Can India be part of Asia’s growth story without the RCEP – or China’s trust?
- New Delhi’s rejection of the trade pact was largely driven by concerns about Beijing, with which it is locked in a bitter border stand-off
- Whether India can continue to compete economically in the region could depend on individual trade agreements with other countries
“India has been repeatedly missing the Asian bus, despite our desire to get on board,” Sanjaya Baru, an adviser to former prime minister Manmohan Singh, told The Hindu newspaper. He compared the current situation to the 1990s, when New Delhi decided not to join the Asia-Pacific Economic Cooperation (Apec) – another major trade group, comprising 21 member countries.
China-India border dispute: are both sides breaking the deadlock?
The decision not to join Apec slowed the pace of economic reforms in India and also made several of the group’s members wary of India, which they viewed as overly protective of domestic industries. Although the moratorium set by Apec on taking new members was lifted in 2010, and India has indicated a willingness to join, there has been no unanimity in the trade bloc to include India.
The RCEP, which covers a third of the global population and a combined GDP of US$26.2 trillion, could have been significantly bigger if India – with 1.3 billion people and a GDP of about US$2.7 trillion – were a member. But it pulled out of the grouping last November after seven years of negotiations on the conditions for its membership, arguing its key concerns were not addressed.
Despite Japan’s attempt to broker a deal, it failed because of China’s reluctance to accept India’s terms. “We thought the issues [would] get resolved eventually, but it did not happen,” Kumar said.
As Chinese imports boom, what happened to Modi’s ‘self-reliant’ India?
Since both sides became locked in their worst dispute since 1962 over the unmarked 3,488km border, India has doubled down on efforts to strengthen domestic production and supply chains, and has also placed restrictions on Chinese imports and investments – measures that would go against the RCEP if India were a party to it.
According to India’s former commerce and industry minister, Anand Sharma, staying out of the RCEP was “a backward leap”. Sharma had initiated RCEP negotiations for India in 2012, and his disappointment indicates that in future, other countries will find it difficult to see India as a reliable trade partner.
Biswajit Dhar, professor of economic studies and planning at Jawaharlal Nehru University in New Delhi, said the decision to withdraw became inevitable after the country’s crucial manufacturing, agricultural and dairy industries all came out against membership, although he added that India could have built a firewall between its economic and political engagements with China.
“It may be difficult now as the popular sentiments have gone completely against China after the border skirmishes, but it is an option that must be explored to go forward,” he said.
India’s leaders have sought to defend the decision not to join the RCEP, with external affairs minister S. Jaishankar saying at the Indian School of Business’ Deccan Dialogue last week that New Delhi had allowed subsidised products and unfair production advantages from abroad to prevail, without naming China.
He said the effect of past trade agreements had “deindustrialised” some sectors in the country, but that as India pursued becoming a self-reliant economy it did not mean it was turning its back on the world.
“What we will be deciding now is whether India will become a first-class industrial power,” Jaishankar said.
But Congress party leader and former finance minister P. Chidambaram, who is now a member of parliament, said in a tweet that “Jaishankar’s views reflect the language spoken in the 1970s”. He was referring to an era when India’s reluctance to open its economy resulted in an average annual growth rate of just 3.5 per cent, while GDP growth of other Asian countries and regions – Singapore, Hong Kong, Taiwan and South Korea – blossomed at an average rate of 7 per cent from the 1960s to 1990.
India began its economic liberalisation in 1991 and in subsequent years averaged 8 per cent annual growth, benefiting from the free-trade agreements it signed with other countries.
03:29
RCEP: 15 Asia-Pacific countries sign world’s largest free-trade deal
“India remains relatively closed when compared to other major economies,” Prabhash Ranjan, a senior assistant professor of law at the South Asian University in New Delhi, argued in an opinion piece in The Hindu.
According to Ranjan, India’s applied most favoured nation import tariffs are 13.8 per cent, the highest for any major economy. It also figures in the “very restrictive” category on the UN Conference on Trade and Development’s restrictiveness index. In addition, from 1995 to 2019 India initiated anti-dumping measures 972 times – the highest in the world – to protect its domestic industry.
“By refusing to sign the RCEP, India is now truly in the margins of the regional and global economy,” Ranjan told This Week in Asia. “India’s offer to become a hub for the global supply chain as opposed to China will be severely affected, as any manufacturer who wishes to be part of the supply chains that export to the 15 countries in the RCEP would like to base itself in a country that would enjoy preferential tariffs.”
In the post-pandemic situation, ‘resilience and trust’ rather than value chains would become more important
“In the post-pandemic situation, ‘resilience and trust’ rather than value chains would become more important,” he said.
Significantly, RCEP members have kept the door open for India to join if it so desires in the future. But with New Delhi not being part of any major trading arrangement that involves other major economies in Asia, where does this leave it now?
“That will leave India out in the cold,” former Indian foreign secretary Shyam Saran said in an interview with The Hindu. He also cautioned: “There is this assumption that people have to come to India on our terms. But that, to my mind, is a fairly optimistic assessment.”
