GP Insights # 181, 11 November 2019
On 4 November 2019, India refused to go ahead with the Regional Comprehensive Economic Partnership (RCEP) deal. PM Modi announced India’s decision to exit the deal in the ASEAN+3 gathering, in contrast to the Malappuram Summit in September, where he seemed positive. According to the joint statement, 15 countries are set to sign the deal in 2020. The document states active cooperation by all the RCEP participating countries to accommodate India by resolving its concerns.
What is the background?
Since 2012, India, in its RCEP negotiations, has dwelt on issues including import restrictions and meeting service sector demands. Also, India has flagged concerns regarding data localisation norms and pushed for shifting the base year from 2014 to 2019 to avoid import surges. The deal if signed would have attracted a sizeable share of imports in Indian markets and restricted market regulation norms and import protection schemes.
Stakeholders, including grassroots economic contributors, have pointed at possible trade imbalances and inequalities if India signs the deal. It’s trade deficit with 11 RCEP nations and China’s voluminous share in the regional free trade structure hints at future economic setbacks for New Delhi.
What does it mean?
India’s decision might have avoided more harm than good. Cheap diary and steel imports from partner countries such as New Zealand, Australia and China could hamper Indian industries adding to the already existing economic slowdown. Similar agricultural and manufacturing traits across the South East Asian region could lead to additional dumping of products in the Indian Markets.
On the positive note, India's exit provides better chances at import protection, advocated mainly by farmers, industrial class and manufacturing groups. While global competition is considered healthy, India's production capability has not been promising for the free movement of global markets in the country. It provides more considerable ground for import restrictions to suit Indian markets. This safeguards India's anti-dumping policies limiting cheap imports and protecting producer interests.
This calls for a makeover in addressing India’s regional economic architecture and paves the way for tailored bilateral FTA’s with selective goods and services. It could be a better alternative for India in availing global and regional economic presence, curbing significant Chinese influence through the grouping.
China has been at the forefront in including India due to its immense market potential. New Delhi must thrive on establishing its economic foothold to protect domestic interests and create a sustainable model for itself.