condition of anonymity, said: “It costs nothing to keep the door open for India and we believe that, in time, it will be up to India.” [whether to join RCEP]. ”
Read also | India will miss the bus to economic development by not joining RCEP: Chinese state media
Ram Singh, a professor at the Delhi School of Economics (DSE), said India’s decision not to sign the RCEP agreement was “practical and prudent” in terms of economic and geopolitical circumstances. “The agreement would have reduced import tariffs by 80-90% of the goods. These provisions will lead to the flooding of Indian markets with cheap products, especially from China, hurting our industries in the process. Issues such as the lack of a framework to address the trade deficit and the opening of services also made the deal less attractive for India, ”he said.
“India is the third largest economy in the RCEP region. Therefore, access to the Indian market is important for RCEP countries. India can also benefit from participation, but only if we join the group after addressing the constraints to the competitiveness of our industry and agricultural sector, ”he added.
Experts said that while RCEP was not suitable for India in its current form, New Delhi can explore other options in Europe, America and Africa. Adil Zaidi, partner and leader, Economic Development Advisory at EY India consultancy, said: “India will have to build on its strengths and negotiate trade agreements with existing consumer centers in America and Europe, as well as emerging ones in Africa. It is equally important to monitor the imports of alternative routes under Asean, SAFTA and other FTAs ”.
“With GoI’s [Government of India] Focusing on ‘Atamanirbhar Bharat’, it is important for India to consolidate demand and drive factors of production in favor of domestic manufacturing. Therefore, India must prepare not only to meet domestic demand, but also to improve exports, ”said Zaidi.
Divakar Vijayasarathy, founder and managing partner of consulting firm DVS Advisors LLP, said the RCEP deal was not favorable for India, particularly its farming community. “The RCEP was a politically sensitive issue as access to the Indian dairy market would have been available to these countries upon signing. The dairy market in India is very disorganized and does not have the depth to compete with companies from other countries. ”
“In addition, greater access to India’s service sector was negotiated without any success and the government was also concerned about FTAs that led to trade deficits. All these problems lead India to withdraw from the RCEP, ”he said.
However, he said that India cannot stay out of global markets. “To be successful in the mission of making India a manufacturing powerhouse under its Athmanirbhar Bharat program, FTAs would be an important cog in the wheel, otherwise global companies would choose countries that have favorable treaties that give access to many economies. for your operations. ” Vijayasarathy said.
“FTAs are definitely double-edged; they would increase export demand but at the same time challenge domestic industries. The national industry has to mature to face global competition ”, he added.