The Central Government of India is forming a Group of Ministers (GoM) to contemplate on the prospect of India becoming a part of the 16-nation Regional Comprehensive Economic Partnership (RCEP). The GoM will be constituted by the Commerce and Industry Minister, Finance Minister, Defence Minister, and Housing and Urban Affairs Minister. Amid pressure from fellow prospective RCEP members for significant advances in negotiations by the year-end, this step is taken despite reservations voiced by most ministries and departments about India joining the proposed RCEP.
The Concept of RCEP
The RCEP is a proposed Free Trade Agreement (FTA) between 10 ASEAN nations, which include Brunei, Myanmar, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, and Vietnam, and their six FTA associates. These include Australia, China, India, Japan, South Korea, and New Zealand. The proposition aims to encompass a wide array of economic aspects such as goods, services, investment, economic and technical co-operation, Intellectual Property Rights (IPR), rules of origin and competition, and dispute settlements. The collective GDP, global trade, FDI flows, and the total population of these countries represent 25%, 30%, 26%, and 45% of the global totals, respectively.
The Importance of RCEP For India
From an Indian perspective, RCEP holds significant importance. The countries under the RCEP account for approximately 27% of India’s total trade. India’s exports to these countries represent 15% of its total exports while imports from RCEP comprise 35% of India’s total imports. However, India maintains a trade deficit with ASEAN as well as other RCEP partner countries.
The Concerns Around RCEP
As the RCEP proposes to eliminate import tariffs on 90% of goods, many within the Indian Government worry that joining the pact may drastically harm local manufacturing and job sectors. India’s trade deficit with the RCEP bloc escalated from $9 billion in 2005 to $83 billion in 2017, wherein over 60% of the deficit is contributed by China alone. There are worries about China’s $60-billion trade surplus with India increasing further as it inundates the market with cheap goods at zero tariff.
India’s Previous Experiences With Trade Pacts
India’s past experiences with trade pacts have been less than satisfactory. Despite having trade agreements with Asean, Japan, and South Korea, it’s believed that India didn’t get a fair deal on services, its primary strength, under the Asean trade agreement while losing out on market access in goods that negatively impacted domestic manufacturing.
The Way Forward
While discussing the way forward, it is crucial for India to ensure that the RCEP is genuinely comprehensive and not entirely focused on market access for goods at the expense of services where India has a comparative advantage. To make its trade more competitive, India should proactively push for second-generation reforms of its domestic economic policies, including those that reform its factor markets.
